A boom in India's management education sector saw the number of B-schools triple to almost 4,000 over the last 5 years
Students' lack of interest can be attributed to either growing awareness regarding the quality of education
Estimates suggest that there are approximately 4,000 business schools in India with a seat capacity of over 3.5 lakhs. This indeed marks a big leap from the time business schools such as XLRI, Jamshedpur and Indian Institute of Social Welfare and Business Management, Kolkata, were established in 1949 and 1953, respectively. Findings by MBAUniverse.com suggest a boom in India’s management education sector which saw the number of business schools triple to almost 4,000 over the last 5 years and seats grew almost four-fold, from 94,704 in 2006-07 to 3,52,571 in 2011-12, a 5-year compounded annual growth rate of 30 percent. One would be tempted to term the entire episode as ‘incredible’, but here is a caveat: the growth, it seems, is losing steam.
According to a research report by Crisil (February, 2012), about 140 schools offering Master of Business Administration (MBA) courses are expected to close this year, as 35 percent of their seats were vacant in 2011-12, up from 15-20 percent in 2006-07. The recent shutting down of Mumbai Business School (MBS) is a live example of the impact of low occupancy rate in the B-schools in India. Further, a panel of faculty members of the elite Indian Institutes of Management (IIMs) that conducts the Common Admission Test (CAT) says that this year some 2,14,000 people will appear for the examination, as compared to the 2,76,000 who wrote the test in 2008. Other management entrance exams, like XAT, SNAP, and IIFT, too have seen a dip in test takers. MBAUniverse.com research makes it clear that applications to most of the top tier B-schools are dropping. For example, while XLRI had 1,02,329 admission applications in 2009-11, this number dropped to just 60,316 in 2011. Similar stark drops are seen in other top tier B-schools like FMS Delhi, MDI and SPJIMR. While FMS Delhi had 75,000 applications in 2009, the number dropped to 57,226 in 2011. The reasons for the declining numbers need to be decoded.
Perhaps, the mushrooming institutes which saw management education as a means of mere profiteering have given in to economic vagaries. The cost associated with higher education, more so management education, could be a reason. The aspiration for the ‘foreign educated’ tag can be yet another cause. We decipher a few such reasons.
Jobs on the decline
For India, a decline in growth rate from over 8% in 2010-11 to an average of 5.4% in the first 6 months of 2012 is a harsh landing of sorts. Whether its the global economic gloom or the policy paralysis back home, it has taken a toll on job creation. Two surveys, conducted by industry chambers, FICCI and ASSOCHAM, confirm what headhunters and job portals have noticed for months: India Inc.’s pessimism about its business prospects, evident now for more than a year, has finally translated into a cut in hiring. According to ASSOCHAM’s survey, between April and June 2012, the prospects of finding a job across a range of the most employment-intensive sectors in the economy, like IT, financial services, telecom and hospitality, fell dramatically compared to the first 3 months of 2012. FICCI’s survey expects growth over the next 6 months to be jobless and Naukri.com’s latest bi-yearly outlook survey on hiring states that companies are being extremely cautious in hiring.
The ROI effect
The lack of interest on the part of students can be attributed to either growing awareness amongst students regarding the quality of education being offered by the institutes or the high investment, which makes it unaffordable for many. The fee for the 2-year program hinges around 6-8 lakhs (the fee for the course at IIM-A is over 15 lakhs, at ISB over 25 lakhs, at SPJIMR over 9.5 lakhs and at MDI over 17.5 lakhs). Yes, education loans are available, but apart from the high interest rates on education loans (for instance SBI offers education loan of 7.5 lakhs and above at 12 percent), the entire process of getting an education loan is cumbersome. Besides, many government banks do not give loans to students who wish to pursue management education from non-recognized institutes, further dampening their case.
