Critical Chain: A Business Novel (6 page)

B.J. picks up her memo and pretends to read it, slowly. "Well?" she says at last.
"It's totally unacceptable!" Christopher Page declares.
"Why? Your budget was approved based on a forecast. The forecast proved to be exaggerated by over three hundred students." She is firm. "What's so strange about trimming the budget according to actual registrations?"
"That's not the way to run a business school," he states, making a considerable effort to control his frustration. "We are not a mom and pop grocery store. We cannot and should not change with every small fluctuation. We have to work according to a long-term strategy."
"What long-term strategy?" B.J. softly inquires.
That throws him off balance. There is no strategy, unless one calls the tradition of increasing the budget by fifteen percent each year a strategy. On the other hand, he doesn't want to continue the debate about the future of the business school at this meeting.

"Chris, the business school must trim the budget according to actual registrations," she repeats.
"It's impractical and you know it," he answers impatiently. "The fact that there are fewer students per course does not reduce the cost of giving the class."
"We can reduce the number of courses," she insists.
"Too late," he says, categorically.
"No, it's not," she is as firm. "In the last two years the school has increased the number of elective courses by over fifty percent. You don't have to wait for next year, you can trim some next semester."
"It will be an administrative nightmare," he objects.
Ignoring him, she sails on. "And in so many required courses you are running two or even three parallel classes. Merge them. We can do with fewer adjunct professors."
Twenty minutes later, defeated, Page retreats from B.J.'s office. She is not happy, either. She knows she won just a battle. The business school's committees are still processing recommendations for tenure and are still actively pursuing donations for another building. She has no doubt that if she throws her weight around she can block them.
B.J. makes up her mind. She presses the intercom. "Please get me Bernard Goldsmith," she requests of her secretary. Bernard picked B.J. up at the airport. When they reached his car, B.J. said, "Let's not go anywhere, just drive."

He is not surprised. They had discussed it before. A car is one of the few places they can have a discussion without being interrupted.

