The Golden Passport

by Duff McDonald

  The acquisition budget of the Baker Library, after two decades of being slashed, then restored, then slashed once again, grew 41 percent between 1955 and 1960, from $22,000 to $31,000, and the size of the collection grew from 310,000 to 364,000 volumes.

  At the same time, the student body was becoming more diverse, at least as regards country of birth. Between 1946 and 1960, a total of 708 overseas students from 69 different countries were admitted to the MBA program,3 and an additional 478 attended one of the School’s executive education programs. Slower progress was made on collecting case material from abroad, with just 360 of the School’s 20,000-plus collection of cases coming from overseas, and only 250 HBS cases translated into foreign languages. In that, HBS was much like the rest of the nation—when Americans go abroad, they speak English.

  But that didn’t mean HBS wasn’t still doing God’s work. Teele, like Donald David before him, saw a “special responsibility” for HBS in helping the world’s poorest countries improve their lot; Teele went so far as to suggest that the management know-how coming out of HBS “may, indeed, be more important” than whatever scientific or engineering expertise might be brought to the challenges at hand.4

  At some point during the era of post-war prosperity, the faculty of HBS seems to have concluded that its claim to produce enlightened businessmen who understood their obligations to the rest of society didn’t entirely capture the profound nature of their teachings. In 1956, Teele suggested that the School was actually providing students a peerless opportunity to “think through a personal set of ultimate values which give meaning and direction to life.”5 This emerging self-image—as teachers not only of business matters but of life itself—remains intact more than half a century later, and shows no signs of retreat.

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  Peak Influence

  Influence is a difficult thing to measure, especially at the very moment it passes its peak. Looking back, HBS’s domination of the world of the MBA peaked sometime in the 1960s. Why? In short, the School was a victim of its own success. By the time of its fiftieth anniversary, HBS had been so successful in selling the idea of a graduate education in business that the inevitable had happened: Serious competition had arrived, both domestically and—with HBS’s help—abroad. But it wasn’t just that. Fifty years into the MBA project, the School (as well as others) had been so successful in their ambition of codifying the fundamental knowledge about effective management that they were running out of things to say. With a few notable exceptions, from that point forth, much of the thinking that has emanated from HBS can be characterized as variations on a theme.

  In Strategy and Structure, Alfred Chandler defined strategy as “the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals.”1 Others had used the word before—Chester Barnard’s The Functions of the Executive is chock-full of the phrase “strategic factors”2—but until the mid-1960s, there was no handbook of strategy per se. By the end of the decade, there would be many, including one from HBS itself.

  At that point, if you were an executive tasked with formulating and implementing strategy, you probably fell into one of two camps—those who viewed management as science or those who viewed management as art. If the former, then you probably leaned on the work of Igor Ansoff, whose 1965 book, Corporate Strategy, carried the subtitle “An Analytic Approach to Business Policy for Growth and Expansion”3 (with the difference between “growth” and “expansion” left unsaid). Ansoff had worked at the RAND Corporation before landing at Carnegie Mellon, and his systematic prescriptions were in keeping with the quantitative tilt of his employer. “If Chandler’s definition [of strategy] was baggy and capacious,” writes Walter Kiechel in The Lords of Strategy, “the notions introduced by Igor Ansoff . . . were filigreed to an overwrought fault.”4 Or worse: In laying out the framework for forecasting, Ansoff offhandedly assumed that most corporate forecasts would be within 20 percent of the eventual result. In other words, he was claiming the ability to predict predictability.

  If you were in the latter camp—which probably meant you had ties to HBS—you looked to the School’s capstone course, Business Policy, the textbook for which echoed Chandler when it defined the strategic decision as the one “concerned with the long-term development of the enterprise.” And you looked to Kenneth Andrews, a man whose name probably doesn’t ring familiar to today’s MBA students but who was so influential in midcentury that one historian refers to him as “the key figure at Harvard through the 1950s and 1960s.”5 One, it should be noted, who was standing on the shoulders of some key figures who came before, such as Georges Doriot, who said, “Business is not a science . . . it is an art or a craft with some science. The great individuals who lasted in business and did well were great artists or great craftsmen.”

  Andrews knew great art when he saw it—before World War II intervened, he was pursuing his PhD in English at the University of Illinois, and was already considered a budding authority on Mark Twain. Originally an officer at the Army Air Forces’ Officer Candidate School in Miami, he later attended the Statistical Control School at HBS, where he met Edmund Learned, who beckoned him back to HBS after the war with the lure of Twain’s private papers, which were housed in Harvard’s Widener Library. Once he completed his dissertation, his first task at HBS was the previously mentioned study on the effectiveness of Executive Education programs. Once that was complete, he was asked to join a small group of professors (including Learned and C. Roland Christensen) tasked with reevaluating the Business Policy course. After two years, they landed on the concept of corporate strategy as its organizing principle.6

