What’s common across the Boeing 737 MAX debacle, the 1MDB financial scandal and America’s opioid crisis? They are all illustrations of how business leaders, in pursuit of performance, neglected and undermined progress – specifically fairness, well-being and sustainability.

With each such scandal, trust in business frays. While one may blame specific firms and leaders, too much is amiss in modern business to solely blame the actors, says Professor Subi Rangan in this podcast. Business theory and business education also warrant careful scrutiny and correction.

Rangan brought together eminent social scientists and philosophers to examine and assess fundamental assumptions in business theory. Their insights are presented in a new book, Core Assumptions in Business Theory: A Wedge Between Performance & Progress, published by Oxford University Press.

The book contends that assumptions taught in business schools and guiding business decisions, while often caveated, remain unchallenged. To remedy this, Rangan and his collaborators scrutinise core assumptions in each business field, including economics, strategy, marketing and leadership.

One fundamental assumption, for instance, is that the primary goal of the economy is to maximise output– more goods, more services, more consumption. Bigger output however does not necessarily lead to better outcomes. An economy may produce more drugs and surgeries (output) and yet not improve people’s health (outcome). We must, Rangan argues, re-centre the economy on outcomes.

Similarly, economic rationality implies using “minimum means” to produce output. The “means” usually involve people and materials. Accordingly, minimum means rationality amounts to squeezing wages and neglecting the environment. But suppose, as Rangan proposes, we integrate minimum means with minimum harm (to people and the planet). The profit function of conventional business theory then evolves in a subtle yet significant way: Π = (P − θC) *N . As before, p refers to price, c refers to cost, n refers to number of customers; but the new term θ refers to harm. Low costs may mean high harm and vice versa. 

Theory and education ought to encourage our students to creatively seek a “joint minimum” of costs and harm. This way, MBA can come to mean Master of Better Alternatives. And that’s what we are aiming for at INSEAD.