According to data from MyHiringClub.com and FlikJobs.com, the percentage of students who get placements soon after graduating from a B-school (except the top 20 B-schools) too has declined over the years. In 2008, 40 percent of the students graduating from such institutes were eligible for placements, while in 2011 the percentage fell to less than 30 percent. In fact, one of the reasons for the poor employability potential of graduating students can be certainly attributed to the poor quality of programs being run by a number of institutes. According to MBAUniverse.com - MeriTrac employability study 2012, which covered 2,264 MBAs from 29 cities and 100 B-schools, beyond the Top 25, only 21 percent are employable. The previous study of 2007 by MeriTrac had placed employability index at 25 percent. Such statistics raise important questions regarding the quality of MBA that institutes are churning out by the thousands. The low level of employability reflects upon the poor course content and delivery mechanism, lack of industry interaction and poor infrastructure. This is seen to be all the more true for the third rung business schools.
The gloomy job market, relatively high investment and yet low levels of employability, brings forth the question of return on investment (ROI). While students, who pass out of top business schools, get salary packages of 8 lakhs per annum and above, those from Tier-III business schools get offers of as low as 1.5 lakhs per annum. When this is looked at from the perspective of having to pay-off education loans, the disillusionment with business education from Tier III business schools is understandable. There are a number of cases of MBA graduates working at call centers in jobs that they would have managed to get without investing 2 years of time and lakhs of rupees. Such instances, where dream jobs have merely remained a dream, have been critical in deflating the enthusiasm for business education.
Lure of foreign badge
The shakeout is also likely to be fuelled by the awareness that many of the business schools mushrooming around the country do not have the required levels of faculty, curriculum and infrastructure to provide quality learning experience. Add to this, the fact that there is a difference in the average salary earned by a MBA graduate from a top B-school in India as compared to peers from other Asia Pacific nations, Europe or US. According to Graduate Management Admission Council (GMAC), India was the lowest paid work destination for MBA graduates across the world in 2011, a far cry from Singapore or Hong Kong, where the median salaries paid were nearly thrice as much. Even the bottom 75 percent of jobs in the USA (median $72,500) paid at least 1.5 times higher starting salaries than the India-based jobs at the 75th percentile (median $50,880) - wagers would be based out of Mumbai and New Delhi where the cost of living is the highest.
It is probably because of such reasons that many students, who can afford to get education loans, opt for foreign universities. A lot more parents are sending their children to foreign universities in search of better education, better opportunities and global experience. According to a recent study by GMAC, 61 percent of MBA programs named India as their top source of foreign talent and 39 percent stated that India is their fastest growing source of applications from international students.
Besides, the very fact that many MBA institutes have often given more credence to placements in their advertisements, make them appear more of a placement agency than an institution that imparts knowledge and helps in nation building. This apart, many graduates feel the need to gain experience before deciding to get an MBA; while there are others who believe in specializing through higher education in their respective domains rather than pursuing an MBA. This too could perhaps explain the dip in CAT and other management entrance tests.
Our examination of the reasons behind the growing disillusionment with the MBA degree, unless it is from a Tier I school, is in no way exhaustive. It serves to highlight a trend and forces some introspection on how the tide can be stemmed. The most intuitive solution to the problem is to build truly world class educational institutions and not merely a business. So, how does one build a great business school?
What makes a great B-school?
Be it the Nanda Committee, the Kurien Committee, the Ishwar Dayal Committee or the Management Education Review Committee, all constituted by the Government of India, have unequivocally indicated the systemic problems ailing management education in India. According to reports submitted to the government, the problems highlighted were on account of shortage of quality faculty, lack of research, and lack of industry interaction. Essentially, a great B-school must be in the business of creation of knowledge, application of knowledge and dissemination of knowledge.
For any B-school to impart meaningful business education, the quality of faculty members is paramount. The expertise of the faculties, their research publications, how instrumental are they in framing public policies, the quality of the MDPs and workshops conducted, etc., are indeed the hallmark of a great B-school. The training, consulting and advisory roles that they undertake have a direct bearing on the quality of teaching, which no longer remains theoretical, but is laced with practical inputs. The knowledge shared is not merely borrowed from international B-schools, which may or may not have any relevance in the present domestic business context. Having said this, academicians from a particular institute, being on the board of companies and on advisory committees of the government, adds to the credibility of the institute.
