85. Dr. Per Bylund on the Austrian School versus Business School

Key Takeaways & Actionable Insights

Why do business schools exist?

Dr. Bylund wonders if business schools are facing an existential problem.

Originally, their purpose was to train young people for a trade career. They transitioned into the field of management, preparing young people for the practice of management in large corporations. But the transition also turned the schools into creatures of academia, where research and theory are the dominant currency for professorial careers. Research and theory are not well-matched to the teaching of practice skills. So the professors borrowed from the rest of the university, especially the departments of economics, psychology and sociology, in order to concoct a management discipline. The result has been a disconnect with the realities of business.

Business school models and strategies reflect their academic, non-business sources.

One of the consequences of the derivative nature of the management discipline in business schools is the unrealistic nature of their models and strategies. Models tend to be static, calling for a “positioning” of firms or brands in a market or industry framework that is given or pre-existing. Dr. Bylund sees this as an extension of the equilibrium principles of classical economics, where the ideal is an absence of change. Business school models tend to require an assumption that industries and markets and competitive conditions are static, enabling the focus to fall on the variables of a firm or brand or offering, and how it penetrates or invades or “disrupts” the status quo.

Business schools miss the continuous dynamics of the Austrian view of business, markets, and economic processes.

The Austrian view of the market as a process unpacks a view of entrepreneurship and business management that sheds all vestiges of statics. Austrians understand that consumer preferences are continuously changing and that a firm’s offerings need to be continuously adjusted to reflect those changing consumer preferences. Austrian entrepreneurs know that the features and attributes of their products and services need similar continuous adjustment; the same goes for prices and promotional offers and advertising messages. Competing firms are doing the same, resulting in a complex adaptive system of multidirectional adjustment. Continuous change in response to marketplace changes is the norm. There is no place for fixed assumptions or static thinking or unbreachable boundaries.

The Austrian Business Model focuses entrepreneurs on value agility.

Entrepreneurship is the process of discovering how best to contribute to the ongoing market process, and how to facilitate a value experience for customers at every point in time. This focus on value automatically accommodates the changes in customer preferences and competitive offerings. Value in the perception of the customer is always relative to alternatives – either alternative offerings or alternative uses of their money for entirely different purposes (including buying nothing and saving instead). These relative comparisons, and the context in which they are made, are always changing. This is a totally different perspective for entrepreneurs than the “positioning” of business school models.

The Austrian perspective makes many of the standard business school concepts inapplicable.

Dr. Bylund’s overall commentary on business school content (their models and their strategy frameworks, for instance) concerns their applicability in real business situations. For example, their concepts of competition generally are framed against competing firms with substitute offerings in a given industry. But entrepreneurs know they are competing for the customer’s use of their dollars in the most favorable subjective value exchange, not against other firms.

Business schools urge business efficiency through cost reduction, but the real business objective is the customer’s value experience. They teach positioning in and penetration of markets, but there is no market without entrepreneurship; entrepreneurs create markets. They teach disruption and substitution, but entrepreneurs facilitate new ways of doing things for customers, which is neither disruption nor substitution — it’s creative advancement. They teach students to prepare comprehensive business plans, which can be useful exercises in thorough preparation, but they don’t substitute for interaction in the marketplace; customers don’t care to see your business plan. And their ideas of incubation are often to protect ideas from real market exposure.

Business schools can sometimes confuse the “who” of entrepreneurship with the “what”.

Austrian economics studies and analyses the “what” of entrepreneurship: the action of serving customers in a changing market in conditions of uncertainty. Evaluations of success come after the action is taken; it can’t be predicted, and no entrepreneur is more successful than any other in the planning stages of taking products and services to market. Only the customer decides.

When business schools elevate characters like Elon Musk or Jeff Bezos to iconic status and analyze their character and individual style, they are confusing the “who” of entrepreneurship with the “what”. Musk and Bezos are heroes because customers bought their offerings. Evaluating how and why the customer discovered and experienced value is more important than studying how Musk and Bezos behave.

Free Downloads & Extras From The Episode

“Austrian School vs. Business School” (PDF): Download PDF

The Seen, The Unseen, and The Unrealized by Per Bylund (Book): View on The Mises Bookstore

The Problem of Production: A New Theory of The Firm by Per Bylund: View on Amazon

Dr. Bylund’s essay, “The Realm Of Entrepreneurship in The Market in The Next Generation Of Austrian Economics”: View Essay

“The Austrian Business Model” (video):

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