When managers are more effective than markets

During the Intro to Management lecture on October 15 we discussed the need (or not) for the professionalization of management (Khurana & Nohria, 2008) and the reason why firms exist. With the recent scandals attributed to managers and their alma maters, these are useful questions to ask. In contrast to "professionalized" occupational roles like doctors and lawyers, however, managers must deal with planning, organizing, leading, and controlling (the four basic functions of management) - planning for an uncertain future, creating effective and efficient structures for organized activity, motivating and directing people, and trying to keep everything on track. It is the manager's skills that allow organizations (aka "hierarchies") to be superior in many cases to markets and contracts (the domain of lawyers). In recognition of these important differences and the importance of organizations in economics, Oliver Williamson is one of two economists who won the Nobel prize for economics this year. Professor Williamson's work explains conditions under which firms or markets would be the superior form of organization. For us, the challenge is to create managers who can master planning, organizing, leading, and controlling the functions of the firm. Professor Williamson knows we could never codify that! (Clicking on the image takes you to the October 17 story in The Economist)

Khurana, R., & Nohria, N. 2008. It's time to make management a true profession. Harvard Business Review, 86(10): 70-77