Can The Ideas And Research Of Management Professors Change The World?

While the influential work of economists is recognized by the Nobel Prize, and mathematicians have the Fields Medal, there is no equivalent for their academic peers in business schools.

But don’t underestimate the ability of professors in finance, strategy, marketing and other disciplines to change the way we think, and certainly how we do business.

The late C.K. Prahalad, author of The Fortune at the Bottom of the Pyramid, was a Professor of Corporate Strategy at the University of Michigan Ross School of Business for over 30 years. With fellow academic, Stuart Hart they made a case in the business journal, Strategy+Business for the fastest growing new markets and entrepreneurial opportunities being found among the billions of poor people ‘at the bottom of the financial pyramid’.

The article was followed in 2004 by the book, which according to Bill Gates, “offers an intriguing blueprint for how to fight poverty with profitability.”

The University of Michigan describes the work of one of the school’s most beloved teachers as indispensable reading for executives and scholars who wish to understand emerging markets. “He created the base of the pyramid idea and changed the way the world viewed India’s economic potential.”

When it comes to business strategy, INSEAD professors Renée Mauborgne and W.Chan Kim shared their vision of expanding, competitor-free markets in one of the bestselling business books of the century, Blue Ocean Strategy. With more than 4 million copies sold across five continents and translated into 49 languages, Blue Ocean Strategy argues that tomorrow’s leading companies will succeed not by battling competitors, but by creating blue ocean of uncontested market space ripe for growth.

For Nicolas G. Hayek, Cofounder and Chairman of the Board, Swatch Group, Blue Ocean Strategy is an extremely valuable book to read. “It examines the experience of companies in areas as diverse as watches, wine, cement, computers, automobiles, and even the circus to shed new light on the development of future strategies.”

In the past year, Harvard Business School professor Amy Edmondson has challenged the way that we think about failure with her book, Right Kind of Wrong: The Science of Failing Well. Drawing on a lifetime of award-winning research into the science of psychological safety, she shows that the most successful cultures are those in which you can fail openly, without your mistakes being held against you.

Thanks to Edmondson, you’ll never look at failure the same way again. But beyond a handful of bestselling authors, there are many other business school professors whose work and ideas challenges traditional thinking, including the economic theory that has won Nobel Prizes.

Traditional economic theory would have you believe that markets are the primary drivers of wealth and innovation. Nobel Prize winners Kenneth Arrow and Gérard Debreu developed a mathematical model that is central to the theory of general economic equilibrium.

Their work involves equations that remind you of Matt Damon’s character writing on a chalk board in Good Will Hunting.

But research from Professor Ramesh Rao, Professor of Banking and Finance at The University of Texas at Austin’s McCombs School of Business, looks to overturn decades of accepted economic shorthand.

“While proponents of free markets often cite Adam Smith’s “Invisible Hand” as a guarantee of optimality, our framework reveals a more nuanced reality”, he explains.

Rao models differently, and delves into the interactions between innovation, competition, institutions, and organisations.

His work argues that traditional value theory is blind to the realities of the world, and that firms can generate more wealth from innovations than markets. “What people aren’t willing to acknowledge is that in this theory, they assume that firms could never go bankrupt – there’s no liquidation, no negative earnings, and essentially no money.”

You don’t have pore through the Wall Street Journal every day to realize that bankruptcy and negative earnings are a reality for the world of business. And a world without money?

“The moment you bring in money, and the moment you bring in firms, the theory fails,” says Professor Rao. His research has brought those imperfections into the scope of analysis. He argues that money has a fundamental role to play in the economy, and that as liquidation is always a threat you cannot overlook.

“In a competitive economy, liquidation is always a threat. Because if somebody comes up with a new technology that can make yours outdated you will struggle to survive.”

MBA students are likely to agree. Pretty much every business school teaches cases that explore the failure of Eastman Kodak to keep up with the digital age, the Borders Group of bookstores losing out to Amazon, and the video rental company Blockbuster being taken out by Netflix.

“These companies had run out of ideas,” explains Rao. “Most people equate bankruptcy with debt, but even without debt if you don’t have idea that can create value you’re dead.”

Beyond the sophistication of complex economic theory, and research that has been published in top academic journals, Ramesh Rao is committed to sharing his expertise with new generations of business students at McCombs. The award-winning finance professor challenges them with the role that institutions and public policy can play alongside free markets.

His research shows policymakers that seek to encourage innovation and long-term prosperity should not only focus on markets, but also create an environment conducive to the formation and efficient functioning of firms.

But the key is to make it about real world situations. The kids coming out of a privileged high school on the west side of Austin might have all the support and networks they need to launch a well-funded business. But Ramesh Rao argues that the government has a role to play to make it easier to register a new business, and help economically disadvantaged individuals to gain access to capital.

“Small business promotes economic welfare,” he concludes. From such ideas, big and small, maybe business school professors really can help to change the world.