However, in the Indian context the reality is that B-schools suffer from acute shortage of quality faculty. Given that salaries of faculty members is substantially low compared to international B-schools and corporations, there is no incentive for talented people with a Ph.D., substantial industry experience and an academic inclination, to opt for academia. While many Indians are heading top global B-schools, Indian B-schools suffer from acute shortage of quality faculty.
Research undertaken by a faculty or an institute is an investment that can be ploughed back into the quality of teaching, consulting and training. B-schools must not see research as cost centers; rather it must encourage faculty members to undertake integrated research. It not only enriches the pedagogy, but also provides interface with the wider academic and corporate world. The focus on research portrays the institute as one which is focused on creation of knowledge and thought generation and sets it apart from run-of-the-mill institutes, which focus merely on placements. Integration of research and its business application also helps in having collaboration with foreign B-schools and common research undertakings.
According to a study conducted by London Business Schools (LBS), Aditya Birla India Center professors Nirmalya Kumar and Phanish Puranam, the research output of Indian B-schools is nothing to write home about and compared to Asian standards, dismal; leave alone international standards. As a matter of fact, between 1990 and 2009, India as a whole contributed to only 108 papers in the top management journals, i.e. about five papers a year. It goes without saying that research is the biggest casualty in management education.
Given that the existence of a B-school is dependent on a close as well as active association with industry and society at large; management education should reflect ground realities of businesses. The corporate needs should be well echeloned in management education curriculum by emphasizing more on practical exposure and execution skills as against just theory. This will help in creating an industry-ready employable workforce. To this end, faculties should have regular interaction with management practitioners and understand the business requirements and challenges. Many foreign B-schools such as The Stern School, New York University and Indian B-schools like ISB and IIM-A promote the idea of having industry professionals as adjunct faculties and leaders in residence; this can be the ecosystem for all B-schools.
The way forward
In the world of business education, accreditation has become vital for B-schools to demonstrate their commitment to quality and continuous development. This independent endorsement of credibility of the institute helps set a benchmark and attract potential students – domestic as well as global. Going forward, endorsement by internationally accepted accreditation agencies, such as the Association of MBAs (AMBA), the Association to Advance Collegiate Schools of Business (AACSB) or the European Quality Improvement System (EQUIS), may become a must if a business school wants to be perceived as an institute of excellence. Having an international accreditation entails complying with standards (research, curriculum, infrastructure, etc.) that are followed by the best-in-class institutes. The B-schools gain global recognition and acceptance, and this helps them attract students from across the globe. Indian B-schools are realizing that international accreditation is desirable for a strong image and long-term brand building. To this end, IIM (A, B, L), ISB, MDI, IMI and SPJIMR have already got at least one of the three accreditations.
However, complying with international standards and gaining international accreditation may not be possible for all the B-schools. This must be a gradual process. At present, in India, the accreditation process is conducted through two government-run accreditation bodies — the National Board of Accreditation (NBA), constituted by the All India Council for Technical Education and National Assessment and Accreditation Council (NAAC), an autonomous institution established by the University Grants Commission. It is time that these two bodies gain credibility at par with international accreditation agencies – AMBA, AACSB and EQUIS, in terms of the parameters and the methodologies that they adopt. Perhaps a short-term goal can be to be accepted as a credible Asia-centric accreditation body. Larger acceptances of such an India-based accreditation agency will eventually build a case for India as an emerging hub for management education.
Experts argue that this phase of shakeout is indeed a good sign as it will help separate the wheat from the chaff. Fly by night operators, who joined the B-school education bandwagon only to mint money, will finally be weeded out and quality B-schools upholding the values of excellence in education will survive and scale up. The writing on the wall is clear – it is quality that will help determine which institute will survive and which will fall by the wayside.