How often have you taken a sensible, rational, informed decision about management issue and seen the result turn out differently from what you expected? Come on, can you even count the times when the reverse happened?
Subjects in MBA courses are often categorised by the students as being either “hard” or “soft”. Examples of “hard” topics are Economics, Finance, Law and Accountancy. They are “hard” because they are based on hard facts, and hard numerical data. There is a presumption of a direct and predictable relationship between action and reaction. We can rely upon “the market” or “the economy” or “the man on the Clapham omnibus” to react in a predictable and rational manner.
“Soft” subjects include Human Resources, Leadership and Organisational Behaviour. They are “soft” (often described derisorily by both students and lecturers as “fluffy”) because cause and effect appeared less predictable and therefore it was usually impossible to say what action should be taken in a given situation. The reason for this was that the subjects were dealing with human behaviour in a very raw and real way.
But what if we cannot rely upon the bedrock of the hard subjects anymore? What if it turns out, for example, that shareholders (or stakeholders come to that) are not driven exclusively to maximise value? What if individuals’ actions, which drive the economy, can flip-flop due to unconsidered parameters (such as social fashions, current events, or their state of health)? Or that “the man on the Clapham omnibus” is mostly influenced by whether he had a row with his partner that morning?
What if their decisions are made unconsciously and can only be considered rational when looking at that individual’s life in “the round”? Surely then we have to accept that on the whole, we do not understand why people make decisions. Recent research in decision making suggests that this may well be the case and that decisions are often made unconsciously.
Suddenly the “hard” subjects appear to be built a little squishy.
Economists already have a tangential way of admitting that they don’t understand the economy. They talk of “Economics being like trying to drive a car by watching the rear view mirror”. They don’t exactly say that they don’t understand the economy, but that they can’t predict the future. Still, Economics in this model reduces to “pull a lever that worked in a similar situation in the past and see if it works this time”.
Of course the Finance guys have the king position at the top of the pile of “hard” subjects. They can talk with certainty about the “cost of finance” and “the perfect market”. In a post-credit-crunch world these claims look a little squidgy don’t they? I recall sitting in a Finance lecture during my MBA whilst we calculated the optimal level of gearing for a company. “But what” I asked the lecturer “if interest rates go up?” I’d lived through 15% interest rates, so knew how scary that could be. “Oh”, he said with great confidence, “you would just replace some of the debt with equity”. Companies went bust during the credit-crunch through high debt costs and a total lack of willing investors, so I’m not sure he understood Finance either.
What should be really scary to the “hard” subject guys is that the only way that they can hope to understand their subjects in depth, is by understanding how and why individual people, or groups of people make decisions. So the bedrock of the hard subjects is built on the “fluffy” subjects?
When you believe in things that you don’t understand,
Then you suffer,
Superstition aint the way
Stevie Wonder, Talking Book (1972)
Superstition is the religion of feeble minds.
Edmund Burke, Reflections on the Revolution in France (1790)