  The introductory discussion of strategy in the 1969 version of the textbook Business Policy runs a mere fourteen pages but is followed by more than one thousand pages of elaboration and—the bulk of the book—individual cases. For Andrews and his contemporaries, strategy was “a product of a leader’s choices and therefore of all the issues that had to be confronted in the business environment and the wider society, including values and organizational structures.”7 In other words, it was a case-by-case thing that couldn’t be quantified (no matter how many variables you introduced) or derived from general theories. “The chief executive,” writes Lawrence Freedman in Strategy: A History, “therefore had to be a generalist and accept that every situation was unique and multidimensional.”8 The closest Andrews got to a “framework” for decision making, argues Freedman, was the SWOT analysis he introduced in 1963—a consideration of the Strengths and Weakness of an organization in light of the Opportunities and Threats in the environment.9

  This way of approaching policy became the commonsense core of the HBS curriculum. It divided strategy into two parts—formulation and implementation—and guided the student through the four subcomponents, identifying market opportunity, corporate competence and resources, personal values and aspirations, and acknowledged obligations to segments of society other than stockholders. In doing so, “HBS hung on to the belief that ‘general management’ and strategizing stand on making choices in circumstances that cannot yield answers through analysis alone,” says J.-C. Spender. “The vision is that analysis simply supports the managerial process but never dictates it.”10

  Recall Spender’s argument that management is an art form—the projection of the self into an uncertain situation. If you take strategic analysis to the extreme, and try to remove judgment (that is, the self), you are (at least by this definition) antimanagement. Considered in that light, even if the strategic approach laid out in Business Policy wasn’t entirely original—the proposal that the strategist get a sense of the constraints by considering what they might do, can do, want to do, and should do is borrowed from economist and labor historian John Commons—it was nevertheless, says Spender, “an island of reasonableness in an ocean of antimanagerial ideology.”11

  This style of strategy formulation has its critics—M
cGill University’s Henry Mintzberg called it “the design school,” and while acknowledging its usefulness in a relatively stable environment, criticized it for its command-and-control mentality and the reduced possibilities for learning through feedback. While it comes as no surprise that in the minds of HBS faculty, the responsibility for strategy conception lay with the CEO and the CEO alone, the notion that strategy was something that was first decided and then implemented, in sequential order, also ignored the fact that most strategies tend to be emergent and evolving.

  There’s also the question of whether HBS’s case method is actually suited for the teaching of strategy. In a 1982 edition of Business Policy, the HBS authors claim that through “disciplined classroom drill with the concept of strategy,” and drill “in the formal and analytic” that “focuses attention on . . . selecting and ordering data,” students are taught to ask “the critical questions appropriate to a particular situation.”12 Mintzberg scoffs at the idea. “How can a student who had read a short resume of a company but has never seen the products, never met the customers, never visited the factories, possibly know these things? Is this the kind of data necessary to ask the ‘critical questions’?”13

  Such weaknesses aside, the strength of Andrews’ approach to the formulation of strategy was its remarkably straightforward prescriptions, which had the added benefit of being grounded in ethics. Among the questions the authors of Business Policy suggested in evaluating possible strategies: “Is the strategy appropriate to the personal values and aspirations of key managers?” and “Is the strategy appropriate to the desired level of contribution to society?”

  When critics attack business schools for a failure to properly teach ethics—I’ll do it myself in chapter 47—it is worth noting that the people who ripped ethics out of the decision-making process once and for all were the quants at Carnegie Tech, with their ethos of “management as decision making,” and the neoliberals at the University of Chicago, with agency theory. As of the mid-1960s, ethics was—at least superficially—still part of the HBS strategy curriculum.

  When Andrews died in 2005, HBS’s house magazine, the Harbus, made the claim that he was “the father of corporate strategy.” But that’s got it all backward. Andrews wasn’t the first in a long line of great strategic thinkers at HBS; he may very well have been the last. Maybe all they meant was that unlike, say, the subsequent work of Michael Porter, Andrews’s thoughts on strategy were pretty easy to understand. In that sense, the clarity of his 1960s work on the subject does give it a foundational ring that separates it from much of what followed, including at HBS itself.

  Not only that, but the end of the Andrews era marked the end of any effort on the part of HBS to develop a coherent and morally grounded theory of the firm. Wallace Donham, for all his elitism, had an intuition of the firm as morally problematic. Kenneth Andrews did, too, and his vision of strategy was rooted in an understanding that the firm was not merely a rational efficiency-seeking part of the macroeconomist’s model, but rather an idiosyncratic entity with sociopolitical implications as well as economic ones. But few have since. To suggest that the answer to Western capitalism’s current crisis is simply to encourage managers to adopt a more “professional” code of ethics, as current dean Nitin Nohria has done on more than one occasion, is a sideshow, pure folly. The most pressing need is not in asking managers to promise to be better behaved in the future, but to better understand the sociopolitical nature of the firm in the present.

  An observation: When an organization is truly at its peak, even undeserving work—or people—can be labeled influential. What’s more, the act of calling something influential can be self-fulfilling, even when that something is just a silly thought exercise. Or plain wrong. Which brings us to Ted Levitt and his influential article, “Marketing Myopia.” Written just a year after he landed on the faculty at HBS in 1959, the Harvard Business Review article posed a seemingly straightforward question: What business are you really in? His basic argument was that firms should define themselves in terms of their customer orientation rather than their product orientation. In this conception, railroad companies are in the transportation business and oil refiners are in the energy business. One of his favorite adages: The customer doesn’t want a quarter-inch drill; he wants a quarter-inch hole. An interesting concept, to be sure, but it barely rises above the level of semantics.

