Wit = α + βxit + εit.

I haven’t read Time magazine for quite a while. They were (are) just getting a little too rag-like, focusing on celebrities and such. But the other day, I came across an excellent piece from their magazine, which certainly summarize my feelings about the world of business, which shipping certainly is now – big business.

The piece is called “Driven off the road by M.B.A.s” by author Rana Foroohar, written earlier this month. Like most American media “news”, the article is selling something, in this case, its a book on the article’s subject matter, by ex auto executive Bob Lutz. Regardless of that angle, the article, and I imagine the book, certainly feels mighty right from my point of view. You can find the article here, and the text is below. A definition of what an M.B.A. can be found here.

Driven off the Road by M.B.A.s
By Rana Foroohar, Time Magazine, July 10, 2011

Bob Lutz (pictured right), the former Vice Chairman of General Motors, is the most famous also-ran in the auto business. In the course of his 47-year rampage through the industry, he’s been within swiping range of the brass ring at Ford, BMW, Chrysler and, most recently, GM, but he’s never landed the top gig. It’s because he “made the cars too well,” he says. It might also have something to do with the fact that Maximum Bob, who could double as a character on Mad Men, is less an éminence grise than a pithy self-promoter who has a tendency to go off corporate message. That said, his new book, Car Guys vs. Bean Counters: The Battle for the Soul of American Business, has a message worth hearing. To get the U.S. economy growing again, Lutz says, we need to fire the M.B.A.s and let engineers run the show.

Lutz’s main argument is that companies, shareholders and consumers are best served by product-driven executives. In his book, Lutz wisecracks his way through the 1960s design- and technology-led glory days at GM to the late-1970s takeover by gangs of M.B.A.s. Executives, once largely developed from engineering, began emerging from finance. The results ranged from the sobering (managers signing off on inferior products because customers “had no choice”) to the hilarious (Cadillac ashtrays that wouldn’t open because of corporate mandates that they be designed to function at -40°F). It’s pretty easy to imagine Car Guy Lutz removing his mirrored shades and shouting to the cowering line manager, “Well, customers in North Dakota will be happy. Too bad nobody else will!”

The auto industry is actually a terrific proxy for a trend toward short-term, myopically balance-sheet-driven management that has infected American business. In the first half of the 20th century, industrial giants like Ford, General Electric, AT&T and many others were extremely consumer-focused. They spent most of their time and money using new technologies to create the best possible products and services, regardless of development cost. The idea was, if you build it better, the customers will come. And they did.

The pendulum began to swing in the postwar era, when Harvard Business School grad Robert McNamara and his “whiz kids” became famous for using mathematical modeling, game theory and complex statistical analysis for the Army Air Corps, doing things like improving fuel-transport times and scheduling more-efficient bombing raids. McNamara, who later became president of Ford, brought extreme number crunching to the business world, and soon the idea that “if you can measure it, you can manage it” took hold — and no wonder. By the late 1970s, M.B.A.s were flourishing, and engineers were relegated to the geek back rooms.

This is not to say that the Whiz Kidding of American business yielded no positives; things like the hyperefficient FedEx logistical hubs and the entire consulting industry were born out of it. But ultimately, moving numbers around can do only so much. Over the long haul, you’ve got to invent or improve real products and services to grow.

In the U.S., the growth of the financial industry has only exacerbated the trend toward balance-sheet-driven management. Companies everywhere, but particularly in the U.S., where the banking sector wields the most power, are under tremendous short-term pressure to make their quarterly numbers. This often leads to 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.

It’s interesting to note that the one area of the U.S. economy that’s adding jobs and increasing productivity and wealth is also the one that is the most relentlessly product- and consumer-focused: Silicon Valley. The company off Highway 101 that best illustrates this point is, of course, Apple. The only time Apple ever lost the plot was when it put the M.B.A.s in charge. As long as college dropout Steve Jobs is in the driver’s seat, customers (and shareholders) are happy. The reason is clearly the one Lutz puts forward in his book: “Shoemakers should be run by shoe guys, and software firms by software guys.”

Worth of an MBA

Meanwhile, despite all the post-financial-crisis soul searching within the business community about the value of an M.B.A., schools are still churning them out. There are, and will be for the foreseeable future, a lot more bean counters than engineers in this country. But the same may soon be true in China, where the state plans to open 40 new graduate schools of business in the next few years. As Lutz puts it, “That’s the best news I’ve heard in years.”

Read the original article here

Incidentally the author of the above piece, has also written another interesting article for Newsweek magazine, entitled “The Joys of Economics“, which introduces “Happiness Economics“.

If you read the above you might get the feeling “…of course, that makes sense”, which is always a nice feeling. But more importantly, that rejecting this “digging for the bottom of the barrel for the last quarter of cent profit”, devoid of any semblance of a moral compass, is not the sole reason for our existence. I take comfort in knowing that others around me, think that having some backbone, and taking pride in providing a real product, mindful of quality and longevity is not a worthless endeavour. Not only is it worthwhile, but also brings happiness, even to lowly engineers aboard ships.

You might be wondering what the title of this post represents, I like to make it catchy, and this one is actually the formula for measuring happiness, or as Wikipedia states it –

“Micro-econometric happiness equations have the standard form:Wit = α + βxit + εit.

In this equation W is the reported well-being of individual i at time t, and x is a vector of known variables, which include socio-demographic and socioeconomic characteristics.”

Graphics from various internet sources. On the right, is a submitted info graphic on an MBA degree, by www.mbaonline.com, click on graphic to see full size.

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