Bad Management Theories are Destroying Good Management Practices

The paper argues that the management theories like the Agency problem, Transaction Cost
Economics and Porter’s 5 Forces have an impact on how businesses are operated. The author
though also argues that these theories give the pretense of knowledge but do not actually have
the backing of analytical data that prove these theories to be truly representative of reality or
of real human behaviour in a business context.

On the face of it, these theories seem to make sense and due to their internal logic, appeals to
the general public as something that must be true or at least gives the pretense of being real
knowledge. This is what the author is trying to attack, as they feel that there is a lack of
scrutiny applied to such theories. Due to this ready acceptance of such theories, business
norms are being put forth that the author feels might not be good management practice.

A simple example of this could be the Agency problem, which says that the agent and the
principal have differing interests, and thus the principal has to incentivize and control the
agent in such a way as to align the agent’s interests with the principal’s interest. Although on
the face of it this seems logical, but there is a lack data and analytical research to back these
claims. But since the Agency problem is taken as a given and is disseminated across the
business world through B-schools, it gives rise to norms within businesses that are trying to
control the agency problem that might not even exist.

This presentation led to a healthy discussion in the class regarding what should a
model’s/theory’s purpose be in the first place. In different contexts, different models might be
useful. In a purely academic context, an academician tries to create/build a model/theory that
is as close to reality as possible, and not only provides predictive power but also provides
explanatory power, i.e., the model/theory is able to present a mechanism for whatever the
model/theory is trying to explain. Also, an academic will keep trying to improve their
model/theory as long as the accuracy doesn’t reach close to a 100%. In a business context
though, a model/theory is only useful if it provides the managers with considerable predictive
power which can help them make better decisions. Thus, a model that gives them any
advantage over their previous decision-making process is going to be useful in a business
context.

Constructed Reality

This presentation described 4 concepts of realities and the logic behind each of them. These 4
are namely Objective, Perceived, Constructed and Created Realities.

Objective Reality states that there is a tangible reality which can be experienced and thus
understood objectively. It accepts that research on individual phenomenon is imperfect, but
with sufficient time these approximations will converge towards a single reality. This idea of
naïve realism is criticized due to independence of investigators and observers being suspect
to bias.

Perceived Reality states that there is a tangible reality but it cannot be fully known or
understood. Each vantage point brings with it a unique perception of reality. Thus, even
though there is a tangible reality, only a partial picture of it can be understood or known, and
that the full picture is inherently unknowable.
Constructed Reality states that reality itself is a construct in the minds of individuals, and that
reality does not hold any meaning in itself. Thus, the concept of reality is itself a construction
of ours in some sense. It further argues that even if there was a tangible reality that exists
outside of our mind’s construction, it is still outside the limits of our knowledge.

Created Reality states that there is no reality and that it exists only when it is perceived.

The author personally arrives at a view point that reality is constructed, especially when it
comes to handling social and behavioural realities.The presentation led to a discussion on
what everyone thought about what kind of reality we live in and whether these reality
concepts themselves were context dependent.