The Twilight of the Business Schools

Business Schools are a great success story in Higher Education. What may have started as a Correspondence training was transformed by the establishment of University department in Pennsylvania with Joseph Wharton's money, to train the captains of American industry, in 1881. A generation later, with the founding of Harvard Business School in 1908, the whole global phenomenon has got started, though it took until 1954 for Cambridge University to start Management studies (which became a separate business school in 1995, while Oxford started its Business School in 1996). By the turn of the millennium, Business has become the most popular undergraduate subject, and increasingly Engineers and other technically trained professionals were coming to Business Schools to get credentialed. By this time, Business Schools became the most successful sector in Higher Education, with unparallelled prestige, and had developed an entire ecosystem of ranking, funding and accreditation of their own. Universities competed with standalone Business Schools, and often an University Business School had better brand recognition than the university itself. And, then, the party was over.

If one has to put a specific date to the start of this decline, September 15, 2008, the day Lehman Brothers was bankrupted, would have a very good claim. But, unlike that in December 2010, the human nature did not really change on that date. In fact, if anything, much of the world outside the Financial Centres and policy-making chambers sleepwalked down the same road for a while, not least buoyed by interventionist monetary policies that kept the Financial markets on life-support. Developing countries kept their blindfold even longer - for them, it was a nineteenth century habit of accepting the global division of labour unquestioningly - and only just catching up to the reality that the business has changed. Business is not business as usual any longer, and the business schools are now a fraction of their former glory. Many Business Schools now struggle to fill their seats, and even the top ones, which remain many times oversubscribed, have seen their overall application numbers drop, significantly in some cases. And, while the North American and European schools have more or less maintained full capacity, that was more due to the surge of Chinese and Indian students, which is now abetting, rather than growth of their traditional, home, markets. As the disillusionment with the business schools reach the 'emerging' nations, they may be facing a decline and the prospect of returning to where they came from - university management studies departments!

The question to ask is whether this is a temporary drop, more related to business cycles, or a permanent decline, that business schools would fade away and be replaced by something else. Most people would think it is the former - clearly the B-Schools started falling out of favour as the plentiful jobs in banking started drying up - and it is a matter of time that businesses recover and jobs come roaring back again. That businesses have actually done fairly well in this era of loose money, and stock markets globally are at a record high at this very moment (which signifies a confidence, perhaps irrational, that the businesses would continue to do very well), contradicts this theory. One should acknowledge something else is going on - in terms of how businesses operate, what they do and how they see their future - that would affect the future of the B-Schools.

It is perhaps more logical to say that while the businesses (and the banks) have been doing well lately, they are not doing things the same way anymore. There are a number of structural changes that have taken place, some related to regulation, some related to technology, but more significantly, many related to outlook and ways of thinking. This is more or less a permanent shift, requiring a permanent shift in what these businesses expect out of an employee: A permanent shift in the fortune of the business schools.

Consider the word - Hackathon - which is the favourite new recruitment technique for a range of businesses. The idea spread from investors running day-long recruitment camps for prospective start-ups to large companies recruiting people, and now everyone wants to do it. Even the most elitist of the companies, like old-world firms such as IBM and the Management Consultancies, can't fully deny its charm. But hackathon as a recruitment method is disastrous for the B-Schools, and by extension, for universities, as suddenly, their degree-holders, who thrived on the signalling value of the piece of paper they had, have to compete on the same plain with everyone else. It has not come to pass yet, as hackathons are new and as yet, they have not impacted the student choices. But they would: Once a student knows that she can participate in an IBM hackathon, show ability and get a job, without having to go through $100,000 a year business education, she would take the online alternatives and pursue her path. Then, the B-School intakes will reverse: Only those who don't think they can't do it themselves, and have to get an expensive degree, will come to B -Schools. There is already signs of this happening in the Developed countries; it is only a matter of time that this trend reaches the nest-egg of developing country students.

And, yes, hackathon is just one of the many signs of change. Localisation is another. The boom in Business School business was deeply linked with globalisation, but that is now reversing. The politics of it is visible, and intensely debated; but the technological reasons of it are steadily advancing, and there is nothing to challenge that. If the global supply chain shrinks, China loses out because it can't make iphones for US customers cheaply; but this means the end of global commerce as well, and the era of free money. While iPhone going back to the US factories to be made is a good thing; but the Western prosperity that came on the back of the cheap money flowing in from developing countries (that allowed Western Central Banks to keep interest rates very very low for a very very long time) would be over at the same time. In this transformed world, Business managers would require street smarts and understanding of real business rather than global networks and financial acumen (and the irritating habit of speaking in three letter acronyms) that B-Schools give them.

So, I argue, we are in the twilight of B-Schools. May be it's time to paraphrase Thomas Watson: The world may at best need about five great B-Schools. The rest - and the ecosystem of textbook publishers, test prep companies, accreditation agencies, appearance coaches - are now marked for the 'closing down' sale. While they may not disappear overnight and may struggle on to keep innovation out and their hold entrenched, they are in a losing battle. We may be at a point of long term economic inflection, and B-Schools are only a very insigficant casualty of the great change that is ahead of us.


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