Two minutes later they are on the highway heading away from town. The traffic is light.
"Bernie, I don't know what to do," B.J. almost whispers.
Bernard has known her for a long time. He knows that he doesn't have to help this strong and sharp woman to clarify her dilemma. She wouldn't talk, not even to him, before she verbalized it clearly to herself. She came to him to try and find an answer. So he patiently waits for her to continue. He has to wait for quite some time.
"Remember our last conversation, in Washington?"
"The drop in applicants for our business schools," he says, demonstrating that he remembers.
Of course he does. Being the president of a university, which has a large business school, Bernard is naturally interested in the subject. Not just interested, concerned. He was concerned before the dinner discussion in Washington. The discussion intensified his concerns, but day-to-day responsibilities distracted him. B.J.'s phone call brought it all back.
"I think that at the gathering in Washington we didn't analyze the problem correctly. It's much worse than we suspected," B.J. categorically states.
Regarding B.J. as one of the most forward thinkers in his profession, her last sentence really worries him. Anxiously he waits for her to explain.
"We were concerned about a potential, gradual decline in enrollments at our business schools," B.J. starts her explanation from the very beginning. "In Washington, we said that it was because the business schools' capacity grew, and continued to grow, beyond the market need for MBAs."
"We also said it might be that the word is out that an MBA degree doesn't guarantee a lucrative job anymore," Bernard adds.
"Correct. And since then I've conducted a large survey that verifies it."
"Can I have a copy?"
"Certainly. But Bernard, I'm afraid that we had a conceptual mistake in our explanation. Consciously, or subconsciously, we were extrapolating from the drop that happened in registrations to the law schools. The symptoms are the same, but I'm afraid that the causes are vastly different."
She pauses before she continues. "In law schools they are going through the normal adjustment between demand and supply. Their problem is that they over-supplied the market needs."
"Over-supply is an understatement. Who needs so many lawyers?"
She ignores his remark. "That is not the case for business. We are not even coming close to supplying the market needs. Oversupply cannot possibly be the cause."
"How do you know?"
"Everybody knows that there is a big shortfall of qualified managers. Couldn't you use some in your organization?"
"If I could get rid of some of my inept buffoons, I definitely could."
She smiles. "Oh, Bernie, it's so good to be with you."
"I will not say ‘same here' until you tell me the answer."
"The answer for what?"
"If we aren't over-supplying the market demand, why have we started seeing the same symptoms?"
B.J. becomes tense again. "I didn't say that we aren't oversupplying the market demand, I said that we are not even close to supplying the markets' needs."
"Have mercy on me, stop talking in riddles, I'm just a simple university president," Bernard jokingly begs.
"Bernie, when are we going to open our eyes?" she quietly says.
"Please open them for me," he requests sarcastically.
B.J. doesn't respond. She feels sad. It's so obvious, it's written on all the walls, it hit them in the face, but even Bernie doesn't want to face the obvious. Why impose it on him.
He strokes her hand. "Please." His voice contains only genuine interest. Well, it took her a very long time to face it, too.
In a lifeless tone she starts to explain. "What law students get in law schools is not just a piece of paper but essential knowledge. Do you know of a single person who thinks that one can become a good lawyer without studying?"
"I know people for whom the only good lawyer is a dead one," he tries to cheer her up. "But I see what you mean. Almost nobody will claim that you can't become a good manager without first having an MBA. You and I don't have MBAs and we manage large organizations."
"In the last few weeks I've used every opportunity to check the opinion of managers about the validity of our teaching. Bernie, it's horrible. There is widespread awareness that it's basically useless."
"Aren't you exaggerating?"
At any other time such a comment would trigger some harsh response from B.J. Any other time Bernard would not think of making such a comment.
"Some managers told me that they are disillusioned to the extent that they are no longer looking for young, bright MBAs. Others told me that they even discourage their people from registering for an MBA program."
Bernard had sufficient time to relate her message to his experience. It matched. Slowly, he says, "What you are claiming is that we are building our grand castles on quicksand."
"Let's face it, Bernie. We don't deliver and the market, to a large extent, already knows it."
