B-schools teach youngsters how businesses ought to be run. Who questions the way business schools are run?
Nina Jacob, a professor who has been with private b-schools such as Xavier Institute of Management, Goa Institute of Management and Institute of Management Technology writes a scathing critique of unregulated governance at India's private business schools in a Hindu Business Line column. The style of functioning of government-owned b-schools (primarily the Indian Institutes of Management (IIMs)) is frequently scrutinised whereas governance at private b-schools largely goes unchecked, she argues. Low-profile and inexperienced IIM professors are made directors of private b-schools overnight with the lure of gargantuan salaries and as a result,
"This situation generally leads to poor governance as a director of limited abilities has to spend time defending his turf. That becomes a reason for him not to engage in any teaching or research. And yet, he evaluates the performance of his peers. In the final analysis, his faculty members are his peers, not his subordinates. And they should evaluate his academic performance as well. This would require him to assume academic responsibilities and delegate some of his administrative ones. Both his powers and the supernormal part of his salary will have to be shared with his faculty body. He would then have to descend from his pedestal and stand on terra firma."
The overemphasis on placements spawns academic mediocrity, she adds.
"An indicator of this is the extent of rampant plagiarism found in private business schools. Usually the top management echelon is aware of this malaise, but prefers to look the other way. Faculty members are reluctant to bell the cat since tackling plagiarism will result in their teaching feedback getting eroded."
Governance of business schools in India has been the dominating flavour of this week.
Compared to American universities where management functions such as admissions, placements, administrative planning, etc are carried out by a permanent and hierarchical structure of professional academic managers, in India's business schools (especially the IIMs) these tasks are carried out by professors on a rotating basis --- you know, the Dean of Academics, Dean of Admissions, Chairperson of Placements, etc. The title is taken up by professors on a circulating basis every year.
IIM Calcutta's Board Chairman and Rediff CEO Ajit Balakrishnan in this Business Standard column praises the IIM structure over the American structure. He calls the American structure 'Fordist' --- one defined by rigid management hierarchies designed to manage mass production such as in the Ford Motor Company, and the IIM structure 'post-Fordist'. Silicon Valley technology companies --- the epitomes of innovation --- are based on the post-Fordist model where de-centralised teams comprising empowered workers get a lot more achieved, he says.
"Observers often ask: by rotating management, are you not foregoing the performance enhancement that comes with the experience of managing the same function for a long period of time? What about the role of financial incentives? Why will people take on additional responsibilities if they are not paid more than what they usually get?
Despite defying all such management theories, the IIMs continue to flourish. Applicants flock to enter them, students love the time they spend there, recruiters from the worlds top companies snap up a class of 400-odd graduates in no time. And to top it all, many of the IIMs deliver a 25 per cent profit-to-revenue ratio, a profitability level achieved by only a minority of companies listed on the Bombay Stock Exchange.
What explains this paradox?
The answer perhaps is that by trial and error, the IIMs have evolved an organisational system that may be the prototype of post-Fordist organisations. Such organisations may be the norm in the Information Society, into which the world is gradually sliding. In this new arrangement, work is not de-skilled by excessive division of labour; all workers are assumed to be multi-skilled. No permanent class of people is designated as leaders and others as followers. Like a cricket team, everyone gets to bat. It is important to be reasonably well-paid, but extra performance is not achieved by extra pay alone; rewards are more intrinsic: approbation from peers, satisfaction from contribution to institution building and so on.
The early IIMs were founded based, in part, on grants from the Ford Foundation. So, watching IIMs defy his management philosophy, would the great pioneer of modern management, Mr Ford, be turning in his grave?"
To begin with, Mr Balakrishnan has an obvious conflict of interest in writing an article praising IIM governance in a business daily, unless it serves to explain his stance as an IIM Board Chairman in some pertinent debate of the day. Even on the article's own merit, there are several problems with the article's argument, which I list below,
1. Financial success of the IIMs: If so-called non-Fordist business schools can deliver a 25% profit-to-revenue ratio, then a Fordist school such as Harvard Business School can manage an endowment fund of $2.3 billion (Rs 11,275 crores!), Stanford GSB of $825 million and Wharton of $690 million. This is because these business schools employ individuals who are masters in the art of fundraising and give them enough time and resources to build the kind of relationships required to gather funds to the tune of hundreds of millions of dollars. Even if an IIM professor who is deft at raising cash were to be put to the job of collecting endowments for IIMs, there is no way he could make a visible dent if his engagement were year-long and on a rotating basis.
