In a world where the only enterprise that is happy with its investments in high-tech is the U.S. military, what chance does the MIT Media Lab, the product of corporate money have? This is the question asked by a recent WIRED magazine article.
The Media Lab made its money by convincing big companies to spend a portion of their profit on funding advanced R&D. Today the average big companies, with a combination of stock options and cash, pays its top managers an amount roughly equal to total profit. I.e., there is nothing left to invest in R&D at MIT or elsewhere.
In the long run the Media Lab may be remembered best for its revolutionary organizational structure. The typical university professor is expected to manage research, teach students, raise funds, and promote his or her glorious results. Very seldom will an individual be expert in all of these areas. Why not ape the commercial world and divide labor among specialists? That’s precisely what the Media Lab did. A dedicated staff of PR professionals did the promotion. A dedicated team of expert after-dinner speakers and schmoozers did the fundraising. The founders discovered that MIT did not valorize teaching and therefore the Media Lab elected to leave the grunt work of teaching to other departments. The best researchers were thus free to spend all of their time managing research.
It all worked great until (1) corporations decided they’d rather spend their money on vacation homes and private jets for their executives and board members, and (2) the Media Lab discovered a $multi-million accounting error that forced a lot of layoffs.
How did the accounting error happen? Basically there are two ways to set up a business. If you don’t believe that you’re a management genius you push profit-and-loss responsibility down to the lowest level possible. In the case of McDonald’s and its franchisees, for example, P&L responsibility is at the individual restaurant level. If one restaurant is doing badly if doesn’t have access to the bank accounts of the other restaurants and thus there is no way for the bad apples to drag down the barrel. Furthermore the top managers don’t need to care too much about how an individual restaurant is spending its money. As long as the group with P&L is making a profit, who cares how they are doing it?
An alternative approach is central management by function. The Freedom Fries cooks at all McDonald’s would report to regional managers and a VP of Freedom at headquarters. The soda pourers would report to middle managers under the VP of Soda. The drive-through cashiers at different restaurants would share a manager and so forth. If you have amazing business management skills in theory this method could produce higher performance and greater efficiency. However, without metrics and cost controls there is a substantial risk of bankruptcy because many fewer people have profit and loss on their minds.
Traditional research universities push P&L responsibility down onto the individual faculty member. He or she must apply for grants and can spend money only from those grants. Once the money from a grant is gone, that professor can no longer spend money. This way the university makes sure that more cash never goes out than came in (in fact they charged a fat overhead commission on that grant money when it came in so actually a lot less cash can go out than came in). A professor who is not successful at raising funds never puts at risk a lab that is getting a lot of grants.
The Media Lab went the big-company division-of-labor route but didn’t mature fast enough to have all of the departmental profit metrics and cost controls of the best large companies.
Prediction: In 100 years the Media Lab will be remembered primarily for its pioneering approach to managing university research.
(In the meantime, let’s hope that the new building gets finished. If you go to the basement of the current building and look at the model, I’m sure you’ll agree that it would be one of the nicest-looking and most comfortable buildings in Cambridge.)