Questioning the Basic Assumptions of Management Theories

After the great corporate scandals in the United States that we all know (e.g.: Enron) and after the consequent emanation of laws such as the famous Sarbanes-Oxley Act, Indian professor and management guru, S. Ghoshal (in the picture) wrote a sharp article entitled Bad Management Theories are Destroying Good Management Practices. In this interesting article he criticizes the scientific pretense of some of the most famous management theories (such as Transaction Cost Economics, Agency Theory, Game Theory, etc... ) and most of their basic, underlying assumptions. According to the Indian professor, the effects of these thoeries are already clear in the title, but I'll say more about that later.

First of all he starts by asserting that the fact of studying management as if it was a "natural science" (trying to discover patterns and laws) has lead to "the exclusion of any role for human intentionality or choice". Therefore little or no space is left, for example, to ethics and morality. Furthermore, he claims, this approach ignores some of the basic differences between different academic disciplines. The main distinction here is between natural sciences and humanities. Ghoshal claims that this "pretense of knowledge" has undoubtedly led to some benefits, but also that the costs have been to high.

He argues that theories in social sciences tend to be "self fulfilling": "A theory of subatomic particles or of the universe— right or wrong—does not change the behaviors of those particles or of the universe. [...] In contrast, a management theory—if it gains sufficient currency— changes the behaviors of managers who start acting in accordance with the theory. A theory that assumes that people can behave opportunistically and draws its conclusions for managing people based on that assumption can induce managerial actions that are likely to enhance opportunistic behavior among people".

After that he later attacks the "ideology-based, gloomy vision" of these theories. Basically all these theories have their departure point in negative assumptions about human beings and institutions. Our Homo Economicus is basically a rational, opportunistic, self-interested, greedy and benefit maximizer being. As Friedmann suggests, his last and foremost important goal as a manger is to create shareholders value. Nothing else. In this regards, Ghoshal writes: "Combine agency theory with transaction costs economics, add in standard versions of game theory and negotiation analysis, and the picture of the manager that emerges is one that is now very familiar in practice: the ruthlessly hard-driving, strictly top-down, command-and-control focused, shareholder- value-obsessed, win-at-any-cost business leader [...]". These assumptions are by now part of our common sense. But, are we really all like that?

The results of teaching such theories would be dramatic. Corporate scandals would have occurred mainly because of this dangerous "mental programming" that mangagers have received during their study years in business schools and because of the world view this way of thinking promotes.

Indeed the article makes some very strong statements. When I first read it, I was like "WOW! I had never thought about that!. Could it really be like Ghoshal writes?". Surely I am not sufficiently strong in the field to claim whether Ghoshal is right or wrong. Probably he is neither right nor wrong. I also think that some of the causal links between management thoeries and managers' behaviour have to be investigated. But, overall I think that his article is really interesting and engaging because it challenges most of the "great thoeries" that we have learned at school and that today are so embedded in managerial common sense. Moreover the mushrooming of disciplines such as "Business Ethics" and "Corporate Social Responsibility" in Business programmes is undoubtedly a symptom of the shared necessity to rethink business and business-related practices from a different perspective.

If you are interestend in the article, here is the bibliographic reference:

Ghoshal, S. (2005): Bad Management Theories Are Destroying Good Management Practices. Academy of Management Learning & Education, vol. 4/1: 75-91.

How Many Cigarettes Are You Smoking!!??

I don't know if it has ever happened to you to spend some time in a psychiatric hospital or otherwise to spend some time with someone sufferring of some psychiatric disease, like schizophrenia. Well, if the answer is yes, you would surely have noticed that psychiatric patients smoke a lot. If the answer is no, then trust me please. Anyway, when I say that they smoke a lot I truly mean it. That's one of the things that I couldn't avoid to notice when I worked there. A large percentage of them was literally smoking for the whole day and frequently having one cigarette right after the other. Moreover, you could also deduct it from the brown colour of their fingers. Obviously, also "normal" people (please, allow me to use this term even if inappropriate) can smoke a hell of a lot, but the percentage is much lower. Just to make myself clear: according to some research smoking rates are as high as 80% among schizophrenic patients, whereas in the general population the percentage is around 25%.

Now of course the question: Why do they smoke so much? I did some research on my own and "discovered" some of the main reasons. Some are more intuitive, others are not. Let me tell you a couple of the things I found out (from the more to the less obvious one)

1) Smoking relieves anxiety: I don't think this first one needs further explainations;

2) Smoking is more common in deprived groups: It looks like "less lucky" people tend to smoke more cigs. And it also looks like "less lucky" people are more prone to develop some kind of mentall illness. Smoking would be a way to cope with the anxiety caused by their condition;

3) Smoking as a pastime and as a social facilitator: Patients in psychiatric hospitals have to deal with boredom. Long days, nothing to do. Smoking can, in some way, help to beat time. Moreover smoking is also a social activity. Patients gather together and use cigarette smoking as a ritual;

4) Smoking as an "antidote" (the most interesting one!): Some research seems to prove that cigarette smoking in psychiatric patients can have some positive effects like reducing some of the symptoms of psychotic illness, reduce some of the antipsychotics side effects, improve cognition, etc...

