HR professionals currently have a golden opportunity to permanently record their strategic importance in the leadership of American corporations. Our current financial crisis has less to do with Wall Street, big banks, derivatives or sub-prime mortgages than with the fact that executive education has been failing our business leaders since 1975.
The global competitive environment changed fundamentally in 1975 and became a 21st century competitive environment before the new century actually arrived. The primary characteristic of the new century was that, for the first time in the modern age, America faced industrial competition. American executives needed to understand the dynamics of structural competitive strategy, but American business schools failed to notice the sea change in the global economic landscape. They continued, and continue still, to teach outmoded concepts of business and strategy.
Executive education has not prepared our business leaders to grow their companies in the face of fierce global competition. Unfortunately, foreign competitors are only part of the problem for American business. The greater threat is the major premise of business education that I call Whartonism. Whartonism is the belief that the essence of business is financial, therefore business executives should be financial managers. Unfortunately, this fundamental concept, upon which corporate America relies for its economic survival is mistaken. Business is not inherently financial. Business is essentially commercial–it exists to exchange value. A business is an organization that satisfies detected needs with products and services considered valuable and obtainable by those with the particular need.
A business must see what is needed and deliver it in a valuable and obtainable form. The ability to see what is needed in the marketplace is not a financial ability. Neither is the capacity to see what is needed within the corporation to deliver valuable and obtainable goods.
Whartonism, because it arises in business schools, substitutes financial analysis, which can be taught, for the true executive requirement, detection, which cannot be taught. To detect is to see what others do not, even though it is logically before them. Successful executives must continually see what is needed in the marketplace and see how to deliver it in a valuable and obtainable form. Detectors are not visionaries. Visionary executives routinely lead businesses to failure. Detectors see just a tiny bit of a thing and know what the whole thing is. They see a ravenous polar bear in tracks that are simply imprinted too deeply in the snow.
Bill Gates did not see tracks in the snow, he saw the polar bear. At the moment software buyers ceased to be programmers and became business managers, Gates detected a multi-billion dollar opportunity. Because these new software buyers could not measure the success of products they bought, Gates realized that software no longer had to actually solve problems. It only had to deliver a perceived margin of success. Gates understood that managers bought technical margins of success that they presented to their non-technical bosses as business solutions. He knew that as long as he redefined the margin of success with each version, he could resell products that had changed very little internally. And he could make a bundle. If Gates had tried to sell into NASA, rather than IBM, he would never have made a dime. NASA was run by brilliant detectors.
Detection is also the primary ability needed for creating effective corporate strategy in the 21stcentury competitive environment. Whartonism teaches that strategy is simply the projection of financial objectives onto the marketplace. In the 21st century, this postulate is dead wrong. Corporate strategy now must be the detection of strategic interests throughout the competitive environment and the promotion and defense of those interests in pursuit of actionable opportunities.
The failure of Whartonism in the realm of corporate strategy is most clearly seen in the American response to low-cost producers. American executives failed to detect their strategic interest in protecting the distribution and market presentation layers of the commerce stack. Low-cost producers have been allowed to expand into these lucrative sectors by launching powerful branding campaigns against unprepared American businesses. Had American executives been able to detect the their strategic interests in the global commerce stack, they could have contained low-cost producers at the production layer. Since the need for containment was not detected, the once thriving furniture and textile industries of the South have been lost and the ranks of American manufacturers have been devastated.
Whartonism will continue to threaten American strategic success unless HR professionals insist on executive education that recognizes the primary importance of detection in strategy, management and operations. Executive education must insist that financial managers serve executive management and refrain from becoming executives themselves.
HR professionals can reverse this continuing disaster, but they must seek, acquire and deliver to their executives strategic training that matches the conditions of the 21st century competitive environment. If HR fails to take this golden opportunity to prove its strategic worth, the great American Age in business will pass, undetected, except on the ledgers of foreign competitors.