Most applicants think of an MBA as a passport to a better career, or a more successful business. But what are the kinds of things business school students and faculty actually study, and what use are they in the working world? Here are five research projects taking place at Canadian universities that teach important lessons for today’s business leaders.
THESIS: Entrepreneurs can survive disruptive change
PhD student | University of Calgary
Haskayne School of Business, Calgary
Record stores. Photo finishing. Travel agencies. Even advertising. As the digital revolution continues to demolish old business models, huge swaths of the economy are under threat. It’s hard enough for big business to adapt and survive. But what if you’re a small-business owner or independent professional without the resources to surf a tsunami in your industry?
Entrepreneurs caught in the splash zone use four different strategies, Oleksiy Osiyevskyy found while pursuing his PhD thesis on their reactions to disruptive change. Some ignore the change and stick to their traditional business, which tends to be the most profitable course in the short term but finds them shuttered in three to five years. The second and largest group opt to add value to their offered service to discourage customers from switching to the usually cheaper, no-frills alternative. This buys them time but leaves them in an over-served marketplace with too many players chasing too few premium customers. A third contingent, the smallest, make a wholesale switch to the new technology or business model, attempting to make smaller margins on a larger number of transactions, with mixed results.
But the group with the highest success rate, Osiyevskiyy discovered, are entrepreneurs who integrate the traditional and new business models, offering both premium services and discounted innovative services to different customers. For example, Osiyevskiyy followed the experience of a Calgary real estate broker. Realtors’ commissions are under pressure from cheaper online marketing systems. This agent offered services ranging from basic access to the Multiple Listing Service for less than $100 to full sales service including advice with respect to financing and renovations. “The entrepreneur was able to combine both approaches successfully, with the discounted offerings being the basis for establishing the relationships with clients, leading to further deals,” Osiyevskiyy explains. “The discounted offering serves as a foot in the door for selling other services, and it is the latter that bring the actual revenues and, ultimately, profits.”
THESIS: Dominant leaders need strong boards
Assistant professor | Memorial University of Newfoundland
Faculty of Business Administration, Saint John’s, Nfld.
The pages of magazines like this one are full of them: dominant CEOs whose will and outsized personality seem to drive the companies they lead. We lavish so much attention on them because their firms tend to exhibit extreme performance, says Jianyun Tang—for the better (Jack Welch at General Electric, for example) or worse (Kenneth Lay at Enron).
In the study “Dominant CEO, Deviant Strategy and Extreme Performance: The Moderating Role of a Powerful Board,” to be published next year in the Journal of Management Studies, Tang and co-authors Mary Crossan and Glenn Rowe of the Ivey School of Business examined the experience from 1997 to 2003 of 51 publicly traded computer firms. The CEOs of each were significantly more powerful than other company executives in terms of equity stake, compensation and whether they were the founder. As a result, they could effect deviant strategies that either vaulted their firms well above the sector averages for performance or well below. An example of the former would be Frank Stronach, who pursued a successful strategy of systems integration at Magna International when its competitors specialized in classes of automotive parts. An example of the latter is Bill Agee, who drove Morrison Knudsen into the ground by moving away from its civil engineering and construction base.
What might have saved the company is a powerful board to analyze and put a stop to a doomed deviant strategy, Tang argues. “If the board would look into the proposal, it’s very likely the board would find those weaknesses and reject it,” he says. Could a strong board also impede innovation? A board of this type famously fired Steve Jobs from Apple in 1986. But that is the exception, Tang says. A qualified board can usually recognize and approve a CEO’s smart moves.
One caveat is that context matters; deviant strategies don’t always travel well. Welch helped invigorate GE with a management practice whereby employees persistently in the bottom 10% in performance would be fired. “It worked very well at GE, but it worked poorly in many, many other organizations,” Tang says. “It’s very hard to say why the impact was positive at GE.”
THESIS: Harsh words have their uses
Associate professor | Queen’s University
Queen’s School of Business, Kingston, Ont.
Only the dinosaurs of the management world dare badmouth an employee to his face, right? For the best results, you have to comment only on performance and couch your criticism in positives. Not necessarily, says Jana Raver in a paper recently published in Applied Psychology. People in the study who described themselves as highly competitive were actually more motivated to improve by personal insults than by constructive feedback.
The problem was, this desire to prove their supervisors wrong did not translate into better performance. When asked to complete a complex task, these strivers generally did worse than their less competitive peers. Their brains, she says, were “still focused on that criticism. They’re distracted.”
Still, there’s a place in a manager’s toolbox for harsh criticism, Raver found. Less competitive workers—the ones who tend to form their own opinion of their worth without comparing themselves to others—were predictably unimpressed by destructive feedback. Like all the subjects in the study, “they’re ticked off. They blame the other person.” And yet these people subsequently boosted their performance of set tasks, more so after being browbeaten than praised.
