The current economic crisis is a transformational moment for business schools worldwide. The fact is that business schools have been off track, chasing precisely those Wall Street innovations that led to the current crisis. We need to get back to the basics of providing well-rounded education that emphasises real value and wealth creation, rather than focussing on areas that only propagate illusions of value.
Ironically, the last time business schools were called upon to “return to basics” followed the Internet bust of 2000. After that bust, enrolments in Information Technology-related programmes in the U.S. dropped precipitously, and many business schools used the opportunity to slash programmes in Management Information Systems (MIS). Faculty members in MIS were laid off, hiring dropped and resources were transferred to other departments. Business school leaders, with backing from the media, began pounding home a “back to basics” theme regarding business school curriculum. Most of them ignored the fact that it was the finance professionals who had pushed the Internet hype into the stratosphere.
University IT programmes suffered multiple blows during the 2000 U.S. presidential elections and after 9/11, with all the media hype and political hand-wringing over offshoring of jobs. Despite the large numbers of accounting and finance jobs that were also shipped out of the U.S., reports focussed on tech-centred companies such as IBM, Accenture, Hewlett-Packard and Dell which were establishing offshore centres.
Meanwhile, American companies needed IT professionals more than ever before. Firms scrambled to find new hires from the diminishing domestic IT talent pool just as they increasingly relied on IT for important everyday business activities. In response, many firms had to find safe havens offshore or with foreign companies — which made the problem worse. The intensity of offshoring is reflected in the staggering quarter-over-quarter revenue growth rates of over 35 per cent for leading Indian IT companies. The popular mantra that there was a declining demand for IT professionals in the U.S. became a self-fulfilling prophecy.
To add insult to injury, in 2003 Harvard Business Review published a highly provocative article titled “IT Doesn’t Matter,” furthering the despair among anyone teaching IT.
Meanwhile, despite the Internet bust, the IT sector continued to be responsible for significant wealth creation in the U.S., as it grew from contributing 2 per cent of the U.S. gross domestic product in 1990 to more than 12 per cent today. The combined market capitalisation of Microsoft, Cisco, Dell, Oracle and Intel grew from $16 billion in 1990 to a staggering $1.4 trillion in 2000. IT continues to flourish as more and more physical products embed microprocessors and software from cars to refrigerators, enabling new business processes and models. Despite all its problems, General Motors was positioning itself to differentiate from IT-enabled products like OnStar. Social networking sites boasting millions of subscribers have begun to alter the way we interact and do business. Sophisticated methods have emerged to understand data and react quickly to the business environment. None of this seemed important to the business schools.
MBA students asked why they needed to know anything about IT at all. Focus on business processes and value creation from IT innovation was too mundane. The role of IT in productivity increases, and wealth creation becomes irrelevant.
While the IT-related field went out of fashion, exotic financial instruments, private equity and hedge funds were the talk of business schools, creating huge demand for finance and accounting professionals. With all the complex trading strategies, mergers and acquisitions, shorting, straddles, an endless number of acronyms such as MBS, CDS, CDO and LBO were valued as relevant and equated to rocket science. Risk management was too technical to teach in MBA programmes beyond a cursory glace at that terminology, while “leverage” became the mantra. Students poured into business schools to make that quick million after graduation in the finance world. At the same time, firms including those in the consulting sector needed thousands of accountants to make balance sheets complex enough using Generally Accepted Accounting Principles. And, they needed even more to unhide or decipher what is being reported.
However, no one asked questions about the value added work from these financial and accounting innovations. We taught them ethics to counter unethical business practices. But we stopped asking if any of this complexity was actually adding value to our economy or to our society. Now we realise that all those supposedly value-adding financial instruments and accounting methods were in fact value destroying. Many of the jobs that were created artificially are gone, along with millions of real jobs, leaving the economy in tatters.
This reminds me of the movie Pretty Woman starring Richard Gere as a deal-maker and Julia Roberts as a prostitute. The prostitute was surprised how a deal-maker made so much money without making anything tangible. Increasingly there is the pursuit of making money without actually making anything, while creating enough complexity to create more such jobs.
While the mess is so gigantic, there is already talk of how critical finance and accounting are to businesses. Meanwhile, value adding roles in businesses like supply chain management and MIS have become the least desired programmes in business schools. In fact, in my casual conversations with faculty members in a leading business school in India the same situation holds.
We need to once again get back to the basics of creating value and not propagating illusions of value. The basics should be creating deep thinkers with a holistic education. This includes greater emphasis on tangible innovations, understanding and managing business cycles, and analysing business history including the causes and effect of recessions and the Great Depression of the 1930s in the U.S.
There is the need for a greater discourse on global enterprise management and the impact of different economic and political paradigms to society in a highly inter-connected global economy. The above is important for India as there is substantial friction between the old economic thoughts dominated by the public sector and new economic system of liberalisation and disinvestment in the public sector; between shareholder responsibility and social responsibility; between growth for the elite sector and status quo for the majority; between corporate subsidy to encourage growth and subsidy to poor sectors; and between meritocracy and pressures on the private sector to provide quotas for under-represented groups. True leadership comes from understanding these frictions and making the right choices. Leadership is developed from understanding these higher goals than teaching mechanics of business functions.
© Copyright 2000 - 2009 The Hindu