Management theories deal with human affairs, which are far more complex

Using Theory to Gain the Edge Good theories, invariably, are nothing more than practical common sense. Mohit Malik Businessworldindia.com October 03, 2005

Professor C K Prahalad advises us to work on our core competence in the pages of Harvard Business Review . Sunil Mittal of Bharti Enterprises thinks differently: he goes ahead and outsources the management of the company's entire telecom infrastructure. Not just that. In the biggest deal of its kind in the Indian domestic market, Bharti has also outsourced its call centres also.

In his classic text ‘Marketing Management', Kotler famously asserts that first-mover's advantage is the key to success. Here again, Sunil Mittal likes to think differently. He declares that he wants to roll out only technology that is at least one year old for his network.

If you are wondering about the meaning of core competence, look beyond the country. Even Nike outsources manufacturing of its shoes, and pretty much everything else. All of these are instances of companies going against conventional wisdom. Against everything that gurus preach. So who is wrong?

Can it be that neither is? The concept of core competence is a very powerful one. The key to using it lies in identifying your core competence correctly. In this case, is network management the core competence of Bharti? As for the first mover's advantage, Bharti would rather be the least cost mobile operator in the world instead (I believe, it already is). The cost of telecom equipment drops after the initial adoption. Since Bharti addresses the mass-market it prefers buying the equipment when it is cheaper, and the technology more stable. As Mittal often says: he charges customers two cents for a call. 1 cent is the cost and Bharti pockets the other 1 cent!

For Nike, a Drucker quote comes to mind, "Marketing and innovation are the two chief functions of business…Everything else is a cost center." Incidentally Nike does only two things in-house, R&D and Marketing. Drucker's words are definitely not a theory in the conventional sense, and am sure he never intended them to be. But definitely common-sense.

That said, theories are definitely very useful. It is not that “theoretical” equates with “impractical”, as is often said, or meant. They help us make sense of the world we live, and work, in. But, by definition, theory is general. Not always applicable. Not always applicable to every situation. At the simplest level, theories help us understand why a thing happens, and how. It is essentially a statement (though usually long-winded and fairly dense!) of cause and effect. Nothing more.

To take the example of ‘The First-movers Advantage', it is very important. But as millions of bombed dotcoms realized, just being the first is not enough to guarantee success. Google wasn't the first search engine. Amazon wasn't the first online bookseller. Internet Explorer wasn't the first browser either. Theory is useful only when it fits our situation. This apart, we need to know the factors that make a theory applicable and those which do not. The situation and the context in which the business operates is key. The theory by itself is not.

Management theories, unlike those of the physical sciences, deal with human affairs, which are far more complex. As times change, theories that were valid in one period might not retain their validity in another. Unlike the physical sciences, management sciences do not have “laws”. While a law notes that something happens, a theory attempts to deal with why or how it happens

But then even the theories of the physical sciences are not inviolable either. Peter Lynds, a 30-year-old college dropout from New Zealand challenged Einstein's Theory of Relativity quite successfully in 2003. Einstein posited that time is relative for each one of us. Lynds claims time is an illusion. Incidentally, Lynds is now writing a book on the structure of the universe. And his agent is the one who also represents Dan Brown, the author of The Da Vinci Code. But I digress. (if you will like to more of Lynds' work, drop me an email). Clausewitz reminds us "Theory can never lead to complete understanding, which is an impossibility, but it can strengthen and refine judgment." Blindly applying a theory is suicidal. But there is something even more dangerous.

Other Articles by the Author Leading Strategically The Reflective CEO A ‘Satisfying’ Solution Mohit Malik heads the leadership and strategy practice at Anoova Consulting . The views expressed in this column are his own. If you have ideas or suggestions for future columns or comments on this one, please contact me directly at mohit.malik@AnoovaConsulting.Biz