The Hindu Business Line : ‘Downturn will see B-schools in greater demand’

Dipak Jain, Dean, Kellogg School of Management, on teaching students to deal with recession, ethics and how people believe a slowdown’s the best time to invest in education.

Dipak Jain, Dean, Kellogg School of Management, Northwestern University, Illinois

Vinay Kamath

Dipak Jain’s journey from a small town in Assam to head one of the prestigious business schools in the US is part of the folklore of the Indian diaspora which has made it big in the US. As Dean of the Kellogg School of Management, part of Northwestern University in Illinois, and among the top five business schools in the US, Jain has the onerous task of steering his school through one of the most trying times facing corporate America.

From Tezpur in Assam, where he earned a bachelor’s degree in Mathematics and Statistics in 1976 and his master’s from Guwahati University, Dr Jain taught at the university for five years before leaving for Dallas to pursue his Ph.D in marketing at the University of Texas.

Dean Jain, as he is referred to, is the Sandy and Morton Goldman Professor in Entrepreneurial Studies and a professor of Marketing at Kellogg, whose faculty he joined in 1987. His areas of research include marketing of hi-tech products, market segmentation and competitive market structure analysis. Recently in Chennai, Dean Jain took time off to speak to BrandLine on how the recent financial meltdown in the US and consequently in the rest of the world will influence management education. Excerpts:

This year has been a year of cataclysmic changes with the financial meltdown, icons in the US falling; what would you say is the main agenda for top B-schools such as Kellogg’s?

This year the change has been phenomenal; the last three months especially, have been dramatic. However, overall I think management education is more in demand than ever; the fundamentals have not changed. Entrepreneurs from different disciplines want to learn the fundamentals of business — if they have an idea how do they convert that into a good business? So, the education part remains in good demand.

Collectively, can management schools be blamed for this financial turmoil? The answer can’t be yes — not because I am a dean of a school — but demand for education is there. I get so many requests from the dean of the medical school to teach science graduates business management. So business schools are in greater demand. But this particular phenomenon - the question is, are you teaching enough risk management because all these financial instruments came out of business schools. What we in business schools have to do in our curriculum is to make sure we emphasise the risk; the problem arose in execution and not from the concept.

We always get blamed that business schools are so theoretical, that we only teach theory and not practice. What we need to do is to have experiential learning, or have students experience the action and implications of some of these concepts so that they also learn rather than seeing it first in the real world. Take Enron, you can’t say that the financial statement analysis in business schools is wrong, whether somebody misuses it is different.

My personal feeling is that business education will be in greater demand and leaders of business schools have to emphasise what the implications are of these financial instruments and at what stage you cross the line. But I believe that management education is getting stronger; my view is that business schools in universities will become intellectual hubs. September 11 was an exogenous event but the current problem is endogenous, it’s a systemic problem and we need to investigate the system that caused it and analyse it.

We also saw in the recent meltdown that corporate governance and ethics became a huge issue; several iconic figures were found to have feet of clay. So, are you looking at reinforcing ethics and governance issues as a theme in B-school education?

When Enron happened the point that was raised was, what were B-schools doing in corporate governance and ethics, are we exposing our students to ethics and decision-making; business schools started creating courses. But you know ethics is something you don’t have to tell a 27-year-old, it boils down to the individual. Once an event like this happens, schools will start ethics courses. We have always had ethics courses, but there’s no enrolment. From a student’s point of view, if they want a job, their dreams are consulting and investment banking. The job they are going to enter does not require decision-making at the boardroom level so at an entry-level job, corporate governance and ethics was a non-issue — if they had to take classes they would opt for other courses that would help them get a good job.

It also raises questions on what kind of students you want to admit and how you train these students. One thing I believe now, after all that has happened, is that business schools have to be not just schools of management but also schools of leadership. Because these icons, the CEOs … once you become a CEO you are more than a manager, you have responsibility, it’s beyond business and your personal success; with every success comes responsibility. Milton Friedman’s view that the sole purpose of a business is to make profits is necessary but not sufficient because if you don’t make profits you cannot be in business, but how you deploy those profits into a broader good for community and society, that’s what matters.

The problem facing Indian B-schools today is that yesterday’s prized jobs such as those in investment banking are suddenly not so hot. At many schools placement itself is proving to be a problem because of the downturn; what’s the situation confronting American B-schools?

So far, we have not seen what I would say is a decrease, except in the financial services sector — Bear Sterns disappeared, Lehman too, these were huge recruiters. But we have not seen the decline yet but we will get a taste of it in 2009 when we move forward. Between January and March, my view is that there will be lay-offs because companies are going to do an internal audit. In the short term when you get hit the first strategic action is to cut costs but there is nothing else you can do.

To give an example, in my industry, we are a university, our sources of funding would come from tuition fees, endowments — in this situation, endowments by alumni may go down while tuition is fixed, it cannot be increased and returns from endowments too may go down. So in the short term you need to cut costs and companies would do the same. Cost-cutting is human. So companies will cut down on IT expenditure, on entertainment and travel. Then April to June you would see companies revisiting and look at what I call cautious growth and then third quarter of 2009 we will see people coming back.

So, if things don’t work out well, the next year’s class may have a tougher time. In good times, students could have three, four offers. At Kellogg it is not they don’t have offers, but choices are few. We have not seen any panic, though. But now, like we did after 9/11, I went around and met companies, we need to move fast and need to do it now and not wait for what the results of the next two quarters are going to be.

Will it have a cascading effect on B-school entries; would you be seeing a fall?

On the contrary it has gone up … full-time MBA programmes are acyclical to market conditions because when things go down people come because they think it’s the best time to invest in education. But there is one difference this year from the last year — in the past when people came, credit was not an issue as banks were willing to give money – that is a major shift. So what we are doing is we are going to give from Northwestern University (of which Kellogg is a part). My belief is that if you are good enough to get into Kellogg you should get a good job. In the short term we want to help people who may not come if financial assistance is not there. We will fund them from our corpus, or we will see if we can get banks to support them.

What’s happening to brands in the US? Are companies cutting down on marketing spends given the current situation?

It’s business as usual for now; talking to people I have not seen any cutting down on marketing expenditure. There are two ways to look at it, are you cutting down or are you reallocating budgets?

What’s happening on the B-school sweepstakes? Is Kellogg still on top?

There are so many rankings now, but what we look for is that Kellogg should be among the top five B-schools. Between 1 and 2 the numbers are so small, but in most of the rankings we are in the top five along with Harvard, Stanford, Wharton and Chicago business schools.

What are the main criteria that you would rank a B-school on?

I look at it as input, throughput and output — input is from the students’ side, output is recruiters’ side and throughput is the knowledge side. I talk to recruiters about how they find the students, did they find them good enough to recruit and if they are learning more. Are recruiters also finding B-school graduates with a good knowledge base; our alumni also give us some data on this … not just the first year but we get feedback over three years.

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