Book Review: Masters of Management

Masters of Management is the update to one of my favorite business books of all time, The Witch Doctors (TWD), first published in 1996, by Adrian Wooldridge and John Micklethwait, two editors from The Economist. If you're a regular reader of The Economist, Wooldridge is the Schumpeter columnist. Though only Wooldrdige wrote this one, the Foreword is written by Micklethwait.What has happened between TWD and this work? Enron and the 2008-09 financial crisis, which was partly fueled by MBA's risk models, and financial innovations in packaging up faulty mortgages.The industry has essentially stayed the same, though the ideas have changed. The authors wrote in TWD that the management gurus are "the unacknowledged legislators of mankind." I've always thought this overblown, but no doubt the gurus do have an impact on organizational thinking. They do get to test their theories immediately, being a "live" science, unlike, say, economics.While TWD looked at the dark side of the management consultancy industry, this work looks more at the uplifting side. The consulting industry is $300 billion a year (as of 2007), while business books alone account for $750 million in sales, and the schools of business turn out 150,000 graduate degrees every year.In TWD, the authors laid out four charges against the industry, which I believe are as true today as they were then:

1. The discipline is constitutionally incapable of self-criticism;
2. It favors terminology that confuses rather than educates;
3. It rarely rises above the level of basic common sense;
4. It is faddish, fickle, and bedeviled by contradictions that would not be allowed in more rigorous disciplines.

Number one is the biggest change the author has noticed between TWD and this book. No doubt there have been many published books that take a harsh look at the management consulting industry, one of the best being The Management Myth, by Matthew Stewart, reviewed here.With respect to number two, the author quotes George Orwell:

[Language] becomes ugly and inaccurate not because our thoughts are foolish, but the slovenliness of our language makes it easier for us to have foolish thoughts.

Wooldridge writes, "Management scientists have arguably done more damage to the English language than any other group of people." Amen. Pick up a random business book and you'll read why.Since the ideas have changed, there are some new fads that come in for a skewering. One is Corporate Social Responsibility (CSR), which is "the tribute that capitalism everywhere pays to virtue."Approximately 2% of all investment in the USA are in CSR funds, and less than 1% in Europe. So much for putting your money where your mouth is.There is chapter devoted to Peter Drucker and Tom Peters, and other prominent gurus get their mention: Michael Porter, Clayton Christensen, Henry Mintzberg, among others.The new wave of academic and journalist gurus come in for some criticism (and praise) as well: Howard Gardner, Robert Reich, Richard Florida, Thomas Friedman, and Malcolm Gladwell.Thomas Friedman's (and Ted Levitt had the same theory) Flat Earth idea come in for a skewering, which is spot on. Read Milton Friedman instead.There's also a chapter on "frugal innovation," which is definitely changing the pricing, supply chain dynamics, and value proposition in developing countries.Some interesting facts are noted:

• Only 25% of India's engineering, and 15% of its finance and accounting, graduates are qualified to work at a multinational firm.
• In 2010, 47% of world's wealthy are entrepreneurs.
• 52% of Silicon Valley startups are founded by immigrants, and 26% of those are Indians.
• New Zealand has the highest rate of startups in the world.

The author doesn't like 360-degree feedback, labeling it a "quasi-Leninist" policy whereby you have to listen to other people's opinions and criticisms of you. Amen. This policy if followed today in North Korea.An excellent example is provide of the stupidity, and perversion, of measurements:

In Stafford Hospital, between 400 and 1,200 more people died in 2005-08, more than actuarial science would have predicted because the managers were so obsessed with hitting predefined targets that they routinely neglected patients.

I have some quibbles with the book. The author says that National Review is the ultimate journalistic dead end. Really?The government did not save the financial system from collapse—it caused the collapse.The idea that Sarbanes-Oxley protects shareholders from malign managers is highly debatable. But even if it was true, at what cost? Diversification is a much more effective protector of shareholder interest, and it doesn't require a top-down regulatory regime that imposes enormous and unnecessary burdens on companies.He claims the USA underinvests in childcare, but it's precisely because the USA doesn't dole out as many mandated employee benefits that we have a much more dynamic and mobile labor market, more job creation, and less chronic unemployment.He believes the USA needs more progressive taxation. This is one of the most frustrating things about reading The Economist: they've never met a tax that wasn't high enough.These quibbles aside, this is an incredibly worthwhile book. While the management consultancy industry is still immature, and allows in all sorts of self-proclaimed gurus and thought leaders, it could be argued that this is a sign of its vitality and openness to new ideas. After all, professions and academic disciplines can calcify, and reject new theories for a long time.But this low barrier to entry also means there are an enormous amount of crackpots. Masters of Management is a useful guide in separating the wheat from the chaff. Bravo, Mr. Wooldridge!