I, The Absolute

Archive for April 16th, 2006

Business is no science

Posted by itheabsolute on April 16, 2006

Not that I am a novice to the business world. I have had nine years of experience in banking. I have made decisions. I have been appraised for both my behavior and the outcomes I have managed. But in the busyness of doing my own job, I did not have time to reflect at length about my own decisions and decision making process.

Now that I am working with my friend on his business, I get to see the business and decision mking process dispassionately.

Business is hardly science. Despite the fact that today many disciplines within management use huge amount of math. Business involves decisions to be made by “people”. People are hardly fully rational. People are emotional. They are a-rational and in some aspects, irrational.

When such is the state of human beings, recommendations which are based on facts may not be implemented. My friend told me that there are certain decisions he ‘does not’ want to make. This may mean that the decisions are constrained and may not bring the optimal results. He is fine by them. There is a self-image element to his business. He cannot overcome that. Mind you, my friend is an entrepreneur and a much smarter person that I am. But still he is a human being. At the end of it, just thanks to small improvements in processes and products, his business would surely look better than now.

The point is that all that we read in a b-school tends to presume that human beings are rational. In fact, my first argument with Prof Krishna Kumar (macroeconomics professor at ISB) was that man is not (necessarily) rational. In the last few years, most of the Nobel Prizes in economics have gone to people who have worked in the behavioral economics.

Management education and its professors need to build new theories with a new ingredeient in their formula. That it is people who make decisions and that people are not necessarily rational. I guess we can achieve far more efficiency and profitability than we do now.

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