If you want to be an innovator or an entrepreneur, should you go to business school? At first glance, maybe not: Peter Thiel once said, "Never ever hire an M.B.A.; they will ruin your company." Meanwhile, Scott Cook, founder and leader of Intuit, recently told me, "When M.B.A.'s come to us, we have to fundamentally retrain them--nothing they learned will help them succeed at innovation." Perhaps a stronger indictment comes from Elon Musk, founder of Tesla, SpaceX, Solar City, and PayPal, who said, "As much as possible, avoid hiring M.B.A.'s. M.B.A. programs don't teach people how to create companies ... our position is that we hire someone in spite of an M.B.A., not because of one."

While we generally recognize that management training has value, why do leaders of innovative companies offer such harsh criticisms?

I would argue that the fault doesn't lie in the person but in the purpose of management itself. Business schools teach management principles that were developed in the later industrial revolution to solve the large-company management problem--not the innovation problem. As the industrial revolution transformed the economic landscape, replacing small workshops with large companies, the "new giants" created demand for management to make the trains run on time. Business schools followed close behind, with tools to train managers on how to coordinate and control these growing industry titans. However, while these more familiar management practices work well for relatively familiar problems, such as how to optimize activities and coordinate execution, increasing evidence suggests these techniques work poorly for managing the comparative uncertainty of bringing a new idea to market. In other words, business schools have focused on how to capture value from customers, not how to create value.

Another way to think about it would be to examine the traditional S-curve that describes the life of a product or company (see Figure 1):

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Early in the life of a company, during the startup phase, uncertainty is high and the entrepreneur is forced to wear a dozen hats to create value. Core tasks include search and discovery in an effort to create a customer. But once that uncertainty begins to resolve, the core tasks shift to execution and optimization in order to capture value. The founders are often kicked out of the company during this shift, and M.B.A.'s take the reigns to scale up the company.

When we talk about conditions of high uncertainty, we need what we might call an innovation school, rather than a business school, approach. An innovation school deals with the emerging science of managing uncertainty. Figure 2 shows the differences between these two schools of thought:

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To provide an example of how these schools differentiate, consider the following: In business school (B-school), when you study marketing, you typically learn the importance of building and protecting your brand or doing quantitative analysis to identify customer segments and get customer feedback. In an innovation school (I-school), however, you should initially ignore your brand and obtain all customer feedback through direct interaction, whether by experience, observation, or interviews. What's more, rather than emphasize building brands by satisfying a broad range of customers through perfected products, I-school emphasizes the need to test low-fidelity prototypes with small groups of customers, embracing errors as opportunities to learn.

Further illustrating this point, in B-school, when you learn finance, you're taught about marginal cost logic: the importance of leveraging prior fixed-cost investments with new initiatives. But this approach biases you toward incremental innovation efforts. In I-school, you learn how to look for opportunities to build something disruptive, something that hasn't been built before, to deliver a unique solution. In a world of uncertainty, leveraging investments can often be a bad practice, because it may lead to building a workaround solution instead of one that nails the job to be done.

I'm not saying that one approach is good and the other is bad. Both are good. The key to success is to recognize when to apply a more familiar B-school approach and when to apply I-school thinking--a decision that rests primarily on the degree of uncertainty. In other words, when uncertainty is high, apply an I-school approach. When the uncertainty has been resolved, use a B-school approach. Fortunately, business schools are starting to adopt these ideas, but we are in the midst of a transition. The real question is, how do you manage uncertainty? Are you applying the right process?

Published on: Sep 19, 2014