Gone are the days when structured curricula were designed by mapping a few textbooks. I remember when I was teaching a course in finance and valuation to post-graduate students at a University in England, all complex concepts were taught using spreadsheet modelling. All these concepts are well documented in textbooks on finance and there has been little or no change over the last few decades, except for the tax treatment.
During a particular course, one had crossed the half-way mark where students had learned valuation using free cash flow, discounted cash flow, fixed asset and other relative valuation methodology. The next day was a nightmare not only for me but also for many other academicians around the world because Facebook wrapped up its landmark $19-billion acquisition of WhatsApp. I knew that a smart German or British student would pose a question seeking an explanation on how a zero revenue company could get the $19-billion valuation.
This was the moment of reckoning, not only for me but finance professors around the world. Everything we taught or believed in was proven wrong. I don’t think any textbook in finance attempts to answer this question. All we could rely on was Facebook’s balance-sheet and AGM report. A new way of valuing a firm was used where Facebook had paid around $35 to 45 per user to Whatsapp. The parameter used to arrive at the valuation was the average time spent by a user on Facebook. The nature of calculation was not only innovative but also disruptive for the world of finance.
Burn rate
As if this was not enough, start-ups caused another disruption by inventing the concept of burn rate. One may pick any book on finance or investment where decision-making problems are mentioned. It always reaffirms the fact that, given a choice between two business proposals — one profitable and other loss making — you chose the profitable one.
In today’s world burn rate is a popular concept, where the higher the amount of burnt cash (not literally, obviously) or failure to capture market-share, the higher would be the funding. In short, the more losses you post, the more funding you seem to get — in stark contrast to the basic capital budgeting concepts that are taught.
An interesting outcome of all this disruption is that the academic world can no longer follow traditional methods of teaching or learning business management. Contemporary methods must be adapted to stay relevant in today’s evolving world of business. The only way this can happen is by using design thinking philosophy. Tim Brown, of IDEO, has always inspired me for continuously experimenting with teaching pedagogy to create an experience design for a class rather than merely delivering a lecture. Tim Brown says “Thinking of design as an experience rather than isolated objects helps us deal with a much more complex world.”
Changing narrative
The narrative of risk in the world of business has changed dramatically over past two decades. Traditionally, risk is defined as the probability of an event occurring that may lead to undesirable or unexpected outcomes. In today’s world, concepts and beliefs are challenged at each level. An event such as the sub-prime crisis, which occurred only once, was enough to make countries go bankrupt. Similarly, had one asked people to invest in an online or e-commerce company at the turn of the last century, people would have ridiculed the idea. Today, those very e-commerce entities — businesses like Flipkart, Snapdeal and Ola — are funded by ace investors from around the world.
Finally, the time has come for disruptive innovation in redefining B-school pedagogy. We need to move from traditional information-based learning to knowledge-based learning, which is where case study methodology can make a significant difference. However, the limitation of these existing tools is that they fail to bring a contemporary decision-making experience to classrooms.
Innovative pedagogy
At WeSchool, interdisciplinary learning is promoted through such new-age concepts as gamification, storyboards, music and simulations. For example, to teach a financial accounting course to engineers, we use the Monopoly board game to transact and create their own journal entries, profit and loss accounts and balance-sheets. Stories from Indian mythology are used to narrate and explain a concept of financial planning or wealth management.
Several other disruptive innovative pedagogies need to be explored to understand and explain complex business problems, such as ‘profit vs market-share’, ‘cost vs quality’,’ branded vs unbranded’, ‘core competence vs diversification’, ‘brick and mortar vs e-commerce’, ‘make or buy’, ‘low-volume, high-margin vs high-volume, low-margin’ and many other contemporary issues in the dynamic world of business.
The writer is Associate Professor – Finance, WeSchool and has expertise in behavioural finance, valuation, investment management, design thinking and innovation-led entrepreneurship.