Missing The Point

The success of management…has greatly changed management’s meaning. Its success has made management thegeneral, the pervasive function, and the distinct organization of our society of organizations. As such,management inevitably has become "affected with public interest." To work out what this means formanagement theory and management practice will constitute the "management problems" of the next fiftyyears.

-- Prof. Peter Drucker

I grew up on the campus of IIM Ahmedabad. I was not a member of the privileged body of whiz kids whoconstituted then, and increasingly constitute now, the student body of the Institute. I was one of the manyfaculty children, envious of them and their good fortune; and wondering what was in store for me when I grewup. But I did get opportunity to rub shoulders with them outside their classes and some of their aura did ruboff on me, over my years in Ahmedabad. Emotionally, I came to have a deep attachment to the IIMA Campus as ifit is my true home and to the image and destiny of the Institute as if it were the destiny of my own family.

The on-going discussion on the Education Minister’s directive to cut fees drastically for the MBAprogramme made me sit up and think about its consequences, both short term and long term. The fees will eitherbe cut to the level directed, or will remain as they are, or will be somewhere in between. Correspondingly,revenues of the IIMs from MBA fees will decline drastically, or will remain as they are, or will fallsomewhat. Government may make good the deficit, or may review the overall budget of the IIMs in the context ofall of their plans and programmes, and suggest changes in these, purely to keep down their budgetary subsidy.Possibly, Government may even attempt saffronisation of the Institute, whatever it means. Life will go on.What difference will it make to IIMA’s image and destiny?

For me the surprise is not that critics of the government decision exist, but that so few members ofleading management faculties are willing to contribute significantly to the debate.

When I was in college, I remember listening in on a conversation comparing the Harvard Business School andthe Sydenham College of Mumbai. Both started as business schools in the same year, 1908. Their prospectusesshow that the objectives adopted for them were almost identical. And yet, over the years, the progress made bythem has been widely divergent. What makes it so, I wondered. And would IIMA go the way of Sydenham College asa result of this one directive to cut the fees?

The Board of the Institute, corporate managers, faculty and MBA students have opposed fee reduction on fourgrounds:

(a) Students can afford high fees. They can easily get loans from banks and can repay them quickly because of thefat salaries they get immediately on graduation.

(b) Government’s scarce resources should preferably go to fund primary education.

(c) It will take away the institute’s autonomy and enable government to interfere with academic freedom; and

(d) It is a retrograde step in these days of the ‘liberalised economy’.

Government has funded almost all the capital expenditure of the institutes so far. Until recently, therevenue expenditure was also being substantially met by government grants. And yet, for forty years, theinstitutes enjoyed all the autonomy and all the academic freedom, which enabled them to show outstandingresults and accumulate their high brand equity. There is nothing to suggest that this will be reversed ifgovernment continues to fund the institutes revenue in future. That does not mean that government should doso.

The real issues are, to my mind, different. IIMs are not like private American universities. They arepublic institutions, so far funded by public money. It is a good thought to ‘privatize’ them now. If thatis to be done, then their charter has to be re-defined. So far, their accountability has been to theGovernment. A major contributory factor to their accumulation of brand equity has been the value creationthrough a perpetuation of scarcity in MBA numbers. These have remained constant at 180 a year per each IIM,over thirty years. Harvard Business School takes in nearly a 1000 every year.

Apart from that, the IIMs are not meant to be only a ‘training’ agencies for potential entry-levelcorporate managers. They are the ‘nodal agency’ for bringing about a revolution in management practice andfor providing educational inputs for that purpose, to all sectors of the Indian economy and polity. Today,cynical tendencies are growing into a consensus world-view with implications for society, commerce and thework place. Our society cannot function effectively, cannot resolve the issues that challenge it, in the faceof pervasive cynicism. Outstanding organizations cannot be created in a sea of distrust. Faculty at suchprofessional schools have the opportunity to help students connect their capacity for high achievement to asense of purpose, to forge a connection between self and social fabric.

Government and non- government members of the board of IIMs have to take decisions on these issues andadopt appropriate funding strategies. While the government is wrong in unilaterally directing a MBA fee cut,the opponents are also wrong in simplistically opposing this directive.

I see four real issues:

1. Corporate Governance, transparency and the IIMs:

Corporate India tends to follow in the footsteps of corporate America, primarily because most of ourcorporate leaders are educated in America. Globally, in the wake of the Enron and Arthur Anderson likescandals, which resulted in massive breach of trust, corporate America is struggling to win back theconfidence of the people. Corporate Governance and accountability have come into sharp focus. It is the samefor organizations belonging to the business and non-business sectors in India also. The IIMs in India aretoday, the leading premier institutions for education in management. It is the IIMs that are teaching how tobring out better quality of Corporate Governance in India.

