7.24.2004

IIMs and the Market forces

– Can an intervention be justified?

Prof. Joshi, intentionally or otherwise, has sparked a widespread debate on the IIMs. Desirably, this debate has now spread into the related, but so far largely ignored, issues of – management institutes and business education in India, institutes of higher learning and - in general, about the relationship persisting between the supposedly ‘autonomous’ institutions and the government, in a country like ours – interesting as it is – being on a transformation from a command-and-control structure to a market dependent system.

The purpose of this article is to examine answers to these two questions – interrelated, intertwined and highly relevant in the current context.

1. Who is a manager and what are the qualifications required of a manager? How important are such managers to our country? Are the IIMs imparting such qualifications and producing managers who are both relevant and required in the current period?

2. How much autonomy is required for institutions in a market based economy such as ours? Can the market forces be depended-on to exert a corrective thrust to these institutions, if they fail in their goals? Can the judiciary be entrusted to spell out solutions on contentious issues such as these?

The first question can be answered thus: A manager is a person required to plan, direct, lead and control resources, both financial and human, to attain well-defined and preset goals. A manager is required to have comprehensive and correct understanding of his business, his company, his role in the business, his people and subordinates and should be able to assess himself and his position in the wider economic context of the country.

A manager, more often than not, is a technical person with a few years of field experience behind him – handpicked by his superiors to have the potential and talent for a managerial role and groomed, either in-house or in a management school.

Now let us look at what the IIMs are doing. Who are the students entering these institutes, what kind of training they get and what kind of jobs they land up in?

Here is the profile of a typical IIM graduate. Seventy percent of the IIM students are engineers from IITs or RECs. They are fresh out of college, having excellent academic record in their early schooling and graduation. CAT, the management entrance test is ruthless in its mathematical and analytical demand and this ensures that only the 99th percentile scorers in quantitative ability enter the institutes. With this background, most are well qualified for a research or a scientific career. The skewed salary structure in our country makes these wizards take up a managerial career instead.

The training imparted in b-schools gives too much importance to math and analytical skills, called the hard skills – as compared to soft skills like leadership, people skills etc. This is true, not just of IIMs, but for any American modeled b-school in the world. Which prompted management gurus like Henry Mintzberg to comment that b-school grads cannot be and shouldn’t be recruited for managerial positions. Instead, they would make excellent analysts – with the kind of background and training they have. Worldwide, management institutes have realized this folly and have started to focus on the soft skills part. Now, the Harvard Business Review has more articles on leadership and human aspects of management than anytime in the past.

Being a first year student myself, I can say that a dream job of an IIM graduate is not managing a 1 billion dollar project or creating a startup company, though such students, rare as they might be, do exist. The dream jobs are mostly analytical - like equity research, investment analysis, financial analysis, business analyst, marketing research and so on. Morgan Stanly and Lehman Brothers don’t recruit managers from IIMs. They recruit the best analytical engines of India – easily available after multiple filterings through the IIT-JEE and the CAT.

In the pre 1991 era, most of the businesses in the country were run by the government in the form of PSUs. Middle level managers in these organizations, invariably were the ones who grew-up through the ranks and grown in-house. The top management came from the prestigious civil services route, with the stellar training imparted to them by the practicing gurus. IIMs were operating in this context for decades before we opened-up. Publicly owned corporations weren’t recruiting professional managers as today and private enterprise was stifled by licenses and regulations. In this scenario, IIM graduates found themselves in a bizarre position having had to develop skills on their own after graduation, depending on where they chose to start their career.

After the reforms, with licenses removed and private enterprises being encouraged, the demand for professional managers has skyrocketed in the country. This is evident on both sides of entry and exit from the b-schools. Entry wise, the number of applicants for the IIMs has grown from a few thousands in late 80s to an astonishing 130,000 applications this year. Exit side, almost 50% of the companies that went for IIM campuses this year, returned empty handed – for want of students! This has resulted in new private institutes, mostly substandard ones, springing up all over the country, some even asking students to dare to think beyond the IIMs. Now the PSU’s are being corporatised and its worthwhile to note that traditional public behemoths like the State Bank of India have started scouring for professional managers outside. SBI, for the first time, has visited some IIMs this year for recruitement! Now we need managers who can manage diverse projects spanning across industries, and specializing in tasks like project management, infrastructure management, utilities management, rural management and managing non governmental organizations. Has any of the IIMs started offering specializations like these?

So, in short, its debatable if these institutes produce managers as required by the country, both in terms of quality and quantity. Further, they also have failed to ramp up and revise their offerings as required by the changing economic fabric of the country.

Now, onto the second question. In a market economy, the government has to keep its hands off institutions. True, indeed. This is to make sure that such institutions respond to market signals and change themselves as required. Government intervention and control distorts the market signals and directs the institutions towards ‘priority activities’ that may not be really as urgent or important as portrayed to be. Further, government intervention may lead to manipulating the institutes towards serving partisan interests and not necessarily what is demanded by the market.

So now, can we say that the IIMs didn’t adequately respond to the market signals? Isn’t this evident from the fact that private management institutes that claim to impart better education has surfaced in recent years – some founded by illustrious Indian NRIs like the ISB at Hyderabad and the Great lakes institute at Chennai.

If an institute or a company doesn’t respond to the market then such an institute should slowly fade away from glory. But brand IIM is shining as never before! How can this be explained? One reason for this is, as has been adequately dealt by columns here before, is the caliber of the students entering such institutes. Coupled with the fact that the IITs have been a tremendous success story – and the faith the Indian public has on such elite public institutes are some of the reasons. With so much of investment by the government in such institutions, can it be left to the market forces to determine its future? Can we afford to witness the diminishment of brand IIM, before its directors realize the mistake and revamp the institutes? These are questions that require debate from the multiple stakeholders involved.

Any debate that revolves around government intervention arouse acrimonious arguments concerning ideology. Left wingers who support government control and accountability and right wingers who stand for freedom, autonomy and lean government take fixed ideological positions and refuse to budge or appreciate the merits in the arguments of the other side. How much of government intervention is justified? Who is to determine whar is the laxman rekha and what constitutes excessive control? Can the judiciary be entrusted with such a responsibility?

Fortunately or otherwise, the supreme court has been asked to delve into this issue and the final word is left to the esteemed judges. But Indian judiciary itself has ignored the market signals and now has insufficient courts, lawyers and judges – with a huge backlog of cases. Much like the IIMs themselves, with insufficient seats, faculty and a huge un-catered-to demand. Would a regulator serve the purpose of monitoring such autonomous institutes and initiating corrective measures? With the partial success of regulatory bodies like the TRAI and IRDA, we have all the reasons to believe that a higher education regulatory authority, unlike the UGC and the AICTE that are limited in their scope, would be better suited to take impartial decisions concerning these issues.

1 Comments:

At November 23, 2005 at 12:20 PM, Blogger KA said...

Nice Analysis, Sathish.

 

Post a Comment

<< Home