Sunday, April 12, 2009

The business of Business School

I am still in regular conversation with entrepreneurs in India who are setting up various business schools in different parts of the country. As I observe, I know that this is currently the rage - the business to be in - and everyone is betting that the recession will drive a clutch of students to Business School, as they won't be able to find easy employment after finishing college.

The reading is possibly valid, to some extent. I just talked about my own plans to go to a business school because recession has presented me the best opportunity to take a break. However, one wonders whether there is too much of activity in the Business School space in India, whether the business plans for these schools are essentially faulty and whether this will all implode in a couple of years time.

I essentially have three issues with this frenetic activity in the business school space. First, I do think it is too opportunistic. People don't seem to learn, and this is another example of everyone jumping in because everyone else has jumped in too. I am told that there will be 1500 to 1800 business schools which will open in India in the next 12 months. That's way too much, and most of these will be businesses with a short term financial goals and inadequate risk assessment and financing. So, I am fearful that many of them will close doors when it will become unsustainable for them to run, in a year's time perhaps, and they will leave a number of students stranded.

Second, I do not see how these b-schools actually solve a labour market problem. I am not sure that India has a shortage of skilled middle managers. I think our shortage is more in terms of skilled workers, who can deal with customers face to face, handle transactions, go out on the street and sell, and do things like that. Business Schools will actually worsen the skewness of Indian labour market. This problem will hit the B-School entrepreneurs in terms of inadequate opportunity for their graduates eventually, both in terms of openings and positions.

Third, the B-school business is all set to walk straight into the resource trap. Obviously, we do not have the requisite number of tutors and research guides to staff all the new B-schools. So, there will be scramble for talent here and costs will rise, whereas at the same time, the competition in the market place will drive the prices down. Being for profit businesses, and the fact we still do not have effective oversight [the one we have through AICTE is too much of an overkill, and most people step aside the requirement, justifiably] on this business, the B-schools will be forced to cut corners, resulting in undermining of the effectiveness of education.

Also, as I hear more of it, I am getting suspicious about the connection between the current recession and the B-School business. It is all very fine to assume that people will remain in education for longer when times are bad, but the assumption that there will be 750,000 to 1,000,000 students like that, it starts smelling like a problem. Besides, the assumption that there will be so many managerial jobs created in two years' time appears very optimistic, though I have noticed a general state of denial in India regarding the effects and the seriousness of this recession. My suspicion is that the only way the business school and recession is linked is in terms of the availability of capital: there is a lot of liquidity with investors, but very few investment options. This makes the whole thing look like another bubble, where everyone is suddenly investing money on one type of asset - education infrastructure - without assessing the risks and measuring the efforts appropriately.

The government may soon add to this bubble as it is planning a significant liberalization of the education sector. I have heard rumors that there will be greater scope of foreign universities to come and set up shop in India. Though the government is likely to change after the next election, it seems that there is a consensus on this area, and the moves seem irreversible [though, the left parties, if in power, may delay it]. One does not know if such measures are put in place, what effect this will have on the tertiary education space in India. At the same time an education bubble is forming, opening door to foreign degrees will surely result in significant shifts in the market and 'failure' of B-schools will become common.

Also, having spent a lifetime in for-Profit education sector, I am painfully aware of its limitations. First of all, for-profit education, since it is funded by the students, have a strong incentive to allow student with more money, more opportunity - essentially subverting the meritocracy in the educational institutes. This is a bigger problem in India than in richer countries. This model may work better in a more open, opportunity-based society, but in India, the privileges subvert meritocracy at every place. Over-reliance on for-profit education will make us even less meritocratic and hurt the country's long term competitiveness. Second, for-profit education is context based, and designed to prioritize on the areas of most demand. The problem, in a rapidly shifting world, is that this essentially leads to teaching for the past than teaching for future. While the world needs newer skills, the for-profit education may send greater and greater number of students down the wrong path. It may also subvert the natural demand and supply cycle of skills in an economy, and may result in oversupply of a particular skill at the expense of others.

As I wrote before, more in the context of immigration policies, we need a National Talent Management policy in every country. The education policies need to be connected to the long term goals of a country, and should not left at the mercy of the individual entrepreneurs' profit motive. True, the government wants private investment in education so that the education opportunities can expand beyond its own abilities; but this must be done with a balanced view of the overall and long term need of the country. India has a powerful middle class, which has so far dictated the education agenda and skewed the government thinking in favour of tertiary education. However, the middle classes often fail to spot the trend in a shifting market - as they are failing now - and can not see that to reach the next level, we must bring down the structure of privileges in education and focus on unlocking the huge people potential we have. This can not be done through more Business Schools or Foreign Education; this can only be done by shifting the focus to primary and secondary education, and expanding the vocational education manifold. While we talked about this, this is not where the excitement is. However, for India to move forward, we may want to shift gears right now and see what we can do in this space.

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