Confidence minus competence equals arrogance

(The article was first published in Mar-Apr 2014 edition of Aurora.)

Dr Shahid Qureshi, Programme Director, Centre for Entrepreneurial Development, IBA, speaks to Aurora about why business schools are not the best place to develop an entrepreneurial mindset.

AURORA: Why did the IBA set up the CED six years ago?
SHAHID QURESHI: To understand where the gap was, we had to begin by talking about the business schools which, to be honest, are becoming a bit of a liability. They are becoming a burden to the economies all over the world; they are creating a breed of managers who are not connected to what is happening on the ground. In the words of Henry Mintzberg (Cleghorn Professor of Management Studies at the Dessautes Faculty of Management of Mc Gill University), the managers created by today’s business schools can be defined by the following equation: confidence minus competence is equal to arrogance. In Mintzberg’s view, schools such as the Harvard Business School, the London School of Businesses and the Ivy League universities, expose their students to 600 to 700 case studies covering marketing, operations and HR. And all these courses are about successful business leaders and how they made that journey. So at the end of all this, these students end up wanting to become the CEOs of this world by the time they are 30. They learn fancy jargon, terminology and about management tools, but the purpose is not learning; it is to impress others. This creates an artificial confidence among these graduates. They adopt a certain lifestyle and dress code which they think will make them stand out from the rest of society. They are given the impression that they are chosen ones; the privileged ones.

A: Could you elaborate on Mintzberg’s theory?
SQ: According to him, competence can be defined by execution capability and people skills. Execution capability means that if you give a task to a manager, he will be able to deliver on time in a cost effective way. MBAs are very good at PowerPoint presentations but are least suited to doing any execution. If you ask an MBA graduate to do something, the first thing he will ask for are resources and step by step instructions. As far as people skills are concerned, this goes back to the fact that their role models are CEOs, and ordinary people in their eyes are just commodities – a deputy manager, an assistant manager and an engineer are all commodities. They see themselves as heroes; they are future CEOs because they were educated at Harvard, LUMS or IBA, and according to Mintzberg this leads to arrogance. I am a MBA graduate from LUMS but later I had to unlearn many things to become a professor of entrepreneurship. Entrepreneurship is 180 degrees opposite to what we teach in the MBA programme. There is a particular mindset running through these business schools because their objective is wealth maximisation which is why very few such graduates join Pakistani companies; most of them prefer to join multinational companies or the banking sector.

A: Isn’t this because multinational companies offer better salaries?
SQ: Even if the salaries are comparable or even a bit more, they do not want to work in a seth company.

A: Why not?
SQ: The conditions and the environment are not as conducive compared to what multinationals offer. In a seth company they will have to learn about that industry. At companies like Nestlé, P&G or Unilever, they do not have to learn much. They are already prepared in terms of presentations, marketing strategy, HR practices, but when they join a company in the textile or manufacturing sector or a Pakistani setup, they have to deal with people who have been around for 20, or even 40 years; people who are not MBAs, but engineers, technicians and who have risen from the bottom up. In such companies these graduates feel like misfits and because they have not been trained to be adaptable they leave after four or five months. Only a small percentage ends up working for local companies.

A: So there is a disconnect?
SQ: The multinational mindset is based on what is called ‘causal thinking’, which means that we undertake something when we have the resources. We plan ahead to do anything. Entrepreneurs adopt the ‘effectuation way’ of thinking, which means that you start with what you have and take the first step. And when you take the first step, you will find new means and gain new knowledge and new information that will enable you to take another step, which by the way, is how things happen in reality. The founders of Procter and Gamble started off making candles and soap. Companies like Sitara Textiles (Haji Bashir Ahmed and Haji Abdul Ghafoor) started by adopting the effectuation method. There are a lot of problems in the MBA programmes in terms of mindset, pedagogy and faculty. This method of training has created misfits. This realisation has developed over the past four or five years and it is taking the world by storm.

