DOMINANT LOGIC OF ECONOMISM

VS.
IDEAS FROM PROF. PRAHALAD
Sasanka Sekhar Chanda
September-October 2018

Document created by Sasanka Sekhar Chanda. For unlimited non-commercial use by

students of the CKPS course. The Author accepts no liability for errors and omissions.
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Content
Economism in management practice – Origins
Dysfunctional management practices arising from
Economism
Organizational failings from Economism in
Management practice
Contribution of Prof. Prahalad in showing an
alternate, fruitful path

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Origin of Economism in management practice
Economism, or grafting of ideas from Economics into management theory and practice
originates in:
A. The attempts by the Economics discipline to claim scientific basis by mimicking
successful theories of Physics (and management studies mimicking Economics)
• Principally, Newton’s Laws of Motion and law of conservation of mass/energy

B. Seeking mathematical tractability, often at the expense of common sense

C. Imitating Economics’ appetite for easy math
• As evidenced by fascination for imposing equilibrium-seeking as goal state for inquiry
• Which, in turn, allows some rudimentary calculus to compute stocks and flows, but imposes
that underlying functions be continuous and differentiable, THEREBY
• Ruling out considerations of irreversibility, order creation under disequilibrium etc. all of which
require more difficult math—for example use of the Hermitian operator to explain non-unitary
transformation between dynamics and thermodynamics—recall Prigogine 1977—OR
computational/algorithmic approaches
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 Economism breeds questionable
constructs in management studies
Some questionable constructs get imposed in the manner and content of inquiry into
management phenomena due to economism
An objective of achieving efficiency is given supreme status. Efficiency is always calculated
narrowly, based only on past knowledge.
• Efficiency formulae as {money out / money in} fails to recognize a range of inputs by considering them
to remain the same regardless of managerial practices in place

Near term profit-maximization is deemed the only worthwhile activity

• Despite the fact that over-reliance on past knowledge—as happens in determining
strategies for maximizing near term profit—may be unwise AND
• Even though maximization may be impossible on account of bounded rationality
AND
• Even if such focus hurts the prospects of long term survival
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Questionable constructs from Economism in
management studies, contd. …
Learning involving risky experimentation—for the purpose of acquiring
knowledge and taking better decisions—is kept out of scope
Focus is mostly on codifiable knowledge; incorporation of effects of tacit / non-
codifiable knowledge is largely kept out of scope (can’t do math!)
Self-interest is taken as the only human drive of importance in organizational
functioning
• Other relevant drives—identity and belonging, camaraderie, stewardship,
altruism—are largely kept out. (can’t do math!)
• Other-regarding & process-regarding aspects get ignored, creating painful
work conditions
• Coercion and surveillance advocated as necessary mantra for organizational
success 5
 Dysfunctions from Economism in
management theory and practice contd. …
There is an overemphasis on control. Control measures (for example constant
surveillance of employees’ actions) are derived only from codifiable knowledge;
• control measures are non-existent when tacit knowledge or immeasurable dimensions are
involved
• A discussion on fostering creativity and learning and application of such is missing
• Discussion of transformation of tacit knowledge to codified knowledge, and the underlying
employee-friendly support structures required is shoved out of view

To transfer theories that work for lifeless particles, particle-like behavior is ascribed to
social actors in the organization
• However, unlike for particles, the same stimulus may elicit different response in different
humans
• Not all human outcomes emerge from acting alone. Many actions emerge from social
relations, for instance consultation between humans

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Economism in management theory results in many kind of
organizational failings
… that have been referred to, in Prof. Prahalad’s work
Limited efficacy of industry analysis
Irrelevance of the advice to pursue only one from differentiation and cost
leadership approaches
Limited credibility of senior managements attempts to externalize the reasons for
failure
• Fiscal policy, Unions, Exchange rates, protectionism

Futility of inspiring stories of leadership by individuals or excellence achieved by

companies
• (Sculley-Apple, Iacocca-Chrysler, De Benedetti – Olivetti, Welch-GE etc.)
• Most of Peters & Waterman’s excellent corporations bit the dust shortly after
book release
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Contribution of Economism in organizational failings contd…
Dubious empirical bases of typologies, laundry lists, Heuristics peddled by consulting
firms
• For example, 8 Rules for excellence, 7S, 5 competitive forces, 4 product life-cycle
stages, 3 generic strategies, ad-hoc 2X2 matrices
SBU mode of organizing killing off investment in core competence and global brand
and trapping human resources in outcomes having lower effectiveness
• For example, “Be #1 or #2 or else” kind of command from the CEO is futile without
corporation-wide investment in global branding and core competencies
Dehumanizing employees by denominator management (layoffs, plant closures)
• Surrendering the option of tapping employees’ intelligence to improve and
innovate.
• Coercion and surveillance create dehumanized employees, who extend perfunctory
compliance; innovation and cooperation get driven out
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 If Economism is to be discarded, what should be done instead?
Prof. Prahalad’s guidance
• Prof. Prahalad’s work seeks to shift focus from away equilibrium-seeking theory and
practice of management to emergence of order, by coming into being of dissipative
structures, that function as stable entities in disequilibrium, by virtue of developing
fruitful energy exchange protocols with the environment
• Above approach frees management studies from the tyranny of dubious prescriptions
arising solely from mathematical tractability requirements imposed by a dominant
logic of economism
• Provides due recognition to the phenomenon of irreversibility (Th. 2nd law), ever
present in social and organizational life
• Strategy actions get fashioned by irreversible commitments in anticipation of and to
shape an imagined distant future. Better the corporate perspective, higher is the
probability of success.
• Creation of time-compression diseconomies to imitation constitutes the chief
source of benefit Continued .. 9
 Continued from previous slide
• Likewise, the key to competitive judo (warfare) comprises retiring the benefits of
competitors’ large irreversible investments ahead of time: involving ecology shaping,
changing rules of game, and unfastening loose bricks, spreading out from under-
defended niches, with layers of advantages

• Consistency of resource allocation decisions around a strategic intent, where

aspirations are out-of-proportion to resources. Stretch and leverage of resources to
carry out one corporate challenge at a time

• Large share in the worldwide manufacturing capacity in core products (that go into
many different end products) is the source of sustainability in a dynamic environment,
as well as source of funds for carrying out basic research, harmonizing technologies,
and regenerating core competencies. Miniaturization (variance reduction) often drives
learning & process research.
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Continued ..
 Continued from previous slide
• Learning and experimentation get an important role, lowering
dependence on past knowledge. Managers’ key job is to facilitate fast
learning to create and get into new products & markets.
• Intellectual involvement of employees in their own work and
enhancement of work conditions and output is key to obtaining
superior results.
• Training in sophisticated processes and technologies (for example
statistical process control) is an enabler
• Not only is motivation higher, human embedded excellence is very
difficult to discern and imitate
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