Business Today

The Business of B-schools

Professor J. Philip        Print Edition: Oct 28, 2012

A few days ago, there were some alarming reports about low student registration in engineering colleges in Andhra Pradesh. It was estimated that over 100,000 seats of the total capacity of 340,000 were vacant. There were similar reports about Kerala, Karnataka and Tamil Nadu. Anecdotal evidence indicates that the situation is similar in most lower-level business schools as well. The All India Council for Technical Education (AICTE), which governs technical and management education, was concerned that a number of business and engineering colleges were seeking permission for closure.

Professor J. Philip
Professor J. Philip
Sometime back, while addressing the annual conference of the Association of Indian Management Schools, I had warned of a new situation, where mergers, acquisitions and closures would happen in business education. The signs were all there, and many of us ardent believers in Adam Smith's postulates of the free market knew that his principles would get into action with ferocious force. That is precisely what is now happening with huge overcapacity, shoddy products, moneyed men getting into education and very little adaptability to the competitive situation that has emerged. Nobody needs shed a tear for this. That is the law of nature.

Some of the 'businessmen' who joined the 'gold rush' will now be realising that money cannot make a good B-school nor can the downloaded curriculum or syllabi of a top US B-school. I recall visiting an institute that was to go on-stream a few weeks later. It had beautiful, airconditioned classrooms and quality furniture but no director or faculty to be seen.

Recently, an interesting case was reported from a South Indian city, where the promoter was a fresh graduate from a well-known B-school in that city. Since he was an MBA, he wondered why he might not also establish a B-school. And that was what he did. Since the institute met all the minimum requisites, it got AICTE approval. But the number of admissions stayed at about 20 to 30 per cent of the sanctioned strength. The revenue model was not working. Salaries had to be delayed and faculty members were leaving. Almost 60 per cent of the B-schools in South India face similar problems. The shortfall ranges from 30 per cent to 70 cent of the sanctioned number of students.

Our country has the distinction of being massive in numbers in any field of economic life. The 4,200 B-schools in India form 33 per cent of the total number of B-schools in the world, with about 400,000 graduates coming out every year. This is a formidable number. And there is no market for such large numbers.

Running a B-school is a serious business. It cannot be done by novices, businessmen or commercially oriented people. It needs visionary leadership, good faculty, infrastructure, students, industry linkages and a strong performance culture. Culture is a major contribution of the founders or early leaders of an institution. If that is missing, one cannot expect much of that B-school.

It is our remarkable good fortune that such a culture was woven into the fabric of our management education over the years through IIMs on the one hand and a number of leading private B-schools on the other. The pursuit of excellence by both these streams is what has enabled them to hold their own in the global league.

As part of this evaluative commentary on Indian management education, it is important to deal with some myths that are going around.

Myth No. 1: Only 25 to 30 per cent of management graduates are employable
This started when an iconic leader of Indian industry said that only 25 per cent of Indian engineers are employable. This statement went around like a bad coin picking up velocity as it started running. The myth then crossed over to management education too. But no one ever asked as to what kinds of companies these people were talking about. This country is not just dotted by the Marutis, HLLs, Infosyses, ITCs, ICICIs etc. We have another group on the other side of the railway line: the two-star hotelwallah, the fish exporter from Kochi, the leather exporter from Ambur, the handicraftwallah of Moradabad or Kanpur, the mid-level construction company of Bangalore or Pune, the foundries of Coimbatore and so on and so forth. They do not need business graduates from IIM-A, B or C, MDI, XLRI, SP Jain and the like. These medium-sized industries would rather recruit from a small town B-school, the taluka one or the neighbourhood one. It is like Indian marriages; the rich man's son marries into a rich family, the middle class marries into the middle class, and the poor marry into a socially comparable family. Most of them live happily thereafter. This is the story of our third and fourth class Business Schools too. Some marginal B-schools will invariably die. And at the same time, some new good ones will sprout. This will keep the system dynamic.

Myth No. 2: Mushrooming of Business Schools
This happened because there was a market. In addition, the many agencies involved in the approval process connived in the so-called mushrooming. The government that gave the No Objection Certificate, the University that gave the affiliation, the expert committee that visited the institute and the AICTE, which gave final approval. Why blame the educationist, the educational entrepreneur or the businessman who got into the act? All these parties are equally guilty. But the market is a good leveller. Leave it to handle some of the adventurers. And it will handle them well.

Myth No. 3: Commercialisation
It is true there are some black sheep in the house. But do we not see these characters in any field of economic activity? All around we see corruption, cheating, shoddy goods, shoddy services - corruption is now reaching hallowed agencies that we thought were incorruptible. However, it must be said that there are many B-schools in the country that are rendering outstanding service to the economy and the country. It is unfair to use the same black brush against all of them.

Myth No. 4: You just need a few lakh rupees and a three to four classrooms to start a B-school
That is incorrect. The AICTE has stringent stipulations to start a B-School. They have been spelt out on its website. It will take at least Rs 15-16 crore to establish a good B-School even in a major town. Assuming half of it is borrowed, the founders would need to provide for staff and faculty salaries, power costs, administrative expenses, books, journals and software, among other things. So, things are not going to be any easy. A good B-School could expect to break even in the fourth year or so, when hopefully, AICTE had approved 120 admissions. The shoddy ones will struggle. They will not survive in the long run.

Myth No. 5: More controls are needed to deal with the overwhelming number of businessmen in business education
Answer 1: Have faith in the market. It is a great leveller.
Answer 2: It is a post-graduate programme where 40 to 50 per cent of the students are engineers. Some even with two or three years' experience. Are these students gullible enough to be cheated? Not really.
Answer 3: In a medium-level B-school, the average starting salary is about Rs 4 lakh a year (if it is a better school, it could go up to Rs 6 lakh). The fee that the student pays in two years is just about Rs 4 lakh. Therefore, he realises his entire two-year investment in one year's time. One does not see this kind of return on investment in any other field. Moreover, most students now study with bank loans and not with their parents' money. They are smart and sensible. They know what they want and they demand it from the B-school where they are admitted. The ground reality is that 'charity' is not an issue at least in 'business education'.

The author is Founder-President, XIME, Bangalore; and former Director, IIM-Bangalore

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