MBAs are very good at PowerPoint presentations but are least suited to doing any execution. If you ask an MBA graduate to do something, the first thing he will ask for are resources and step by step instructions… Entrepreneurship is 180 degrees opposite to what we teach in the MBA programme.

A: This realisation has given shape to what kind of new thinking?
SQ: According to the new thinking, business schools are a question mark because they are not producing entrepreneurs or inculcating an entrepreneurial mindset, which is the real backbone of an economy. Creativity and innovation come from entrepreneurship, but business schools are focusing on managerial capitalism. We are producing managers and ensuring that a certain monopoly stays in place and these graduates are very good in places which are monopolies. They perform at their worst when they go to an emerging company which is coming up with new ideas and where creativity is required. According to research done in the US in the 1970s, it is the small companies that are contributing to the economy; in fact 95% of radical innovation was coming from entrepreneurial businesses. This was a very interesting discovery and the conclusion was that if innovation and creativity was taking place among smaller companies and if young people could be inculcated with these talents, it would trickle down and benefit the economy.

A: Is this the reason why the CED was established?
SQ: The entrepreneurial wave has taken over the world. Name any country and you will find that entrepreneurial centres are spreading like fire. USAID asked the IBA to carry out a pilot study and test the concept. The point is that our population is increasing and there are not enough jobs; employment is a basic need but neither the government nor the multinationals are able to provide enough jobs. The idea was to set up an entrepreneurial centre to connect and encourage young people to become entrepreneurs and eventually employ people.

A: This was a USAID initiative?
SQ: Initially. Afterwards we raised our own money and built this Centre. We connected with Babson Business School, which is a top ranked school for business and entrepreneurship in the US, and they provided technical support and training. With entrepreneurship becoming a buzzword, the business schools did not want to be left behind, but the problem is that their faculty, curriculum and mindset are programmed into the causal way of thinking. They tried to introduce one or two courses as part of a BBA or MBA programme, but the experiment didn’t work. Even at Babson, which is famous for entrepreneurship, only five percent of their graduates go on to become entrepreneurs, the rest go find a job. It was universities like MIT and Stanford which took another approach based on the idea that anyone with a skill and passion can be taught entrepreneurship in two to three months. They started teaching three month courses on entrepreneurial skills to electrical engineers, mechanical engineers, chemists, biologists, horticulturalists, and it was quite revolutionary. In Pakistan, the IBA under the leadership of Dr Ishrat Husain was the first school to take this initiative. Our journey also began the MBA way and we introduced courses in entrepreneurial skills in the BBA programme, but after two years we found it was not clicking.

A: Why was it not clicking?
SQ: Because of the mindset of the students and also because if they are taking 40 courses and only three are on entrepreneurship the message is diluted. Then an interesting development happened two years ago when Naheed Shah, the then Director General of the Sindh Board of Investment, called me to discuss whether we could design an entrepreneurship programme for the rural youth of Sindh, based on which they would arrange funding from the Sindh Board of Investment. This was the beginning of a very interesting programme. We designed a six-month fast track entrepreneurship programme and inducted people based on their interests, knowledge and ability to do something hands on – repair a motorcycle, manage livestock, raise poultry. We advertised the programme and we recruited 60 people from Sindh and Karachi who had a BA, or at least had some skills or at the very least were willing to learn something.

A: What was the profile of these people?
SQ: Some were qualified, but unemployed, engineers and doctors. Others were BAs or were dispensers, knew tailoring; we had two women MAs in biology who could not find jobs. So, basically people who had a degree in a specific area or some expertise. We taught them the effectuation way of thinking. The first principle is ‘the bird in hand’ principle, which says look at the resources and the network you have – your father, uncle, brother, and convince them to give you a loan. The second principle is ‘affordable loss’, which says if you have Rs 100,000, invest Rs 5,000 in something and if you lose that money, it doesn’t matter; it is only five percent. This is contrary to the MBA model which says go to the bank; go for resources that are not yours, because you should not take the risk yourself. In the MBA model you develop a business plan and then go to a bank or an investor. In our model we say identify a need or gap in an area you are trained in or are passionate about, look within your means, your networks, your family and then start something small. Then take the second step and you will find new resources and networks. Take Karachi Foods; let me share a story to help you understand these principles.

