Monday, August 04, 2008

A different approach to Business Education

After a year of management studies, I am beginning to doubt the aptness of the term “B-School”. The term B-School or business school conjures up an image of a place where “business” is taught. To most people (or atleast me) that brings images of entrepreneurship. However, the primary objective of the Indian Institute of Management must be to create managers. But are managers and entrepreneurs poles apart that the terms “B-school” and Management should appear contradictory?

Usually, the entrepreneur is portrayed as this swashbuckling man of action, stepping boldly and bravely into areas outside the realm of the common risk-averse common man who is contented working for others. I have always felt this portrayal cinematic and an unrealistic dramatization.

A framework that I came across recently sums up the difference better. In different situations, people either behave with a trustee mentality or a promoter mentality. (Reference: A Perspective on Entrepreneurship by Howard Stevenson) The term trustee more closely corresponds to the term manager and the term promoter more closely corresponds to the term entrepreneur. Therefore, any action can be classified in this spectrum as “trustee”-like or “promoter”-like. To give an example, a trustee may view a resource as something that has to be controlled while a promoter is willing to rent/borrow (or beg or steal) for this resource.

The crucial distinction lies here. Therefore, the association of entrepreneurial with certain personality traits is wrong and misguided. What is more important is the association of entrepreneurial with certain world views. Say, there is a person who wants to open a metal fabrication shop. He is new to the metal fabrication business, but his father and grandfather were traders of some commodity. Since they were traders, he is ready to rent machines, taking the gamble that the machines would pay for themselves. Now, would one call this an entrepreneurial personality or a promoter like world view? The individual may consider himself to be the most risk-averse person on earth, he just does not think it is a big deal renting out the machine. To extend this argument, our metal fabricator could show extremely un-entrepreneurial qualities in other matters.

Why all this Ramayana and how is it related to the title? Well, I just think you could design a different kind of business school education with the intent being to foster an entrepreneurial world view. What does that mean?

I would like to design a “B-school” for entrepreneurs in the following manner. The course is of two years duration. It has the semester system. However, each semester has two halves in terms of breaks. There are 60 days of holidays but they occur in 4 regular intervals of 15 days. (The benefits of a wise rest cycle can never be over emphasized).

The first semester has courses – Marketing, Corporate Finance, Organizational Behaviour and Operations. The third semester has a course. That is it. Conspicuous by their absence is Micro Economics and Macro Economics. Frankly, I am in a dilemma in this regard. On the one hand, it would be downright foolish to argue that micro and macro economics are not required by a businessman. Yet, say when you are brainstorming for ideas, or talk about new venture creation, frankly, you don’t use any of those principles, maybe a bit of game theory. Whatever economics you need can be obtained from the net or there are lots of “Economics for Dummies” books. Read it from there. (As an aside one book strongly recommended is Thinking Strategically by Avinash Dixit and Barry Nalebuff.)

Then what about consumer surplus or pricing? My submission is that whatever you need for a business is distilled into marketing. But when it comes to these four courses, just drive people crazy by the rigour. For new venture creation, you do not need accounting, but you need to be able to understand balance sheets. You do not need economics, but you need to know to do marketing research. You do not need to get into indepth quantitative modeling, but you need to be able to interpret SPSS results.

That is first semester. The next semester is spent on coming up with business ideas and refining them. This is where things get tricky. There are no classes as such but faculty mentor business idea teams. Therefore, the class size has to be small. If the intake is 20 say, then there could be 20 business ideas. (though that is unlikely) As and when the guys hit a hurdle they go and talk to the faculty. But there is a catch. What if these guys grow dependent on the professors running to them for every little thing? Every team gets a cap on the time they spend with the faculty. Therefore they better do their homework and come for the meetings. The first term is supposed to have taught the student the basics. Ideally, he/she should be able to google and figure out whatever can be googled and figured out and approach the teacher only when the limit of his/her thinking has been reached. That is why it is important to adhere to this rule very clearly.

The second year is spent on implementing the business plan. Two courses are run now. They are one hour courses that are optional. The two courses are “Business Law” and “Business Ethics”.

Here is an outlandish idea for what the school could do. What if the school gave everyone a sum of money in return for equity stake in the company? (The precise details of this system may have to be worked out) Issues crop up now. In this kind of an arrangement, will innovation truly survive? What if the school has a bad year, will it go out of business? For one, this sum of money will be given to a person and it will be lesser than the individual fees. This also unintentionally incentivizes people of the school to join together. But by giving money, the school also walks the talk. Also, the school could also grow to be obscenely rich or go bankrupt. The consequence of such a system would be to prevent its copying by others and that can be good or bad.

But let’s leave the “school-putting-money-where-its-mouth-is” idea out for a while. The second year is spent on implementing the business idea. The school arranges for legal help, which is again free upto a number of hours after which the startup has to start paying for it. The school organizes seminars and focused networking events. The main merit of the model comes here. Prospective investors (angelic or most often non-angelic) or Venture (Vulture) capitalists would find a lot of incentive to attend these events as they are ideas which have already been whetted to a certain degree.

At the end of the two years, everyone is given a degree. There are no examinations; the market place is the only judge. Also, the need for CGPA is primarily driven by the placement process. Oh and I forgot, this school does not organize a placement process. You are welcome to drop out at any time, you just forfeit the fees, which will be on the lower side.

