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31/03/2023. 02:58:15


Por y para profesionales del Derecho

In Praise of the Inductive Way of Doing Business

Kimio Kase y Federico Marinelli
profesores de IESE Business School

The model-based, deductive way of doing business prevailing in today's management teaching does not explain the success of the likes of Virgin Group's Sir Richard Branson and Lenovo's Liu Chuanzhi. This essay suggests intuition and the viewing of the world from particular phenomena to general principles might be the force behind their success.

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Let us launch a conjecture on the way research is being pursued and relevant education is carried out in our field of specialisation, namely, the strategy field and, based on it, suggest an idea to circumvent the limitations imposed by such a trend.

Our conjecture is that management teaching and research stresses too much model-based thinking, which is due, ultimately, to a penchant for the deductive way.

In the management field intuition, hunch, homing instinct, love and hate, all these human touches have long been replaced by elegant strategic models, competitive landscape, competitive advantage, and resources and capabilities, etc.

What's happening is that the Law of Large Numbers prevails over tiny (or maybe not so tiny) individuals. Even the intuition is coded and interpreted, and ultimately converted into explicit knowledge.

Strategy researchers have long been trying to find universal or generic models to explain away upsettingly unexplainable phenomena that affect management thinking. In corporate-level strategy they still strive for the finding of such generic models, though. For many of us the world must settle down and become a peaceful and quiet place, once the dust caused by new management phenomena has settled down.

The problem is that we focus on the phenomena from the viewpoint of deduction in the assumption that everything can be reduced to a set of few variables. As French managers are reputed to say: "It's interesting in practice, but let me see if it fits the theory."

As a consequence of the focus on the deductive way of thinking, apart from possible and growing convergence on similar ways of doing business, what's left out? There are management phenomena that are branded as heterodox and treated as outliers in the vast field of the universe. But they are legion.

Take the example of Virgin Group. Sir Richard Branson first set up a record company (Virgin Record) after trying his hand as a student newsletter publisher, etc. His business empire now comprises a wide and sprawling array of business activities including airline company (Virgin Atlantic), shops (Virgin Megastore), social and environment business (Virgin Earth), etc., which goes counter to the accepted wisdom of diversifying into related businesses.

Other emerging examples are to be found in China, where entrepreneurial companies such as Lenovo and Youngor are forking from their original businesses (computers and textiles) into real estate or venture capital activities with success. In Japan Sony successfully entered insurances and banking, not to mention video game equipment and film businesses.

The answer to these phenomena from the field of management, especially from that of corporate-level strategy was that the unrelatedness was to be coped with by means of control systems such as financial controls in the words of UK's Ashridge Researchers or behaviour rather than input or output control as in the case of GE under Jack Welch. But after all is said and done, they are considered to be exceptions.

Academics and consultants had a nagging sensation from this and tried to coin concepts and create tools such as emerging strategy, tacit knowledge, knowledge management, etc., though still central to the management teaching are model-based and deduction-centred themes.

Our hypothesis is: the more advanced is the management education thanks to business schools, and therefore, the more developed the economy, the less inductive is the way of thinking at management class.

So what solutions are we to propose? From the academic and educational viewpoint there are several things that we could bring to bear on this issue.

Furthermore, emphasis ought to be put more on the practice, i.e., on the job training to enhance the sharing of tacit knowledge at the operational level. Secondly, more stress must be laid on teaching methods that could be less removed from the practice: the case method could be a good means if theories and a specific analytical framework are not imposed, taking into account the fact that the method was developed (though may not have been invented) in the inductive background of the Anglo Saxon legal profession in contrast to the deductive Continental European legal arena. Thirdly, more weight is placed on research centred on shedding light to the cognition process by inference.

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