Which approach does that make the more successful?
2. 'Applicants flock to enter IIMs': This is merely the resulting phenomenon of the artificial supply-demand imbalance of quality education created by the government since independence and has got nothing to do with the governance structure of the IIMs. 64 years after freedom, we are still struggling with a fumbling admissions system in our universities (IIMs included) that hasn't evolved for decades, alarming shortage of faculty in the face of increasing batch sizes and near-insignificance in research on the world stage. Applicants who flock to the IIMs know nothing of this, of course. The average IIM applicant is too ill-researched to have an informed enough opinion about the quality of education in an IIM except in the very advanced stages of admissions when they must choose between two IIMs. They merely swarm to the b-schools because of the hype surrounding placements.
Due to the rotating nature of admission directors at the IIMs, the admissions processes at these b-schools remained stagnant for decades until 2009. The IIMs are discovering the virtues of classroom diversity a good three decades after b-schools in the rest of the world figured it out. The IIMs continue to fail at admitting batches that don't comprise mostly engineers. Despite amply tweaking around with admission weightages, the IIMs continue to enter every next academic year with some of the directors publicly lamenting about possible 'type 1' and 'type 2' errors creeping into their selections.
The IIMs' biggest failing has been the inability to devise an admission system that disincentivises non-serious folks from applying and allows the schools to concentrate the better part of their time and energy on selecting the best out of a self-selected and serious pool. The system instead wants to have more CAT applicants every year for completely inexplicable reasons.
Had the IIMs allowed a smaller bunch of capable people to work on the admissions problem for a sufficiently long time, we would in all probability have had a much more evolved and mature admission system by now. But this is what we get because of a rotational system of responsibility that doesn't allow any single person to work on the problem sufficiently long enough to attain breakthroughs.
The IIMs' plan to form a CAT company is in fact a move away from the post-Fordist structure that Mr Balakrishnan advocates. A Fordist structure is the need of the hour here.
3. 'Recruiters from the worlds top companies snap up a class of 400-odd graduates in no time': This too, is a result of a supply-demand imbalance rather than any wizardry of the IIM governance system. The professor who is acting as the 'Placement Chairperson' of that year in an IIM is usually a figurehead who has little time and interest in the placement process other than shaking hands with recruiters when they arrive on campus and dishing out cliched quotes to the Press at the opportune time. Placements are largely student-run, and these students tend to favour Placement Chairpersons who take less interest in the process.
In rare cases such as at IIM Ahmedabad after the recession, the Placement Chairperson has managed to arrange a coup of sorts and wrest away total control of the placements from the students (Further reading: Chapter 30 of 'Nurturing Institutional Excellence', Macmillan, 2011). This is his fourth year as Placement Chairperson and he has brought about revolutionary changes such as a highly data-intensive and externally audited placement report and a redesigned cohort-based placement system that aims to find the best fit jobs. You may disagree with the efficacy of the process, but you would have to acknowledge that someone is at least trying to take things to another level.
This is not possible when professors take up the responsibility of placements on a rotating basis for one year, because neither ever gets a chance to bring about evolutionary changes.
4. Comparison with Silicon Valley technology companies: The problem with this comparison is that Valley tech companies that follow post-Fordist structures tend to be startups in their initial years, where they still need to validate their products, philosophies and businesses. But once that stage is passed, it is time to grow up and consolidate value by taking each thread of the company to higher levels of complexity. That needs people who are specialists and can take charge of a problem sufficiently long enough to solve them beyond doubt, and then identify the next correct problem to work on. Even Apple, the poster boy of disruptively collaborative Silicon Valley companies needed a Tim Cook to fix supply chain or a Ron Johnson for retail.
The older IIMs on the other hand are way beyond their startup stage. It has been long due to take the various stagnating organs of their structure to the next level. There is no paradox.
Moving forward, the IIMs will have to employ the right people for the right job and allow them sufficient time to take tough problems by the head and find solutions so that the institutes evolve and keep up with the times. There is little to be proud of about the post-Fordist structure except for "It has brought us up-till so far". But it is not a model structure of governance worth emulation.