Reshaping Business

Peter Senge hopes to redefine what it means to be successful in business—and wants business schools to do the same.
Reshaping Business

The term “management guru” may suit Peter Senge, a senior lecturer at the Massachusetts Institute of Technology in Cambridge, more than it suits many other top thinkers in business. Senge’s work at the Society for Organizational Learning, a community he founded at MIT, takes on both practical and philosophical overtones and focuses on a singular goal: to help businesspeople fulfill their individual and collective potential to accomplish great things.

Senge took an unconventional educational path to business—he earned his bachelor’s degree in aerospace engineering from Stanford University in California and a master’s degree in social systems modeling from MIT. His study of philosophy also inspired him to develop the concept of systems thinking, considered seminal by business leaders and academics alike. The model, which emphasizes “the learning organization,” takes center stage in Senge’s book, The Fifth Discipline: The Art and Practice of the Learning Organization. In the book, he views the organization as an integrated whole of individuals who, as they learn and work together, are greater than the sum of their parts.

If you ask people what their work environments are like, most would say that their company cultures have become even more stressful, more competitive, and less collaborative.

Senge also worked with Bryan Smith, Sara Schley, Nina Kruschwitz, and Joe Laur to write The Necessary Revolution: How Individuals and Organizations Are Working Together to Create a Sustainable World. In Revolution, Senge and his co-authors apply systems thinking to a model of problem solving and collaboration, which brings together diverse individuals to create, promote, and implement sustainable business practices.

It has never been more important for businesses to adopt such a model or for business schools to integrate it into their curricula, Senge emphasizes. Business is reaching a critical point in its history, when leaders must choose between focusing on short-term gains and localized concerns and emphasizing the long-term success of the larger community. The former option may look better on quarterly reports, he says, but the latter is the only way to secure the future for an organization and its stakeholders.

The Fifth Discipline was first published in 1990. Since then, do you think that forces such as globalization and collaborative technologies have brought companies closer to the model of the learning organization that you highlight in the book?
Some organizations have been shaped a great deal by technology and the global environment, becoming more collaborative, less hierarchical, and more network-based.

But if you ask people what their work environments are like, most would say that their company cultures have become even more stressful, more competitive, and less collaborative, and that they have no time for reflection. For the most part, business is still very reactive. Additionally, capital markets have placed more pressure on businesses to achieve short-term financial performance.

On top of that, we’ve got the effects of the corporate rewards system—executives obsessing about the value of their options, the extreme distortion of pay scales. Twenty years ago, people would view today’s ratio of CEO pay-to-frontline pay as a disaster for the organization, destructive to any sense of collaboration.

What kind of force would inspire more companies to adopt systems thinking?
At the Society for Organizational Learning, we’ve always stressed that there are no quick fixes. This work is really about building a learning-oriented culture. That only happens when there are enough people who are genuinely committed to learning, accepting their own fallibility, being open, and seeing how they’re part of the problem. This is what it takes for people to become great leaders—and by leaders, I mean people who are helping create a different culture, regardless of their positions.

What are some examples of the best learning organizations today, which you think could best inform the business curriculum?
Actually, our work has been less focused on individual firms and more on value chains. We’re looking at industries where there’s a growing consensus that the basic business model is failing.

The most prominent example of this is the food industry, where there’s a growing consensus that global agriculture is a disaster environmentally, socially, and economically. In the industrial age, the world has lost half its topsoil, and nature does not regenerate topsoil quickly. The global food system also is arguably the greatest cause of poverty in the world. Thirty million to 50 million people a year migrate from rural to urban environments to live in slums and shanty towns, as the globalization of commodity markets results in relentlessly falling prices, the collapse of farmers’ incomes, and the destruction of rural economies. Enough companies in the food industry are looking at the entire value chain and realizing that if they can’t create healthy farming communities, they won’t have a business in 20 years.

Are other industries following suit?
The apparel industry is getting there, by eliminating sweatshops and placing more emphasis on labor rights and community investments. The coffee industry started the Fair Trade movement years ago, when the average price of coffee was well below the cost of growing the coffee. That’s not a very good formula for coffee growers around the world. Companies like Starbucks, and even mainstream companies like Nestlé, have embraced principles of Fair Trade because they realize that if they force coffee growers out of business, they destroy their own businesses.

That said, there are only a few industries with that kind of critical mass; it’s definitely not universal. The financial services industry is among the worst. But more and more, there are industries embracing extraordinary innovation in managing the entire value chain.