A few lines on what is corporate governance are in order here? Any business or non-business organizationhas stakeholders, i.e. constituencies that it has to interact with and manage its relationships with. Theseconstituencies go beyond the immediate, shareholders. To name a few, some of the stakeholders are, thegovernment, employees, unions, customers, suppliers, rival firms, the society etc. As an example, for abusiness organization: You can't take your eye off profitability. But to make all the other stakeholdersinstruments of shareholder wealth maximization won't win you their trust. And in the long run, the well beingof organizations and of society depends on trust. Transparency thus is fundamental to good corporategovernance.

The logical questions for the IIMs then should be:

a.  The IIMs also must become accountable to the community for adopting a high quality of corporate governance?

b.   Is the present level of accountability satisfactory?

c.  If not, what needs to be done?

2. Capital stock of educational institutions such as the IIMs

In any business organization, one of the most important criteria for setting objectives is to create valueand in so doing accumulate capital stock. Though the IIMs are not quoted institutions, nevertheless they dohave the responsibility to add to their capital stock, which in their case can be called Intellectual capital?With accumulation of ‘brand equity’ one must also assess the ‘accumulation of intellectual capital’ bythe institutes over forty years and ensure that arrangements will be in place for this purpose in future.

What is Intellectual Capital? Well, it includes:

• Contribution towards extension of the current knowledge base.
  
  
• Attracting talented faculty and students i.e. access to knowledgeable people and hence access to knowledgethrough their regular outputs (getting knowledgeable people to be productive so that their output isknowledge)
  
  
• Capturing knowledge developed outside the institute, with arrangements to provide ready access to it, forthose who want to learn from it for their own problem solving, and for extending its frontiers in newdirections.

How is intellectual capital measured, in number, in quantity, how? This is a subjective quantity,inconvenient and tough to measure. But we do have to try and make an assessment. How else will we measure ifan organization or an institution has advanced? One has to define ones current position and only then can webench mark our progress against this reference. It is important to question whether the IIMs have really addedto their intellectual capital?

Let me illustrate the above point. Today in India there are about 500 AICTE recognized institutions thatteach management and give a post-graduate degree. Every year the media actually ranks these institutions. Whatdoes this tell us? It tells us that in some way all these institutions are equal, some maybe more equal thanothers, but essentially they are equal. After all, we can only compare between similar quantities and thenproceed to rank them. Now, it will not be incorrect to observe that the IIM faculty teaches from concepts andtechniques developed else where, e.g. Prof. Porters theory of competition and competitive advantage. This isintellectual capital created by Harvard Business School. This is just as easily available to teach for anyother business institutes in India and in the world as it is for the IIMs. If so, would it be correct to saythat the IIMs are users of intellectual capital and not producers of intellectual capital?

Here the logical questions could be:

a. How well have the IIMs done on the score of increasing their intellectual capital?

b. How do they ensure that their training is not limited only to redistributing knowledge created elsewhere, butalso includes knowledge created within their precincts?

c.  What changes are needed to accelerate the score of the IIMs if they were to be ‘privatized’?

This is necessary to ensure a differentiation from other ‘training shops’, which do not have the samebrand equity.

3. Management education for non-enterprise areas

The IIMs cannot limit their concern only to corporate enterprise management. Today it seems that the Indiais finally close to achieving critical mass in various areas of national development. To sustain this momentummanagement practice needs to be improved in the neglected non-enterprise areas such as infrastructure(transport, communications, water, power, public administration et al), health care, education, and so on.Unless this is done, corporate enterprises will not be able to realise high value creation from their ownresources indefinitely. Here the questions then could be:

a. What role have the IIMs played in non-enterprise management areas?

b. What role will they play in the future?

4. Intake per year into the MBA program and the fees:

If the IIMs do indeed ‘educate’ for training enterprise managers and non-enterprise managers, shouldthey limit intake only to 180 per each institute as at present - or should they double, treble or quintuplethe intake? Graduates who get placed in non-enterprise management areas will not get fat salaries asenterprise management trainees do.

Here the questions then could be:

a. What fees can they afford?

b. And, should the MBA programme, with higher fees, cross subsidize such training programmes?

These are difficult and inconvenient issues and questions. But they need attention. They cannot be pushedunder the carpet for fear that the IIMs would then be following a strategy of drift. Now is the time to raisethese and have them sorted out. That poses a challenge to the board, faculty, students and government. Willthe IIMs be transparent enough to debate these in the open and then formulate their plans and programmes asthey deem fit? And share them with the community?

I believe that the IIMs should take one year to have these thoroughly debated and till then, request theEducation Ministry to defer the fee cut issue. After that, we should hopefully have clarity on how thisapparently simple decision should be taken.

Shrikrishna Kulkarni went to Harvard Business School and is a practicing manager.