They drive in silence for a while. Bernie tries to digest. "But B.J., it can't be. If you are right, nobody would have registered. We charge tens of thousands of dollars, they spend years of their lives, and we don't deliver anything of value? If that were true they would have thrown stones at us. No, B.J., you must be wrong."
"Bernie, what do you want? You want me to say that I'm wrong? You want to convince yourself that I'm just an hysterical woman who is absolutely wrong? But Bernard, what for? It does not change the facts."
At last she reached him. He cannot regard it any longer as a concern, as another item on the agenda. He knows she is right. Almost none of his friends consider an MBA important. He himself, when hiring managers, doesn't consider it as relevant anymore. Still . . .
"B.J., answer me just that. What is saving us from tar and feathers?"
"The respect for higher education," she answers in a lifeless voice. "Respect that is well-deserved by some of our departments but not by others."
It makes sense to him. His mind is racing now, trying to see the ramifications. "When organizations overcome the respect for a university degree the real collapse will happen. I wonder how many business schools will survive then. B.J., we must do something about it. We must save our business schools. They amount to half the university."
"There is nothing to do," B.J. says flatly. "Management is an art and we try to teach it as if it is a science. It cannot work, it doesn't work, and it will never work."
"I don't agree," Bernard is adamant. "It's not art. Organizations have procedures. They operate through defined structures. They institute rules. Management is not based just on impressions and intuition. In organizations many things can even be measured by numbers."
She thinks about it. "You may be right," she says, not willing to argue. "Do you really think that, in its current state, management is like an accurate science?"
"If it were, we wouldn't face the problem," he agrees.
"Do you also agree that we should not count on a miracle? That we should not behave as if we expect business know-how to be turned into science in the near future?"
She doesn't wait for him to agree. "So one thing is clear. We cannot sit around, doing nothing, waiting for the unavoidable collapse of our business schools. Bernard, we must move. It's our responsibility."
"What do you suggest we do?" He speaks so softly she barely hears him.
"There is only one thing that we can and must do. We must start to prudently shrink our business schools."
For another three miles no one says a word. Bernard thinks about what it means. B.J. does the same.
"B.J., I must bitterly thank you, but you didn't fly here just to open my eyes. You have a problem. What is it?"
"Bernie, I'm not up to it," she confesses. "I fought to become the president of a university in order to build. To build a place for young and not-so-young people to grow. Now I know I must slash, that's the only way, still I cannot bring myself to be a butcher."
"I understand," he quietly says. "But B.J., now we both know what will happen if we continue to refuse to address the issue. The business schools will tumble anyway, and if we don't start to trim now, the trauma will be much bigger. The business schools might take down other departments with them. We have responsibility for hundreds, for thousands of people."
"I know. Believe me, I know. But Bernie, I cannot do it. Not even the first step. I tried to bring myself to stop granting tenure. Our business school qualified eight candidates. I read their files. Not much is there, but from the little there is you can see how hard they had to work for it. How many years they devoted. I can picture their families. I can picture how it will ruin them.
"Don't misunderstand me," she adds. "I don't have any problem getting rid of a person who is not carrying his weight. Nobody will accuse me of being softhearted, but these people deserve better. They are good, bright, hard-working people."
"When you are in charge of an omelet you have to break eggs."
"Let somebody else break people," she says bitterly. "I'm thinking of resigning."
B.J. is not a person to say such a thing lightly. With effort, he restrains himself from referring to her shocking statement and says, "You don't break them. You do them a big favor."
She almost chokes.
"Listen to me," he continues in a harsh voice. "Let them get out now. They are young. They are bright. They will carve themselves a good niche. Every year that you allow them to stay diminishes their chances. The market will be less appreciative of their knowledge and they will be less able to adapt."
She doesn't answer. Five minutes later, she puts her hand on his. "Can you please return to the airport. I can still catch the six o'clock flight."
They drive in silence.
When she leaves, she kisses him on the cheek, "Bernie, you are a good friend."

