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The 3 “Rs” of Management: Rigour, Relevance and Rationality

Posted on January 21, 2014 by David

The 3Rs of Management

The debate between rigour and relevance continues in management education, usually spurred by management professors’ concerns that practitioners are paying little attention to their research. The history of the problem is now familiar: in the first half of the 20^th Century America’s schools of technology and commerce were mostly vocational schools, staffed by practitioners and aimed at preparing business people for their careers. They were not known for the intellectual horsepower of either their faculty or their students. In the 1950s these schools came under heavy criticism as “wastelands of vocationalism”. Reformers, guided by reports from the Ford Foundation and the Carnegie Corporation, moved to make them more research-oriented and to place management on a sound “scientific” foundation. The schools grew enormously, but as rigour replaced relevance practitioners found the research products of the schools less and less comprehensible. Worse still, as the management academic community grew, writers and researchers found themselves with internal academic audiences large enough to consume their writings without any need for them to appeal to practitioners. According to its critics the result of this “incestuous, closed loop” has been the creation of an activity that has been compared to the glass bead game in Herman Hesse’s novel of the same name. That is, research on management has become an esoteric intellectual activity completely detached from the problems of the world.

Some of these thoughts came to mind when I read the Schumpeter column in The Economist over the weekend. In it Adrian Wooldridge reports on the findings of a pair of economists that managers actually make a difference to firm performance. They proved through “rigorous research” that setting targets, rewarding performance and measuring results is associated with better financial performance than not conducting those activities. Proving causality rather than just correlation is always a problem but the researchers had some nice “before and after” experiments that supported their conclusions. In general though their conclusions were pretty underwhelming and I thought that the column was far too reverential – as if managers had been sitting around waiting for scientific evidence before taking action. Here is my comment on the column:

“So economists now have evidence that good management might matter. How underwhelming! Practicing managers have known that forever and they don’t need rigorous academic research to know it any more than good golfers need statistics to know that deliberate practice with feedback is the only way to improve. Indeed Bloom and Van Reenen’s research is more a testament to the impoverishment of economists’ (and management science’s) assumptions about human nature than it is to the effectiveness of good management. Indeed it seems that the more rigorous the research, the more trivial the results.

Last year, after “rigorous research”, management consultants Michael Raynor and Mumtaz Ahmed came up with the conclusion that there were only two rules for creating exceptionally profitable companies. The first was “better before cheaper” i.e. don’t compete on price and the second was “revenues before costs” i.e. try to build volume and don’t rely on cutting costs. Scarcely the stuff of revelations: the leverages are embedded in the mathematics of the profit and loss account and the “rules” must be familiar in every bazaar from Tashkent to Timbuktu. The difficulty, of course, is how to produce such desirable outcomes in a particular situation; this one, right here, right now. That is why managers are interested in outliers, not averages. They want to hear about organizations that have produced outstanding results in difficult and unusual situations; averages get you averages.

Friedrich August von Hayek (1899-1992)

To prevent this and preserve capitalism, Hayek argued, we have to recognize the limits to science and try to understand how capitalism emerged from moral tradition and how those traditions preserve it. As economist (and Nobel prize-winner) Vernon Smith has argued, we need to recognize the existence of both an engineering-type “constructivist” rationality (Kahneman’s System 2) as well as an “ecological” rationality (Kahneman’s System 1). Practicing managers have known about the latter form of rationality and its importance since the beginning of history but have been hampered in their ability to talk about it in modern times by the impoverished vocabulary of management science and neoclassical economics.

When are mainstream economists and The Economist going to get with the agenda?”

The Roots of the Problem

At the roots of the rigour versus relevance debate are the modernist philosophical foundations on which management was placed in the 1950s, the narrow economic-oriented view of human nature that ruled at the time and the assumption of a single monolithic rationality – the “rational choice” model – from which there was no appeal. Together these formed the framework of a Procrustean bed on which many academics have hacked and stretched management thought and practices in their attempts to “rationalize intuition”. Add the self-sealing properties of the “incestuous, closed loop” and you end up with Hesse’s glass bead game and our current predicament. Further explorations of this problem and what to do about it will have to wait until next week’s blog.