Master of Business Annihilation

After reading a number of recent articles on the decline of American Industry and the rise in MBAs, including this recent article in Time on why a rise in MBAs coincided with the fall of American Industry, I’ve decided that what MBAs were really being trained for was Annihilation of the economy.

I have to agree with Bob Lutz, who, in his new book on Car Guys vs. Bean Counters: The Battle for the Soul of American Business, says that we need to fire the MBAs and let engineers run the show. After all, who else would insist that a Cadillac ashtray be designed to function at -40F (which means that it won’t function at normal temperatures and will stay closed unless you’re in North Dakota, Northern Maine, or Canada in the middle of winter).

Just imagine Apple with an MBA on top, like Brooke Crothers did. There’d be no iPad and no iPhone — just netbooks and Motorola Rokr clones to take their place. After all, if you’re a MBA, all products have to be low risk, devoid of inspiration, and easy on the balance sheet. And if you’re an engineering pitching a MacBook Air to an Executive MBA for the first time, you know you’re going to hear “What? You’re saying you want to build a unibody laptop out of one piece of aluminum with only a few connectors? Do you know how much that will cost to build? I don’t see anyone else doing it? HP? Sony? And who’s going to buy it? Are you brain-dead?. And then when you try to pitch the iPad, you’re likely to get a “Hold it. Stop. I’ve heard enough. 10 inches but no physical keyboard? What would anyone use it for? Just buy a laptop. And we already make those. And I suppose you’d want to make that out of aluminum too with almost no ports. What rock did you crawl out from under? Where’s your cost argument? Didn’t you get the memo?“.

In other words, MBAs are increasingly trending toward the short-term, myopically balance-sheet-driven management that has infected American business. And while I’m all for mathematical modelling, game theory, and complex statistical analysis, they have their place. And their place is to reduce sourcing cost, not to restrict product innovation. Before the MBAs took over in the late 70s, the leading companies spent most of their time and money on new technologies to create the best possible products or service on the if you build it better, the customers will come philosophy. Which, if you look back, worked great for almost a century. Then came the MBAs. And now entire industries, like the automotive sector, are in decline.

And it’s all because of MBAs and their balance-sheet-driven management that is focussed on the quarterly numbers. As the TIME article notes, this just results in planning that’s reactive rather than smart: force the highest-paid engineers to retire, even if they are the best, and reduce payroll costs across all divisions rather than invest in the ones that are pushing the New New Thing through the pipeline. And when your brightest engineer, like your top coder, is many times more productive than an average engineer, as she is the one coming up with great new product designs, lean process reductions, and sustainable designs (that your marketing department can go goo-goo ga-ga over), this is just stupid.

Moreover, it’s ultimately their focus on the quarterly numbers that is responsible for the extended jobless recovery that we are undergoing right now. After all, as Jeffrey Immelt told a jobs summit at the U.S. Chamber of Commerce, responsibility for hiring lays with business. Business have to take action — like taking some risks, and thinking about bringing back jobs that had been moved overseas.

And this, of course, is precisely what the MBAs are advising against. Taking risks means risking the quarterly numbers, moving jobs back means, at least initially, increasing payroll cost (even though, with good ol’ American ingenuity, productivity might more than make up for it over the long term), and going first means breaking with the pack that is now blaming debt ceiling uncertainty for the jobless recovery instead of their own incompetence.

And while a change in government policies, such as new free trade agreements, a reform of visa rules, and an overhaul of procedures for permitting new projects will help, they are not hindering the average business. There’s often an alternative source for raw materials, products, and services where a free trade agreement is in place. The visa limits are high enough at the present time, considering no one is hiring anyway. Plus, if more American firms would follow Blum Inc’s example and build their own Apprenticeship program, they would have more than enough talent at home to choose from. And given the current administration’s need to create jobs, there is a real interest to make sure projects are permitted by any organization that follows all the rules. (This means you will need an expert in red-tape, but that will always be the case. Government is not ever going to regulate themselves out of the way.)

There’s just no evidence to the contrary. MBAs are the Masters of Business Annihilation.