Do you think that business schools should orient their own operations around the idea of the “learning organization,” to model that approach for students?
Absolutely. But the problem is that business schools are still in a pre-professional stage. They’re not yet professional schools, where the majority of faculty are advanced practitioners. In schools of architecture, the majority of faculty are accomplished architects; in schools of medicine, the majority of faculty are experienced physicians. But in business schools, the majority of faculty are experts in finance or operations or marketing, but they’re not master practitioners of management. Most have never managed anything. They develop theories about business, but those theories are disconnected from practice.

The consequence of this situation is that most accomplished managers are successful because they had natural gifts and good mentoring. An MBA is rarely critical to helping someone become a master practitioner of management.

What do you think it will take for business schools to move from the pre-professional stage to the professional stage?
There’s no substitute for time. We need time to develop something analogous to clinical research in management, where there is rigor in testing out ideas, tools, and methods in practice. It takes centuries to develop a profession that possesses a well-developed, integrated body of theory and practice.

But is anyone even working on it? I’m pretty critical of MBA programs, because I think they form an oligopolistic market that’s contrary to innovation. Professors earn their tenure through processes that have little to do with their proficiency as managers, and no one thinks that’s even an issue!

Very few business schools lose money on their MBA and executive programs, and the more prestigious these schools are, the greater lock they have on the market, and the less incentive they have to change. Right now, business schools have very little competition, but I think competition will come along.

In what form?
One great example of radical innovation in management education is Team Academy in Finland, where students learn business by forming teams that actually start and grow businesses. There’s no faculty—instead, the school draws from a network of 1,000 practicing and retired businesspeople who mentor the students.

Business is really an art form. At its best, it’s the artistry of how people create things together.

Some of these businesses continue; some of them don’t. But that’s beside the point. Doctors, architects, and lawyers don’t learn medicine by sitting in lectures. They learn by progressing through practice-based experiential learning opportunities. For students to learn to become businesspeople, they have to run businesses.

Most schools involve at least some students in real-world corporate consulting projects. Is that a move in the right direction?
Perhaps, but consulting is different than managing. Case-based education is great for training consultants, but it doesn’t necessarily develop managers. As consultants, students learn how to diagnose problems from a distance, give people advice, and walk away. But they don’t necessarily learn how to get people working together to accomplish things.

Learning and continuous improvement are about trying out new ideas, repeating cycles of experimentation, and coping with less than successful results. That’s not a consulting process; it’s a living process.

You seem very passionate about business. Do you think many business students come to school with that kind of passion for the discipline?
No, and that’s a real problem. Many people go into business to make money. As business students, they’re taught that the purpose of the business is to maximize the return on invested capital, which I think is total nonsense. Even worse, this approach creates a vicious cycle: When the business curriculum communicates this idea, it creates a selection bias that attracts students who hold that vision of business in the first place.

Years ago, during the dot-com bubble, C.K. Prahalad moved from the University of Michigan to the West Coast because he wanted to be in the middle of the entrepreneurial environment. I asked him then whether he believed entrepreneurs there were motivated by the opportunity to make money. He responded, “Oh, I think that’s absolutely true—for all the mediocre entrepreneurs.”

Great entrepreneurs are motivated by a desire to change the world. If they’re good at what they do, they’ll make money. But it’s more important that they have something they’re passionate about. If business schools continue to reinforce the idea that the purpose of business is to make money, we doom ourselves to mediocre businesses.

What do you think is the best way to view business?
Business is really an art form. At its best, it’s the artistry of how people create things together. As a collective creative process, business is not that different from theater troupes or dance troupes or music ensembles or movie productions. Business leaders have to deal with so many people who all have different egos and mental models. But when we create synergy among them all, we can accomplish something no one’s ever done before.

Years ago, Peter Drucker said that organizations exist so that people can do together what they can’t do by themselves. It’s so simple. Drucker also said that many businesses have no idea what they’re here to do; they have no idea of their larger purpose. In the end, business is about meeting social needs. Making money is the byproduct of that purpose.

Is it purpose enough for businesses simply to meet a market demand?
Some businesses operate with the idea that they’ll sell whatever people want to buy, but I think that approach is distorted. If your business is selling junk food or cigarettes, is it your business’s social purpose to cause people to be unhealthy or addicted? Business leaders really have to think more deeply about these types of questions.

There is a great book by Arie de Geus called The Living Company, which is a study of companies more than 200 years old. He found that all of them had the capacity to keep questioning whether they were really meeting social needs. Without that capacity, they lost their bearings.

What should business schools be doing to help businesses become true learning organizations?
Business schools should be asking themselves, “What’s our vision of the business of the future? How is our institution contributing to social needs?” The world cannot continue the way it is now, with so many problems related to food, water, energy, waste, toxicity, and the gap between rich and poor. Business schools need to develop a vision of an alternative type of business that can help solve those kinds of problems.