Ahead of the Curve Read online

  Chapter Three

  A PLACE APART

  The Harvard Business School of 2004, when I arrived to begin my MBA, was a very different place from the scrappy little outfit founded in 1908. Just fifty-nine graduate students enrolled for that first year of an as-yet-unproven curriculum regarded with suspicion by most of the university. Other universities taught business to undergraduates at the time, but Harvard was the first to try a graduate course. The rationale for the new school was articulated by the president of Harvard, Charles W. Eliot, in a speech to the Harvard Club of Connecticut on February 21, 1908. “Business in the upper walks has become a highly intellectual calling, requiring knowledge of languages, economics, industrial organization and commercial law and wide reading concerning the resources and habits of the different nations. In all these directions we propose to give professional instruction.” The goal of the school was to educate not only future businessmen but also senior diplomats and government officials, who increasingly needed knowledge of business and organizations to do their work.

  In its early years, the school struggled to define its purpose and place at Harvard and within the broader business class. In June 1909, Edwin Gay, the first dean of the school, wrote to a friend:

  I am constantly being told by business men that we cannot teach “business.” I heartily agree with them; we do not try to teach business in the sense in which business men ordinarily understand their routine methods, or in the sense in which you speak of teaching young men to be “money makers” or “to get the better of their competitors.” We believe that there is science in business and it is the task of studying and developing that science in which we are primarily interested. It is our aim to give our young business men the breadth of horizon, as well as the equipment of information and grasp of principles which will enable them . . . to be better citizens and men of culture as well as broader men of business.

  Gay resolved to adopt the case teaching method from the law school. Rather than hearing lectures, students would learn business by analyzing real situations and discussing them in class. From this, they would derive general principles applicable throughout their careers. The method was known as “learning by doing,” and it has persisted to this day. When the first designs for the school were commissioned, Gay’s successor, Wallace Donham, said he wanted the business school’s architecture to support a “life of plain living and high thinking in surroundings of quiet good taste.” He emphasized that it was important for the buildings to help students socialize and become “something more than money-makers.” It was one of the great money-makers of his time, however, who put up the money for these buildings. George F. Baker, the president of the First National Bank, had been a towering figure on Wall Street for sixty years by the time the business school’s fund-raisers came knocking. Along with J. P. Morgan, he had financed the Gilded Age boom of the late nineteenth century and acted as the de facto U.S. Treasury at a time when Washington’s financial expertise was negligible. He was also famously taciturn, hence his nickname The Sphinx. Baker once said, “[B]usiness men of America should reduce their talk two-thirds . . . There is rarely ever a reason good enough for anybody to talk.” This barrel of laughs hemmed and hawed about Harvard’s request for $1 million of the $5 million needed to build the business school before offering the entire $5 million, if he could have “the privilege of building the whole school.” In 1925, in a rare torrent of words, he told a gathering of the Harvard Business School Club that he hoped the school would “graduate some of the greatest men in the world” and “teach them so to conduct themselves as to gain the respect of their fellows and also to keep up their standards of integrity, for thereby they may gain for themselves the greatest happiness that life can bestow.”

  The first dormitories at the school were named after former U.S. Treasury secretaries Mellon, Dillon, and Gallatin, while the faculty and administration were housed in Morgan, named after J.P. The majestic heart of the campus was Baker Library, with its soaring silent reading room. By 2004, Baker’s original campus had expanded to cover over forty-four lavishly appointed acres. The endowment of the business school was edging toward $2 billion. Aside from the nine hundred MBA students enrolled each year, hundreds more businesspeople were cycled through the executive education program. Harvard Business School Publishing was a $100-million-a-year business all by itself. The school employed two hundred faculty members and maintained research offices in Hong Kong, Paris, Tokyo, Mumbai, and Buenos Aires. Graduate business schools had sprouted at universities across the world, churning out tens of thousands of MBAs each year. But year after year, Harvard Business School sat atop or close to the top of the media’s business school rankings. It was a behemoth, a global brand. The HBS MBA, I heard it said, was the “union card of the global financial elite.”

