Wednesday, Oct 20, 2021

Missing The Point

The Supreme Court ruling is in, but while the government is wrong in unilaterally directing the fee cut in IIMs, the opponents are also wrong in simplistically opposing this directive.

Missing The Point
Missing The Point

The success of management…has greatly changed management’s meaning. Its success has made management the general, 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 for management theory and management practice will constitute the "management problems" of the next fifty years.

-- Prof. Peter Drucker

I grew up on the campus of IIM Ahmedabad. I was not a member of the privileged body of whiz kids who constituted then, and increasingly constitute now, the student body of the Institute. I was one of the many faculty children, envious of them and their good fortune; and wondering what was in store for me when I grew up. But I did get opportunity to rub shoulders with them outside their classes and some of their aura did rub off on me, over my years in Ahmedabad. Emotionally, I came to have a deep attachment to the IIMA Campus as if it 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 MBA programme made me sit up and think about its consequences, both short term and long term. The fees will either be 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 fall somewhat. Government may make good the deficit, or may review the overall budget of the IIMs in the context of all 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 of leading 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 and the Sydenham College of Mumbai. Both started as business schools in the same year, 1908. Their prospectuses show that the objectives adopted for them were almost identical. And yet, over the years, the progress made by them has been widely divergent. What makes it so, I wondered. And would IIMA go the way of Sydenham College as a 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 four grounds:

(a) Students can afford high fees. They can easily get loans from banks and can repay them quickly because of the fat 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, the revenue expenditure was also being substantially met by government grants. And yet, for forty years, the institutes enjoyed all the autonomy and all the academic freedom, which enabled them to show outstanding results and accumulate their high brand equity. There is nothing to suggest that this will be reversed if government continues to fund the institutes revenue in future. That does not mean that government should do so.

The real issues are, to my mind, different. IIMs are not like private American universities. They are public institutions, so far funded by public money. It is a good thought to ‘privatize’ them now. If that is to be done, then their charter has to be re-defined. So far, their accountability has been to the Government. A major contributory factor to their accumulation of brand equity has been the value creation through 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-level corporate managers. They are the ‘nodal agency’ for bringing about a revolution in management practice and for 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 the work place. Our society cannot function effectively, cannot resolve the issues that challenge it, in the face of pervasive cynicism. Outstanding organizations cannot be created in a sea of distrust. Faculty at such professional schools have the opportunity to help students connect their capacity for high achievement to a sense 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 and adopt 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 our corporate leaders are educated in America. Globally, in the wake of the Enron and Arthur Anderson like scandals, which resulted in massive breach of trust, corporate America is struggling to win back the confidence of the people. Corporate Governance and accountability have come into sharp focus. It is the same for organizations belonging to the business and non-business sectors in India also. The IIMs in India are today, the leading premier institutions for education in management. It is the IIMs that are teaching how to bring 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 organization has stakeholders, i.e. constituencies that it has to interact with and manage its relationships with. These constituencies go beyond the immediate, shareholders. To name a few, some of the stakeholders are, the government, employees, unions, customers, suppliers, rival firms, the society etc. As an example, for a business organization: You can't take your eye off profitability. But to make all the other stakeholders instruments of shareholder wealth maximization won't win you their trust. And in the long run, the well being of organizations and of society depends on trust. Transparency thus is fundamental to good corporate governance.

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 value and in so doing accumulate capital stock. Though the IIMs are not quoted institutions, nevertheless they do have 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’ by the 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 knowledge through their regular outputs (getting knowledgeable people to be productive so that their output is knowledge)

  • Capturing knowledge developed outside the institute, with arrangements to provide ready access to it, for those who want to learn from it for their own problem solving, and for extending its frontiers in new directions.

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 if an organization or an institution has advanced? One has to define ones current position and only then can we bench mark our progress against this reference. It is important to question whether the IIMs have really added to their intellectual capital?

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

3. Management education for non-enterprise areas

The IIMs cannot limit their concern only to corporate enterprise management. Today it seems that the India is finally close to achieving critical mass in various areas of national development. To sustain this momentum management 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 own resources 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, should they limit intake only to 180 per each institute as at present - or should they double, treble or quintuple the intake? Graduates who get placed in non-enterprise management areas will not get fat salaries as enterprise 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 pushed under the carpet for fear that the IIMs would then be following a strategy of drift. Now is the time to raise these and have them sorted out. That poses a challenge to the board, faculty, students and government. Will the IIMs be transparent enough to debate these in the open and then formulate their plans and programmes as they 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 the Education Ministry to defer the fee cut issue. After that, we should hopefully have clarity on how this apparently simple decision should be taken.

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


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