Raver, who came to the subject after research into workplace bullying, concludes that self-satisfied employees need to be nudged out of their complacency every now and then. Don’t personally attack them; make it about their work. Tailor your style of feedback to the personality of the employee.
“It also needs to be ongoing,” Raver says. “Most managers hate giving feedback. It’s become this huge performance appraisal event every year.” But if you are giving the employee task-focused comments all the time, positive and negative, the annual review becomes a non-event, and their performance shouldn’t need a radical shakeup.
THESIS: The real world should work like cyberspace
Canada Research Chair in Enterprise Engineering | Laval University
Faculty of Business Administration, Quebec City
Montreuil was in an airport in 2006 when he spotted an issue of The Economist with the cover story “The physical Internet.” Intrigued, the researcher, who had already written about modular transportation, virtual manufacturing and semiotic value creation networks, bought it and read it on the plane, but came away disappointed. “The Economist had done a good job at portraying the state of logistics, but it was obvious to somebody like me this had nothing to do with a physical Internet.”
It spurred him to imagine how the physical world might look if it worked more like the Internet. “I didn’t sleep. I couldn’t stop thinking about that notion,” he recalls. For three years, he built a vision around the benefits of transporting and distributing goods the way the web does information.
For example, if you want to ship cargo from Montreal to Los Angeles, you hire a trucker, the load sits idle while he sleeps or eats, it takes 120 hours, and if he doesn’t find a load to make the return trip, it’ll cost you a bundle. If the shipment behaved like an e-mail, it would go in continuous, short-haul trips with different drivers from one hub to another, and arrive in just 60 hours.
“The digital Internet doesn’t deal with information per se. It deals only with data packets,” Montreuil explains. If packets of goods of varying sizes were similarly standardized so that anyone receiving it would know where and how to send it on, huge efficiencies would result.
That’s what Montreuil calls the “mobility web.” He also proposes a “distribution web” that would rationalize the currently hundreds of thousands of company distribution centres worldwide into a smaller number of open merchant hubs and a “realization web” that would see products assembled from parts sourced worldwide as close as possible to where they are consumed. Considering that between a third and a half of every product’s price is tied up in logistics, this physical Internet could lower costs and reduce the damage done to the environment, he argues. “There will be huge winners,” he adds—new Googles of the physical Internet.
Montreuil is working with two major French distribution companies to model the principles of the physical Internet. He’s consulted with governments and companies including Walmart and Procter & Gamble. “It’s gone beyond just writing a paper,” says Montreuil, who now heads up a virtual think-tank called the Physical Internet Initiative. “It’s connected research.”
THESIS: Financial regulation isn’t rocket science
Associate Professor | Dalhousie University
Faculty of Management, Halifax
Before he got his PhD in finance, Rick Nason was a physicist. Sometimes he still thinks like one. “A lot of the stuff I was doing in physics is applicable to business, and not just as a metaphor,” he says.
Physicists tend to categorize systems and problems associated with them as simple, complicated and complex. Baking a cake is a simple problem; all you have to do is follow a recipe within reasonable parameters. Sending a man to the moon and back is a complicated problem. It involves a huge array of refined calculations and backups. A complex problem is like raising a teenager. Experience, core values and common sense help, but it’s impossible to predict, much less create, the end result. You take it day by day.
Central bankers, regulators and policy-makers have been attacking the 2008 global financial crisis as a complicated problem, implementing regulations to address specific failings of the financial system. In “It’s not complicated,” an article published in the RMA Journal last March that will be turned into a full-length book due for release next year, Nason argues that the ongoing troubles in financial markets are in fact more akin to a complex problem. As such, there are no solutions, just better or worse simple responses to each damaging new manifestation.
“Every time you try to put in a very specific set of rules—i.e., a complicated solution—everyone else is immediately going to find a way around it,” he says. “If you look at it as a complex system, you start talking about, rather than right answers, you say this is a slightly better solution.”
Nason agrees with the notion that Canada—which has suffered no bank failures in two decades—benefited from oversight focused on the spirit of the law, whereas the U.S. regime unfortunately focused on the letter. Regulators here were thus empowered to move into an area that caused concern before disaster struck. “The rules are fuzzier, much less concrete, but they are also much more flexible, which makes them more robust.”
Complicated thinking is likewise infecting the markets themselves, Nason says. The rise of “quants,” traders who use mathematical algorithms to predict market moves irrespective of fundamentals, attempts to model the markets as a complicated system. But the “grey hairs” of the investment industry who, like experienced parents, intuitively understand the markets, still tend to be more successful investors over the long term.