  HBS sits on the opposite bank of the Charles River from the rest of Harvard. Surrounding it is the Boston suburb of Allston, which consists largely of collision repair shops, freeways, and decaying housing stock. It is a brisk ten-minute walk to the charming chaos of Harvard Square, the center of the university, but the psychological gulf is wider. HBS refers to the larger university as “across the river,” as in “across the river, they wear tweed jackets, read Marx, and haven’t a clue about how the world really works. Here at HBS we know better.” In Harvard Square—really more of a pedestrian-choked triangle—you find the usual college town throng of studentsin khaki shorts and flip-flops, bums, crazies, and panhandlers with Ph.D.s. In one corner of the square you can pay two dollars to play chess with a taciturn Ukrainian. In another you can buy coffee in the same store frequented by John F. Kennedy when he was an undergraduate. The lamp-posts are encrusted with flyers inviting you to watch a play, buy a bike, or donate sperm at the local hospital. There is a newsstand in the middle of the square where you can buy newspapers and magazines from around the world, or join the desultory group of antiwar protesters who seem to have taken up permanent residence there. The streets are lined with bookstores and secondhand record shops, burger and pizza joints, and of course a place to buy Tibetan artifacts and yoga mats.

  In the square you might see a visiting president, a rock star, a religious guru, an old friend, or maybe just a creepy Iggy Pop look-alike wearing nothing but cycling shorts and asking for train fare home. In the morning, students run through the square on their way to class, and at night they crowd the ethnic restaurants, spilling out onto alleys, stairways, and terraces. In the summer, high-school kids and adults on extension courses take over, excited to be at Harvard. In the fall, rowers ply the Charles River readying for the regatta in October, the trees turn the color of the Georgian brick, and the turquoise cupolas on the oldest buildings stand out crisply against the pale New England sky.

  Cross the river to the business school and you leave all this behind. The winding flower-lined paths and stately buildings exude a gilded, country-club inertia. When you look through the windows it is a surprise to see young people staring into laptops rather than butlers polishing silver or caddies repairing golf clubs. It feels like a place to contemplate the grand and universal, the clouds scudding across the sky, and the swirling flight of birds. Anything but the pros and cons of activity-based cost accounting. The students are trim and well turned out. All have neat haircuts. The ivy climbing the walls looks as though it has been combed into place. Every blade of grass, every flower and hedge has been tended to, and sprinklers sputter on and off to a regular rhythm.

  A friend who had visited Baghdad’s Green Zone said that Harvard Business School felt eerily familiar. Whatever hell befell the rest of Iraq, the Green Zone was made luxurious with palm trees, swimming pools, and functioning electricity. Its occupants cocooned themselves from the unfolding horror so that they could focus on the broader mission of rebuilding a country. So, too, HBS smacks of an ivory tower, cut off from the world outside.

  The first building you pass as you enter the campus from North Harvard Street is Shad, a hulking brick gymnasium,
off-limits to the rest of the university. It is probably best kept that way, as Shad really has no place at a graduate school. It should instead be part of the U.S. Olympic Federation’s elite training facility. It houses immaculately maintained basketball, racquetball, and squash courts, saunas, steam rooms, and an indoor running track. The weight-training machines are constantly maintained to keep up with the extreme demands of the student body. Visiting executives stop by just to gawk. The four tennis courts beside the gym are occupied from the moment the long Boston winter relents until it returns.

  Beyond the gym lies the heart of the campus, Spangler Hall, completed in 2001 and named after Dick Spangler, class of 1956, who was chairman of the Bank of North Carolina and later president of the University of North Carolina. It contains the school cafeteria, a bar, a sprawling student common area, meeting rooms, an auditorium, a post office, and a general store. The doors swing open at the merest touch, a hint of the luxury to come. The soaring celery-colored walls are hung with monumental pieces of contemporary art, donated by a Canadian investor, Gerald Schwartz, class of 1970. In winter, the gas fireplaces are lit early each morning so that students can loll on the chocolate brown leather sofas and toast their feet while tinkering with their financial projections.

