29 Jun 2015 18:00 IST

Why B-schools need to re-invent themselves

It is time management institutions moved from teaching innovation and business models to changing their own business model via innovation in all spheres

Management education in India is well over 50 years old with IIM Calcutta and IIM Ahmedabad both established in the early ’60s. Faced with its own set of challenges, like any other sector, this field too may see a shake-out in India. Will the MBA of India’s management institutes endure as a brand?

Globally, there are 15,673 business schools, of which over 4,000 are in India.

Most agree that at least a thousand B-schools in India will close in the next few years. India produces four lakh MBAs every year; however, only 1.5-2 lakh students take an entrance examination to get into the course. The rest go through on different criteria and that’s where the variability in the final MBA ‘product’ begins.

Early B-schools stressed on developing managers for an already industrialised society that was seeking order and efficiency. Hence, the early curriculum emphasised management, efficiency, effectiveness, organising and allocation of resources.

Value and greed

In 1976, Michael Senser and William Meckling published Theory of the Firm, where they argued that managers were chasing market share and results, but not maximising returns for shareholders. They said managers must be incentivised to deliver higher returns to shareholders.

Wider adoption of such thinking led to the focus on shareholder value and quarterly earnings and led to the boom of MBA graduates in banks, consulting firms and Wall Street. This also saw an increase in the number of finance professors in B-schools.

Another outcome, however, was greed, resulting in higher bonuses and perks. Every economic challenge raised the question: Are MBAs good for business and society?

Today, people agree that shareholder value is one part but the bigger picture is meeting broader stakeholder interests. Hence, the fundamental question of the ‘purpose’ of a firm is now back at centre-stage.

Let’s look at three things that impact management education: the promise of the MBA, the concerns of a B-school and the companies that recruit MBAs.

Changing Environment

The MBA is a brand in itself and is successfully differentiated from the other masters’ degrees on the promise of a better paying job, on developing a global mindset, and on the promise of potential leadership roles.

B-schools chase rankings. Having a good rank is an advantage in attracting students, faculty and employers. The true benefit of rankings is long-term value creation and leveraging a well-placed alumni network.

When management education started, the firms it served were either government or private enterprises.

The number and type of companies have changed significantly in the last 50 years. India has the largest number of listed companies for any country, a little below 6,000 firms. The bulk of these firms are family-run.

Family-run companies function differently from traditional multinational firms.

A family- or owner-driven company wants things to get done. Its promoters negotiate/bargain a lot. For them, cash is king, and they generally display a ‘do-it-yourself’ mentality. They are about being bold and dissatisfied with the status quo and they think in terms of legacy. This type of firm is mostly all about the heart.

By contrast, the traditional professionally-managed multinational firm is about delegation, hiring talent, objectives, resources, negotiating turf wars, accountability, and setting direction for the next few years. This type of firm is generally more about process.

MBA students are better off learning the things that are valued in a family firm because in the future, they will live and operate in unpredictable times.

Reinvention

B-schools need to reinvent themselves. Else, like companies, they will be sidelined and many will die. B-schools teach innovation, they need to start innovating themselves now.

First, B-schools should not react to changes in society and demands of firms in a society. They need to lead through new concepts.

The last set of big bold concepts from academics were from Peter Drucker, about 50 years ago, when he talked of business units, profit centres, management by objectives and span of control.

Jerome McCarthy gave us the 4Ps of marketing. Igor Ansoff gave us the product market matrix. Chandler defined structure and strategy in the 1960s, and a practising manager — Hal Geneen of ITT — taught us how to run a conglomerate. In the 1990s, Drucker coined the ‘knowledge worker’ concept, while the late CK Prahalad came up with the ‘Bottom of the Pyramid” idea

It is vital that academics generate such concepts, making corporates and society think and handle things differently. Academics have tremendous power to reshape society and business thinking.

Second, B-schools must inculcate a family-/owner-driven mentality, attitude and curriculum. This should include entrepreneurship, purpose and contribution to society. These aren’t new as most owner firms started with the intent to serve society.

Third, B-schools need to recognise that they must augment theory with practice and hence offer more courses in execution. Execution is the biggest challenge while being the biggest handicap for an MBA student today.

Fourth, a B-school needs to prepare a student first for followership and next for leadership.

Most MBAs want to be CEOs. Historical evidence shows that less than 5 per cent of any batch makes it to significant CEO positions. So, 95 per cent of a batch will actually be in the follower mode. Followership is crucial to leadership success.

Fifth, the traditional method of classroom and case-method teaching needs to give way to more practical, real-life type of learning.

Niche MBA

B-schools need to embrace technology. Massive open online courses (MOOC) should be part of a B-school’s future, as they have the potential to make rock stars out of teachers! Such online interaction will drop the cost of education, improve its quality and democratise access to learning.

The product ‘management education’ itself needs to be revamped. Should future specialisation, say journalism plus MBA for the media sector, fashion plus MBA for the fashion industry, and so on, be the roadmap? In what ways should the MBA be redefined and what variants of the degree will be attractive to various sectors?

The number of students seeking admission to B-schools is dropping. B-schools are making a combination of cosmetic and fundamental changes to energise their MBA programmes.

It is time such institutions moved from teaching innovation and business models to changing their own business model via innovation in all spheres. Their purpose should be about leading concepts and producing a caring, empathetic society made up of focused and contributing individuals. Such people will be far more than leaders!

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