Here are therefore some of the reasons why most psychiatric patients smoke so much. Now, other questions come naturally: should doctors help them to quit or should they consider it only as a "minor thing" considering all the problems they have? Would it be possible to help them to quit? Maybe smoking is one of the few pleasures left to them?

I really would like to answer all these questions, but, please forgive me, I really have to go and smoke a cigarette...

Predictably Irrational

Duke university professor and author of the book Predictably Irrational Dan Ariely gives a brilliant and actually amusing lecture on how our brain plays tricks on us.

At the following link you can also find an article I wrote on the topic for the student magazine eCHanges:

http://www.echanges-online.ch/index.php?option=com_content&view=article&id=184:every-day-economics-about-rationality-in-decision-making&catid=54:thema-general

Culture Jamming

According to some recent study “The average American is exposed to about 3000 advertising messages a day, and globally corporations spend over $620 billion each year to make their products seem desirable and to get us to buy them". 3000 messages seemed way too many in my view, but probably it is because I don't live in the US. Anyway, I think that nobody would deny the fact that we are exposed to a huge number of commercial messages every day. The consequences of this mediatic bombardment are mainly two (out of thousands): firms have to become more and more capable of "breaking through the clutter". This basically means that they have to use new unconventional ways of communicating with the market (e.g.: product placement, events, ads where you would not expect them, etc...). The second consequence is more on the consumer side: our culture, therefore our "mental programming", the way in which we see the world is increasingly shaped by commercial communications. Entertainment, shopping and other consumer activities are frequently cited as people's preferred ways of spending their free time.

As mentioned in an article produced by the Center for Communication and Civil Engagement "As people in global societies increasingly enjoy the freedoms of private life, it becomes increasingly difficult to communicate about many broad public concerns. The personalized society enables people to choose individual lifestyles and identities that often lead to disconnection from politics. Many citizens become receptive only to consumer-oriented messages about tax cuts, retirement benefits, or other policies targeted at particular demographic social groups". We can therefore argue that, due to the information overload, we have become increasingly anesthetized or, better, like the Pink Floyd song we've become Comfortably Numb.

An interesting and creative answer to the forementioned tendencies of today's world is called culture jamming. According to Wikipedia, it can be defined as a tactic in which an activist attempts to disrupt or subvert mainstream cultural institutions or corporate advertising. Classic examples are the transifguration or transformation of famous corporate logos or national flags in order to produce a message. In this way people are forced to reconsider the branded environment in which they live and the underlying assumptions. The main goal of Culture Jamming is therefore to subvert and criticize the mainstream culture, what we take for granted and our consumeristic habits using the power of communication.

A nice and famous example is the one that jams with the US flag (in the picture): the stars representing the states in the blue part of the flag are replaced by various US corporate logos like McDonalds, Nike, MTV, etc... The message is clear without need for further comments. The examples are, anyway, pretty numerous. It is enough to google culture jamming and you'll find them by yourself. And, of course, I hope you like Jamming too!

Are You Into Ecopornography?

You have probably noticed that today practically every firm out there is claiming to be, in one way or another, environmentally friendly. Words and expressions like green, biodegradable, recyclable, non-polluting, etc... have become extremely common everywhere. I am sure that if you walk around your home right now you will be able to find at least one product promoting its greenish attitude. This phenomenon is so diffused that even oil companies, which are probably among the greatest polluters in the world, are claiming to be the environment best friends. Someone would say that this thing smells fishy, isn't it? Especially when, on one hand, you see ads from oil companies on Tv promoting their efforts in protecting the planet, but, alas, on the other hand they are selling products helping to ruin it. Moreover you are also told that it was discovered that some of them are constantly lobbying with governments to relax environmental laws and regulations.

That's probably what Mr. J. Westerweld must have thought when he coined the term greenwashing. He was probably struck by this ambivalent nature of some firms and industries' behaviours. He once noticed that some hotels were placing green placards in rooms promoting various types of good behaviour like the reuse of towels, etc... Though, he later noticed that these hotels were making no effort in recycling waste. The main reason for that was that it was not worth economically.

Even if you have probably already got the point, the term greenwashing defines the practice of deceivingly promoting one's products or services as being environmentally friendly. The main purpose of these actions is obviously to gain the public approval. Classical examples are the use of less natural resources, the development of new products with lower environmental impact, energy-efficient goods, etc... To define more or less the same thing also the term that I used in the title of this post (ecopornography) was created by J. Mander.

The informed consumer has to be aware of such things. The risk is otherwise to inevitably fall into the trap without even noticing it. There are of course firms actually promoting good behaviours and acting accordingly, but how to distinguish the good apples from the bad ones? It is probably very difficult. Anyway, information asymmetries can be levelled to some extent. Internet and a critical attitude are already good wapons to defend oneself from being greenwashed.