  The cafeteria is divided into seven separate stations where chefs in white toques offer everything from made-to-order sandwiches to stir-fries, sushi, pasta, and international specials that change daily. One day it is Scandinavian salmon, the next, a Moroccan tagine, the next, sausage and sauerkraut—a perfectly globalized menu. A spindly little man with a jockey’s bowlegged gait operates the espresso machine and prepares infusions of Oriental teas.

  Spangler was like no student facility I had ever seen. It felt more like a Four Seasons resort. You half expected to see a tennis coach wandering through, flirting with his pupil, or a bellboy hustling past with a trolley full of luggage. A couple of weeks into the course, I was chatting with a German classmate, Max Verlander. On the surface, he was a rather dour engineer from Frankfurt with a pudding bowl haircut. But beneath lay a devilish streak. We were standing outside the cafeteria looking into the common room, where students lay stretched out on the sofas tapping languidly at their laptops and talking into their cell phones, so certain of their place in the world. Max looked into the room and said, “It’s decadent, isn’t it?”

  Chapter Four

  RIDING THE BOOZE LUGE

  I spent the first weekend of the RC with Margret and Augie. The summer heat was finally abating and we attacked a knot of trees in our small backyard, chopping and disentangling them until they were less of an ugly clump. After living all our adult lives in apartments in cities, it was novel for us to be in a two-family house with a backyard and our very own garage. Even though we knew we had only two years here in Cambridge, the start of business school felt like the start of a steadier time in our lives. I had exchanged the rootlessness of being a foreign correspondent, the frequent, unpredictable travel, for a regular schedule. For the first time since we had been married, we could plan our weekends knowing that I would be around.

  After our first section meeting, on Friday, we had had to pick up the rest of our case studies for the semester. These came in four large white plastic bags. All across campus, students staggered home, grimacing under the weight—roughly that of a large load of supermarket shopping. As I tottered along toward the bus stop, Stephen, a friend from Analytics, stopped me to ask me to join his study group. In Analytics, we had been assigned study groups, but now we were on our own. HBS strongly encouraged the formation of study groups, four or five students who would meet for an hour before class each day to discuss the upcoming cases. The study group would allow us to clarify the ideas that had come up as we prepared the cases alone and to warm up our brains each morning. Before coming to HBS, Stephen had worked for the State Department, specializing in Far East Asia. He had worked on trade issues, helping out businesspeople, and eventually he concluded that it might be more interesting, and more lucrative, to go into business himself than to remain a diplomat. I had sat opposite him in Analytics and had watched him closely. He rarely took notes and often spent the classes staring into space with a broad grin on his face. When I asked him how he remembered everything we discussed, he tapped his head: “It’s up here. I find it easier just to concentrate on what is being said than to take notes.” He had an easy confidence about him, so when he approached me to say he had three others lined up for a study group and would I like to be the fifth, I said yes.

  “Who are the others?” I asked.

  “The classic HBS lineup. A banker, a consultant, and a consultant turned venture capitalist. And then there’s you and me to lower the tone.”

  We arranged to meet for the first time on Monday morning at 7:30. In order to get to campus on time, I set my alarm for six so I would have time to walk the dog, shower, help with Augie’s breakfast, and catch the 6:50 bus to Harvard Square. I reviewed my cases as the bus rattled along the Cambridge streets, glancing over the passages I had highlighted, mentally noting the questions that remained. Waiting on a sofa in the basement of Spangler Hall was Alan, a Princeton-educated Indian with a background in astrophysics and venture capital. Alongside him was his roommate, Ollie, a Chinese American who had rarely seen daylight during his past two years as an analyst on Wall Street. He was sipping green tea from a large Styrofoam cup. After a couple of minutes, Stephen arrived with Michael, a reserved Sean Penn look-alike who had worked for a Hollywood studio and was counting down the days until he could return to Los Angeles.