Therefore, what are the incentives of someone who goes halfway though the course and realizes this is not for him/her. For one, surely outsiders would be very interested in knowing the various ideas that individual worked on. Also, the course could unintentionally create a market for entrepreneurial managers. But the creation of this market must be “natural” and the school must not do anything. That will be a test of the idea as well.

How does it tie-in with the initial framework of Trustee and Promoter. As you would have felt, the course is marked with uncertainty and constraints. This kind of an environment should alter the world view of anyone irrespective of personality. The fundamental point is, you don’t need to know all the answers, you just need to improvise as the problem comes up. From the little anecdotal evidence I have gathered, few people start out on a grand vision and few things started with a grand vision work. So don’t wait for that great idea to come, just look to do different things with small ideas, for a starter.

This just popped into my head today. Do comment on this

Friday, August 01, 2008

A Proposal for a Market for Trading Bunks

The inspiration for this idea is a certain course whose classes are quite drab. Much to my chagrin I realized that I had unknowingly exhausted my quota of bunks and am doomed to attend all the classes henceforth. The distant reader has no idea of the torture that yours truly undergoes! The torture is not so much the class itself, rather the fact that I had chosen this course as an elective i.e out of my own volition and hence have no one else to blame.

Then it occurred to me that certain individuals do not bunk classes at all or, at any rate never use, nor even intend to use up their full quota. Let us call these people who have the bunking quota to be “possessors of bunks”. Therefore, (the logical mind thinks), on the one hand we have people who need bunks and on the other hand we have those that are not particularly enthusiastic about the said bunks.

Eureka! There is a market here! Before we get into the details, there is an assumption here. The assumption is that the penalty for not meeting attendance requirements is hefty and it is strictly enforced. If it is not strictly enforced or the bunk penalty is not significant, there is no need for a market. Just suck up to whomsoever it may concern when you are in trouble!

The question begs to be asked and I shall ask it “Why do some individuals not bunk?” For us to build a market there must be an economic motivation underlying bunking/non-bunking which gives value to it in the first place. That economic value is value of time. If I think I would be better off sleeping that attending class then there is an incentive to bunk. This is important from the non-bunkers’ side. There are two species of non-bunkers.

There are some who derive a moralistic pleasure out of non-bunking i.e for these folks “non-bunking” is a way of creating a moral pedestal, a way of telling the world, “I am more perfect than you because I don’t bunk, you depraved turd.” Sadly, there is no cure known for moralists and these people shall grow on to becoming social activists, cause fighters, prohibitionists and other generally undesirable elements of society. In fact, my belief is that, as much harm is done by people who set out to do “good”, as those who set out to do “bad”. For who decides what is good and bad? If he who doth bad, doth not think it is good from his viewpoint, he would not do it, would he?

The second class of bunkers would be my target audience. These people go to class with a none-to-sure emotion. Years of being sincere makes them feel that missing class, would somehow do them harm, but basically they are kids who would like to have a good time in life. They just have a voice in their heads which keeps on chiming “After all, there is a chance that something significant could be done in class…” Correction, all of us have that voice, just that some of us have stopped listening to it a long time ago. However even they know that some classes are just a drag. More fundamentally, they have nothing better to do with their times. Nothing better to do with their time. Therefore, if these possessors of bunks could be compensated with something for their time, then there is a chance they would bunk.

Out of this crucial insight flows the market for bunking. As a first step, let us assume that only bunks can be traded for a particular subject. Therefore, is we have some course, say Creative Financial Accounting 101 and 60 people take it, then the bunks are traded only within these 60. We develop a software system where each guy in the class offers his bunks for sale or bids for bunks.

A system would look like this:

Since it is only one course, the same guy cannot buy and sell bunks. However, there is one issue here. What if someone sells bunks without having enough of them? Why would he/she do that? In an educational setting, you know everyone usually. But what if it is a huge campus? And what if the market for bunks is irrational and over-pricing it? Then maybe someone would profit by selling bogus bunks.

This is where the assumption fits in. If the penalty is strictly enforced, then the seller of bogus bunks does not have the incentive to sell it, because he/she is putting his degree in jeopardy.

But anyway, just to prevent any irrational behaviour, we can have an additional field for available bunks so that people boycott bogus bunk sellers.

But this kind of a system is really not very optimal. In our example, Middleton may not like Creative Financial Accounting but he may like the course “How to make Common Sense Sound Sophisticated” while Middleshwar may prefer the latter to the former. In this case, they end up taking these courses, and because of our first requirement, their pool of bunks is restricted to their respective classmates. To solve the problem, we relax the requirement of bunks being traded only within a section. Therefore, if an individual takes 5 courses and he/she is allowed 5 bunks per course, then that individual has 25 bunks to trade.

One thorny issue remains. What if Middleton takes Creative Financial Accounting as well as “How to Make Common Sense Sound Sophisticated” (HTMCS3) and the former course has marks for attendance while the latter does not. Can that individual transfer bunks to himself free of cost or should he pay the market rate for HTMCS3 bunks? Till now we have also implicitly assumed that there is no agency like an exchange.

Again, going back to what we have said, the 25 bunks is Middleton’s property. Therefore, he/she should be allowed to transfer it free of charge. But as such I am not in favour of it.
The better system would be to insist that Middleton pay the going rate for HTMCS3 bunks.

Voila! Again we apply the power of Adam Smith’s invisible hand to setup a most satisfactory system for allocating one’s time. Sigh, if only someone would implement it.