Monday, October 4, 2010

Business as usual is not good enough anymore

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The global financial crisis has changed the way we do business. It has forced society to re-evaluate its attitude to risk and wealth generation, and prompted a critical appraisal of corporate responsibility and ethics.

The crisis has also affected thinking on management. The manner in which business leaders interpret these phenomena and accordingly alter their conduct in the marketplace has profound implications for the future of the international economy. The need to adapt, argues Prof. Walter Baets, the head of the University of Cape Town’s Graduate School of Business (GSB), is urgent and unavoidable.

Speaking at a UCT alumni event in Sandton on September 28th, Prof. Baets argued that being ethical or socially responsible are not nice-to-haves. Rather, not to be more socially engaged would run the risk of fundamentally misunderstanding how the world really works, and business’s role in that world.

What characterises emerging markets such as our own, Baets explained, are high degrees of uncertainty, high degrees of complexity, and extreme levels of inequality. Reflecting on his years in the financial services sector, he criticised the process of financial modelling. Many of these analyses, he said, have no bearing on the reality of emerging economies and the complexities of their social landscapes.

Baets described the traditional managerial technique of solving problems through assessing cause and effect as a classic Newtonian Paradigm. However, the challenges facing businesses today are different: they are non-linear, deeply complex and full of unforeseen variables. The problem with most financial models, he noted, is that they presume we can solve a complex world solely by examining causal relationships. You can’t.

Ninety five percent of what business schools teach is Newtonian, he said, but what is really needed is something akin to Quantum Mechanics, a practice which takes into account multiple, and seemingly invisible paradigms when approaching a problem.

“You can never understand a phenomenon in three dimensions if you live in a two dimensional world,” he said, “If you want to understand an organisation you have to understand it systemically.”

As head of the UCT GSB, Baets also attacked the pedagogy of business schools, insisting that MBA students need to grasp that their learning is not about a fixed set of outcomes. “Traditionally in an exam we don’t test intelligence; we test your capacity to say what [the examiner] wants you to say,” he criticised, gesticulating wildly.

“I can’t teach you anything! I can only teach you how to learn […] For example, I can explain the rules of soccer but I can’t make you a soccer player. The same is true for a musician or a pilot.” The latter, he explained, aren’t given the joystick and told to fly; they are introduced to piloting gradually through flight simulators. The same approach should be taken with managers, he mused.

The professor used yet another metaphor, that of the motorcycle racer who has to balance on the threshold of collapse while taking a corner at high-speed. He insisted that if you want your business to win the race you need to go beyond the equilibrium and push yourself to "the edge of chaos". Like the motrorcyclist, you need to do this at every turn, not just once or twice.

In terms of business' social strategy, Baets submitted that companies should ask themselves what they add to society - a broader question than simply evaluating their philanthropic contribution. “It all starts with values. What are you doing it for? If you company is bankrupt, what are you missing? And if the answer is 'nothing', then why do you exist?”

Baets insisted that you cannot decree to become a sustainable or ethical company overnight. “If you really want to have a transformational impact on society you have to understand society and people in a holistic way.”

Photo: David Ansara

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This article was originally written for MBAnetwork an information portal and networking site for prospective and current MBA students in South Africa.

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