There's a knock on my door. I raise my eyes from my work and see Jim already coming in with a stack of papers in his hand.

"It's beautiful," he says, and drops them on my desk. "With your twenty-six cases on top of the ones I've gotten in the past two years, we now have plenty for a good article."

He pulls up a chair. "Here are my suggestions for the various sections." He thumbs through the pile and at last hands me a handwritten page. I'm an expert at deciphering Jim's handwriting, but this one is stretching the limit.

"Overdue and overruns," I finally guess the first subtitle. "Rick, there is a lot of research published on the subject, and for most of our cases we don't have the exact numbers. So, what I suggest is that you assemble the most appropriate references and we'll report that our findings confirm the previous research."
So far it translates into a minimum of two boring days in the library, I note to myself, wondering what is still to come.
"The emphasis should be on categorizing the official and the unofficial reasons for the snafus," he continues. "I've scribbled a list of sections. Feel free to add."

So these serpents are the sections. I hand him back his page, saying, "It's better if we discuss each one of them."
After about twenty minutes I have the full list. I estimate that there are about seventy reports in the pile. How much time will it take me to go over all the reports, doing such an elaborate content analysis? A lot. It's boring work, but I have to do it. I can't give it to one of Jim's Ph.D. students.
But that was the deal. I teach the course and I do the dirty work. Then I have the honor of writing the first draft of the article and the second and the . . . And on each draft Jim's name will appear before mine.
I'd better not think this way. It's actually his course and his idea, and I do need to publish articles. I must stop these negative thoughts and be thankful for the opportunity.
I tell him about the pattern the class discovered: the lower the position of the manager the more the finger points not just outside the company but inside as well.
"Interesting," he comments. He thinks for a little while and then grabs the pile and starts going through it. I turn back to my work. At least ten minutes go by. Jim puts the pile down and starts to pace the room.
"Interesting," he finally says. I refrain from commenting that he had the same opinion fifteen minutes ago.
"Rick, I think that we should make this very interesting finding the center of the article. Our cases certainly back it up. Fortyfour different organizations, ranging from non-profit service organizations to industry; seventy-eight different projects, ranging from less than thirty thousand dollars to over three hundred million, and the same pattern appears in almost all of them. Rick, it's great! At last we have something important around which to center this impressive, in-depth survey. We should even choose the title in accordance."
Making so much fuss about such a minute point. But he is the expert on how to dress up an article, so I'm not about to argue. Still...
"Jim," I hesitantly start, "there is something else I've noticed, going through the reports." I rifle through the pile trying to find Fred's pages. "Where is it?"
As Jim is about to lose his patience, I find it and hand it over. "Read the financial status."
He locates it quickly. "Okay. ‘Due to budget overruns (sixteen point two percent) and delays in production, the original estimate of three years payback is now modified to five.' Typical. What's your point?"
"The budget overrun, being only sixteen point two percent, cannot possibly change the original estimate for the payback period by more than half a year."
"So?"
"But they had to increase the estimated payback period from three years to five. By the way, the person writing it is a project auditor and he claims that his friends are already pushing to change the official estimate to seven years."
Jim still doesn't get it. It's not like him. Patiently, I continue, "If the budget overrun can't possibly cause such a change in the payback period, it must be caused mainly by the delays in completing the project."
"So it seems." He starts to pace again. "So it seems," he repeats. "Let me see. What you claim is that the major, negative financial ramification does not stem from spending too much money."
"Financially, the overruns are much less important than the overdue," I stress.
"In this particular case you are right."
"I found it in six more cases."
"What about all the others?" Jim isn't overly enthused.
"I don't know," I admit. "As you said, for many cases we don't have the numbers for the overruns and overdues, not to mention the payback period."
"Pity," he says, and puts back Fred's report. "It could be an interesting addition, but never mind, we have enough."
"Jim, forget the article for a minute. I think that it is an important point. Important enough to highlight it to the students."
"Peculiar maybe. But important? In what way?"
"In the same report," I don't give up, "it's indicated that they chose the cheap vendors over the more reliable ones. How much do you think they saved?"
"How do I know? Maybe five percent. Can't be much more."
"You can also see," I continue, "that delays in getting the machines from those vendors was the prime reason for the delay in completing the project."
"I see what you mean." He picks up Fred's report again and looks at it intently. Finally, he says, "So they saved about five percent on the machines, which is, probably, less than three percent of the total investment in the project." Very slowly he continues, "And this savings caused them to turn a three-year payback project into..." He stops.
"Saving a miserable three percent caused them to turn a very good project into a loser," I summarize.
"Rick, calm down. We have made a lot of assumptions. It's not so simple."
I don't know what he is talking about. The effect is clear. Companies are so immersed in the mentality of saving money that they forget that the whole intention of a project is not to save money but to make money.
Out loud I say, "It's a simple fact that they try to cut the budget by a few percent and cause the payback period to double."
"Yes, I give you that, but it's not so simple. We have to assume a distribution of investment throughout the lifetime of the project. Then we have to assume another distribution of net income from the result of the project, the profit of the Malaysian plant in this case. We should also factor in interest and inflation. Depreciation of the machines and the lifetime of the products that the plant in Malaysia produces. The mathematical modeling will be quite involved." He raises his hand to stop me from replying.
Then he sits down and says, "Tell you what. It's a good idea. Too good to let it pass without checking. Find out what is already published on that subject and if we can find a crack I'll persuade Johnny to do the mathematical work. You know how good he is at that. It might work. Yes, it might."
"Don't you think that we should add it to the survey article? It will enable us to support the mathematical model with some real-life examples."
"We don't have to combine the two things into one article in order to support the model with case studies. As a matter of fact, I can make some telephone calls to my students from last year and you can ask your students. Maybe we can gather enough of the missing data to write a third article."
I'm uncomfortable with it. It shows, because Jim bursts out laughing. "Rick, Rick, when are you going to grow up? Join the real world? You never combine two articles into one; you always try to turn two into more."
He comes around to pat me on the back. "One day we'll make a mensch out of you," and he heads out. As he opens the door to leave he asks, "Did the class rebel because of the homework assignment you gave them?"
"Almost," I smile.
"It will be another excellent article. We are cooking." And with those words of wisdom, he leaves my room.
"Jim, wait a minute. Jim." He doesn't hear. I hurry after him, catch him near the elevators (it's amazing how fast he walks), take him aside, and ask the question that has bothered me since my last brief discussion with Miriam.
"I heard there are some rumors about a budget cut," I'm careful not to reveal my source. "Do you think it might jeopardize my chances of getting tenure?"
"Don't worry, Rick."
"But, I am. You know how important it is to me. I'll never get a third chance."
"Richard, it's okay! You'll get your tenure. You earned it fair and square. Everybody thinks so. I personally checked with everybody on the committee. It's not the tenure that should bother you, it's the promotion to full professor. You are way behind on publications. So will you start to concentrate on what counts? Work on those articles. They are your future."
"And what about the budget cuts?"
"Relax. There are some games between B.J. and the dean. High politics. But, I assure you, it has nothing to do with you." And he disappears into the elevator.