  No matter: More than 1,000 companies ordered 35,000 reprints of the article within weeks, and fifty years later it is still one of the most popular in the history of the HBR. Why? Because Levitt was proposing something seductive, the rethinking of the corporate self. As Henry Mintzberg points out in The Rise and Fall of Strategic Planning, “Companies had a field day with the idea, rushing to redefine themselves in all kinds of fancy ways.” A maker of ball bearings, for example, suddenly realized it was actually in the business of “reducing friction.” Publisher McGraw-Hill spent a reported $172 million to make “the strategic decision of who we are”—aka an “information turbine.”

  But to what end, other than a gift-wrapped opportunity for a senior management/management consultant circle jerk? Consider Levitt’s argument that railroad companies let others take customers away from them “because they assumed themselves to be in the railroad business rather than in the transportation business.” It sounds smart, but it’s also comically off-point. To be sure, other “transportation” providers took those customers away—makers of cars, trucks, even airplanes—but the idea that railroad managers were capable of the volte-face required to suddenly be in, say, the rail and airplane businesses simultaneously is simply absurd. “Once it genuinely thinks of its business as taking care of people’s transportation needs,” wrote Levitt, “nothing can stop it from creating its own extravagantly profitable growth.” Nothing, Mintzberg retorts, “except the limitations of its own distinctive competencies. Words on paper do not transform a company.”

  Levitt’s point was so simple that it was simplistic. But that didn’t stop some CEOs from getting confused by it. In 1986, William McGowan (’54), CEO of MCI Communications, thought he’d impress the world with a “think piece” revisiting Levitt’s ideas. His conclusion? MCI wasn’t just in the communications business. It was also in the venture capital business, the lobbying business, the business of raising money in the financial markets, and the business of litigation (against AT&T).14 McGowan seems to have thought that a company was “in the business” of any activity it happened to engage in during the course of business. That wasn’t Levitt’s point at all.

  Levitt did put his finger on the fact that the era of mass production in the United States, so crucial to the growth of the economy in the middle part of the twentieth century, was losing steam. In mass production, scale is key, as it is the secret to declining unit costs. But once you’ve made something at scale, you’ve got to move it at scale—and that kind of company is designed around the seller’s need to move its product, not the buyer’s tastes. Once competition heats up, however—which was exactly what was happening in the 1960s—costs are just one part of the equation, the other being the need to convince the buyer to choose your product and not someone else’s. That’s where nonmyopic marketing, which Levitt described as “the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering, and, finally, consuming it,”15 came in.

  But Melvin Copeland had already said much the same thing—all the way back in 1914.16 Indeed, the “marketing mix” and its four elements—product policy, pricing, communications (including advertising), and distribution—had been the “organizing theme” of marketing courses at HBS since the 1920s.17 Of course, Ted Levitt’s students weren’t there when Melvin Copeland was, and many found tremendous value in his teaching style. “His technique in class was to be provocative to get you to think,” one former student, Michael Berolzheimer, told the New York Times, while also crediting a strategy session with Levitt as influencing his company
’s subsequent successful marketing of Duraflame logs.18 But too much thinking can take one’s eye off the ball of what they should be doing. One critic suggested that such dangers be referred to as “marketing macropia,” or the escalation of previously narrow market segments “beyond experience or prudence.” Mintzberg simply concludes that Levitt’s notion of marketing myopia itself proved myopic.19

  Levitt is also credited with popularizing the term globalization with a 1983 Harvard Business Review article. In “The Globalization of Markets,” Levitt asserted that the best-managed companies with international reach had moved away from customizing for individual markets toward standardizing products across all markets. The argument was bold and controversial, and it caused an immediate stir. But it was also wrong. When HBS professors Richard Tedlow and Rawi Abdelal looked back at the article twenty years later, they finessed the retrospective judgment: “The real reason to read Levitt is not to find out what is true about global markets, but how a manager ought to begin thinking about them.”20 It might have been wrong, but it was provocative, wasn’t it? As an alternative, you could always read someone who can deliver on both counts.

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  The Good, the Bad, and the Ugly

  To most Americans who know his name, Robert McNamara represents a single idea—the folly of Vietnam. His legacy as secretary of defense is as tragic as they come, the magnitude of which can be arrived at by contemplating the number of American soldiers who died during a senseless war—more than 58,000. And for most people, that’s enough; when taking stock of things that matter, a dead body is the ultimate trump card. That McNamara was a product of the Harvard Business School would seem largely beside the point. But it isn’t. Indeed, McNamara’s approach to Vietnam had HBS written all over it. And it wasn’t just that: While he was just one man, McNamara’s career offers the most extreme examples of how HBS thinking plays itself out in the real world—the good, the bad, and the ugly.