  “Shall we start with marketing?” Stephen said.

  The first case was about Black and Decker. The company’s power tools division was in decline. Some blamed the firm’s decision to start making toasters and kettles as well as drills for diminishing the brand. Others saw the main threat as low-cost competitors from Japan. Either way, the company was now considering beefing up its image with professional workmen by launching DeWalt, a line of bright yellow power tools.

  “I think this DeWalt idea sucks,” Stephen began. “When you’ve got the Japanese pounding you on cost and quality, why would you look to yellow tools to save you? It doesn’t make any sense.”

  “I agree,” Ollie said. “The first thing I’d do is get out of toasters. They’re low margin and they’re hurting the brand. I once spent time working on a construction site and the workers used to make fun of each other’s tools. They don’t want to go to work and have people say things like ‘Hey, you bring your wife’s tools?’ You’d think they’d just pick the tools which work best, but they’re actually really image conscious.”

  “Look at this,” Alan said, pointing to the case. “Black and Decker is the seventh ranked brand in the United States. You have to use that. It doesn’t make sense to have that kind of brand-strength and then start a separate brand to get away from it.”

  “But we’re still not explaining how they can improve their share in the tradesmen and industrial segments,” Stephen said. “If you look at page four, Black and Decker has forty-five percent of the consumer segment but just twenty percent in the industrial tools segment and nine percent in the tradesmen segment. And those two segments are each worth around the same as the consumer segment. When you look at the consumer survey, it says that the users in these segments much prefer the Japanese brands. I can see Black and Decker worrying that those feelings will apply to all their products soon.”

  “So which option are we going for?” I asked. “Do we just stick with what we’re doing and try to improve margins? Create the Black and Decker sub-brand? Or go with this new DeWalt line?”

  “I say we go with the sub-brand,” Alan said. “We can try it out, use our brand recognition and focus on service and design.”

  “Sounds good,” Stephen said. “What about accounting?” In the next case, the owners and players of a baseball club could not agree about the club’s accounting methods. “I couldn’t figure out this depreciation thing.
Did anyone get a number?”

  “Yeah, I calculated that management were overdepreciating the team by five million a year,” Alan said.

  “I got seven point two million,” Michael said. And for the next ten minutes we argued about it.

  As we arrived in our section classroom, everyone seemed to feel the moment. We were at the beginning of nine months with these people. A couple of them had come fresh from college and must have looked at Bob and me as weathered veterans of life. There were midwesterners in baggy gray sweat-shirts, nattily dressed Asians, Wall Street women in designer shoes and expensive jeans, and the consultants in their chinos and white T-shirts under blue shirts, clicking their pencils and lining up their financial calculators, ready to work. This was the real start of the “transformational experience” HBS promised, the first step on a well-worn path to worldly success.

  Our marketing professor was Tom Steenburgh, a barrel-chested man with close-cropped brown hair. He looked like the kind of solidly built salesman I used to see in rental car offices when I traveled around the United States. All he was missing was a bag of golf clubs and an oversized Burberry raincoat. He showed us a video of Black and Decker’s come-to-Jesus presentation of the plan to launch DeWalt. Steenburgh told us that people believe anything in sales meetings. The challenge is to be skeptical once you’ve left. As we considered Black and Decker’s difficulty in fending off cheaper, higher-quality Japanese tools, Bob raised his hand. He recommended that the company sell its tools as Made in America, playing on their buyers’ patriotism. A former political strategist across the room interrupted to say “going nativist” was neither very appealing nor sustainable if the Japanese tools remained both better and cheaper. His comments, often accompanied by his throwing down his pen in exasperation, quickly became a highlight of the class discussions. Steenburgh emphasized that the answer to resolving Black and Decker’s challenge would be found by focusing on what the customer wanted rather than on what the company could offer. The customer, he said, should be the center of any company’s universe. “A good product,” he said, “doesn’t always get you there.” You needed marketing, sales, and customer service to sell it.