For example, Terra choice, an environmental marketing agency, has published an interesting study called The six sins of greenwashing. In their study they found out that more of 99% of the analysed firms were guilty of greenwashing in some way. Here are the six sins:

1. Sin of the Hidden Trade-Off: e.g. “Energy-efficient” electronics that contain hazardous materials.
2. Sin of No Proof: e.g. Shampoos claiming to be “certified organic,” but with no verifiable certification.
3. Sin of Vagueness: e.g. Products claiming to be 100% natural when many naturally-occurring substances are hazardous, like arsenic and formaldehyde.
4. Sin of Irrelevance: e.g. Products claiming to be CFC-free, even though CFCs were banned 20 years ago.
5. Sin of Fibbing: e.g. Products falsely claiming to be certified by an internationally recognized environmental standard like EcoLogo, Energy Star or Green Seal.
6. Sin of Lesser of Two Evils: e.g. Organic cigarettes or “environmentally friendly” pesticides.

If you want to read the complete study and find other interesting advices on how to defend yourself from being deceived please go to the following link: http://www.terrachoice.com/files/6_sins.pdf

Places You Never Thought Would Exist

There are places you never thought would exist. It happened to me to visit one the other day. It's called Christiania and it's located in Copenhagen, Denmark. It is basically a little city whithin the bigger city. You stop at the metro station Christianshavn and just walk for 5 minutes. After a while, once you've entered, you'll start noticing big signs warning visitors that it is forbidden to take pictures. This means that you are entering Pusher street. As you walk down the road you'll probably start to notice that people here are not exactly christians as the name would suggest to uninformed visitors. After a few steps forward your nostrils are surely going to smell the unmistakable fragrance of Afghanistan coming from all sorts of exotic pipes and related stuff. The extraordinary experience has begun. You are in Christiana, a former military area that was occupied by a bunch of hippies back in the seventies and that, still today, represents a reminiscence of the old flower power era.

The houses are extravagant. Probably here everyone just built its own house, obviously without following any regulation. Some are tall and coloured, other are like crumbling hovels. There's one completely built using windows (in the picture). Most of them are decorated with graffiti. Multicoloured stands are all along the main road and various qualities of hash are being sold to the curious visitors (yes! they're not hiding it). If you are not able to roll your own, don't worry they also sell ready-to-smoke joints. If you don't feel like smoking your brain out just grab a beer in one of the hundreds shops selling food & beverages and you'll be fine. Anyway one of the nicest things about this place is the lake. After you're gone through the main road, you climb a couple of stairs and you are there. A beautiful and peaceful little lake sorrounded by a bed of reeds always caressed by the ever-present danish wind. Here people sit on the lake shore talking and laughing (ok: and smoking...) and basically just having a good time. This place is totally out of space and time, believe me.

But, now it may be time to go back to the real world. A few steps and you're already out of Christiania. You'll notice that when you're getting out you pass under a big arch with the writing "You are now entering the EU" on it. You are now back in Copenhagen!

The Effects of Abortion on Crime Rates

A study done by Chicago University’s scholars Steven Levitt (co-author of the book Freakonomics) and John J. Donohue III, can be used to explain with an example the strange links that sometimes exist in reality[1]. In the nineties the U.S. witnessed an incredible drop in crime rates (especially murder rates). The fall was incredible: close to 40%! Explanations of every kind started being given by the media and various experts. It was because of the increasing use of incarceration some were saying. It is because of the increase of the number of police officers! It is because of better policing strategies! It is because of better economic conditions! And so on and so forth.

Though, the study found that the above advocated causes were only (a minor) part of the truth. They had played a role of course, but they could not have been the only reasons of the sharp decline in criminality. Levitt & Donohue got out with another explanation. It was also because of 1973 law (Roe v. Wade) that had legalized abortion! (why the hell?! One may ask...) In the paper they write: “States with high abortion rates in the 1970s and 1980s experienced greater crime reductions in the 1990s. [...] Legalized abortion appears to account for as much as 50 percent of the recent drop in crime.”[2] The reason, in a few words, is that unwanted children are more likely to grow up in an difficult environment (e.g.: abandoned teenager mothers, economically disadvantaged families, etc...). And “Decades of studies have shown that a child born into an adverse family environment is far more likely than other children to become a criminal”.[3] Interesting findings!

Obviously someone opposed to the findings of the study (maybe for political views on the matter or maybe for more scientific reasons regarding the method[4]). But I don’t care here. I just wanted to bring an interesting example to show how sometimes causes of phenomena are hidden (e.g.: delayed in time; mixed with other, more evident, causes; etc...) and that conventional wisdom cannot always explain it.

---

[1] You can find the study at the following link : http://pricetheory.uchicago.edu/levitt/Papers/DonohueLevittTheImpactOfLegalized2001.pdf

If you don’t want to read boring academic stuff, the same explanations can be found in the book Freakonomics.

[2] Levitt, S. & Donohue, J. J. (2001). The Impact of Legalized Abortion on Crime. Quarterly Journal of Economics. Vol. CXVI, Issue 2. Pg. 379-420.

[3] Levitt, S. D & Dubner, S. J.(2005) Freakonomics. Harper Collins Publishers. New York. Pg.4.

[4] After some critics from other scholars a measurement error was acknowledged by Levitt & Donohue. Anyway, after reviewing the study they confirmed their previous findings.