A: Please go ahead.
SQ: Syed Mehmood, the founder of Karachi Foods, was not earning enough to support his large family. One day his mother suggested that to supplement his income she would cook haleem and he should sell it on the roadside. So Mehmood started off by painting a few advertisements in his locality; his mother and wife cooked the haleem and he set up a stall and made his first sales. The bird in hand principle – his mother, her recipe, his wife, the utensils they owned. He invested Rs 5,000 – ‘the affordable loss’ principle. People gave him feedback and he improved the haleem. Sales went up, he resigned from his job, brought in his two brothers and then applied the ‘lemonade principle’. When nature gives you lemons, make lemonade, when nature gives you apples, make apple pie. It means that you have to be open to surprises and leverage them. In the MBA programme it is the other way round; you do a lot of contingency planning and try to avoid surprises. In entrepreneurship we say leverage surprises. Someone suggested to Mehmood that he start making biryani. And he did further experiments and those surprises led him into many directions and today Karachi Foods is a billion rupee business.

The first principle is ‘the bird in hand’ principle, which says look at the resources and the network you have – your father, uncle, brother, and convince them to give you a loan. The second principle is ‘affordable loss’, which says if you have Rs 100,000, invest Rs 5,000 in something and if you lose that money, it doesn’t matter; it is only five percent.

A: What role do angel investors play in motivating budding entrepreneurs?
SQ: In the US angel networks are usually experienced individuals who are also serial entrepreneurs and have an expertise in a specific area. So if someone comes up with an idea that matches their expertise, they will consider investing in it. In Pakistan angel investors are a new phenomenon and the concept will take some time to develop. At the moment we are doing basic experimentation at a micro level. Angel investors in Pakistan are not going to trust young students. At the IBA we enable our students to start a business, make some money and acquire a track record. After that they can use the credibility of the IBA platform to pitch to potential investors. We tell potential investors not to invest large amounts, but to do it according to their affordable loss. We want to develop credibility, strengthen our student entrepreneurs and once their businesses start to take off, they can try and convince bigger investors.

A: How many angel investors are there potentially in Pakistan?
SQ: Entrepreneurship research has shown that there is tonnes and tonnes of money lying around and lots of ideas, the problem is lack of good people. Entrepreneurship is not about making money; the entrepreneurial phenomenon is about creating value for the community, the nation, the world.

A: Given bureaucratic hurdles and lack of best practices, how realistic is it for young Pakistani entrepreneurs to live up to those values?
SQ: According to recent research, entrepreneurship is an amazing tool to sensitise people to be socially, environmentally and ethically sensitive. Of course there is non-productive or even destructive entrepreneurship – for example selling narcotics. But productive entrepreneurship is about passion. But, yes, it requires a level playing field, where government regulations enable rather than do the opposite. Let me give you another example. One of our BBA students had a passion for cars. He used to read up on how to repair and maintain them. While taking a course on entrepreneurship, he realised how much he knew about them. So he started a business from home. People bring their cars to him; he diagnoses the problem and then takes the car to the mechanic. The mechanic charges the same amount he normally charges a customer who comes to him direct and gives 10% of the amount to this student. He started by taking his family’s cars to the mechanic and explaining what needed to be done. He then started reading up about car technology on the web. He downloads the manuals and teaches the mechanics how to fix new cars because most of them are not very literate. So he has established his credibility among the mechanics. Today he has two people working with him from home and about 200 clients. He is making a hundred thousand rupees plus every month. He works from home so he has no problems with batha and even strikes don’t bother him. With technology one can avoid government intervention and rent-seeking mechanisms and if we enable our students with the right technology and mindset, there is going to be a big wave.

Dr Shahid Qureshi was in conversation with Mariam Ali Baig. For feedback, email aurora@dawn.com