‘Silo’ Thinking Let Us Down — Actions that made sense in isolation guaranteed a financial crisis when added together

By Stefan Szymanski

Abraham Lincoln once said, “I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts.” Business schools set out to prepare people to manage by telling them the truth about business, so does the present crisis prove that they have failed us?

As with bankers, this is a time for business school professors to show some humility. What most business schools do best is teach disciplines, such as accounting, finance, strategy, organizational behavior, and human resource management. Strengths vary, and employers have been adept at tapping into the richest veins buried in the leading schools. Thus there is a very real sense in which the best business school thinking in finance ended up being implemented in the most creative banks, that the best business school thinking in strategy ended up being sold by consultants to the world’s leading corporations, that the best business school thinking in organizational behavior and human resource management ended up being applied to the recruitment and performance management of employees at the highest levels.

This thinking let us down. The current economic crisis is a crisis of financial analysis, a crisis of strategic thinking, and a crisis of employee management. Bankers and dealers sold products whose risks they either did not understand or did not care for; their senior managers approved strategic plans neither understanding nor caring about the risks that were being run, and the whole show was underpinned by incentive management schemes that made no sense in anything other than the very short term. These actions made sense taken in isolation, but when added together they more or less guaranteed a crisis. In other words, the coordination failure of the banks reflects a coordination failure inside business schools, a “silo” mentality in which the value of specifics with strictly limited applicability outweighs the value of a broader wisdom.

For more see businessweek.com.

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