BACK TO THE FUTURE:
A RETURN TO FIRST PRINCIPLES
Keynote address to the
7th International Conference of Business and Finance
Cape Peninsula University of Technology
9 September 2015
Millard W. Arnold
Executive Director
The South African Business Schools Association
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A little more than six months ago, I accepted the challenge of becoming the first executive director of the South African Business Schools Association (Sabsa). Since then I have been engaged in a steep learning curve trying as best I can to learn this industry, determine what makes it work and understand what essentially makes the African business model uniquely different from elsewhere in the world.
It has been an interesting journey.
Not surprisingly, I have devoted a fair amount of my time to doing unsupervised, and in many instances, unfocused research.
What has emerged thus far from that research is a disturbing, even alarming revelation. Across the globe, business schools are in deep trouble and whether because of circumspection, complacency or simple indifference, they seem oblivious to the obvious. Sailing along like the Titanic, business schools seem blissfully unaware that they find themselves in dire straits. That is perhaps understandable because the thought of business schools in trouble would appear so unlikely, even counter intuitive. After all, for much of the past 100 years, the post graduate degree of choice by far has been the Masters of Business Administration.
Yet the signs that the apocalypse may be upon us have been coming in muted but with persistence regularity. Fortune magazine last month published an article entitled “Are American Business Schools headed for a GM-like catastrophe?” In July, the Financial Times ran a story entitled “Business Schools become irrelevant”, similarity, Business Insider from India led with the article, “Another sign that MBA degrees are losing their prestige” Headlines abound such as: “”Canada’s MBA problem: How business schools are fighting to stay relevant”” or “”Business Schools are their own worst enemies”, or “”Why MBAs are becoming less important.””
The Wall Street Journal published an article noting that some private equity firms which historically required entry level employees to leave after their first few years and secure an MBA are now dropping that requirement. According to the Journal, the qualification has gone from a “must have” to a “nice to have.”
All of this led Richard Lyons, Dean of the Haas Business School at UC Berkeley to confidently predict this past April, that within 10 years, fifty percent of the more than 10,000 business schools in the world will be out of business.
What is driving the storm according to Professor Ken Starkey and Dr Christophe Lejeune of Nottingham University Business School is a combination of factors including a cost crisis; changing labour markets, new technology; new competition such as for-profit providers, changing consumer expectations and global competition for students, for the best faculty and for space in academic journals. It’s a perfect storm.
Roger Martin, the former dean of the University of Toronto’s Rotman School of Management stated that the value of the MBA degree has weakened from a 170 percent return in 2001 to 96 percent last year. His comment with respect to the drop is particularly telling noting “that is a spectacular fall because we have saturated the world with plenty of MBAs who mostly are narrow specialists. From the perspective of students, it’s not quite the deal it used to be. That’s why fewer North Americans are taking the GMAT to go to business school.”
Faced with a combination of what the Economist calls ”creative destruction”, business schools are being buffeted from pillar to post with a bewildering range of threats. From Massive Open Online Courses to businesses starting their own in-house universities, to the cutthroat pursuit of talented faculty, and above all else, a market which is increasingly fragmented by new entrants, some from abroad and many local private providers, able to offer similar, but far less expensive services. Moreover, there is a cultural change underway as students seek more flexible and less costly ways to learn. According to Fortune Magazine, Martin sees:
rising numbers of would-be-MBA student opting for one-year specialised master’s degrees, enrolling in on-line MBA programs at a fraction of the cost of full-time, two-year MBA experiences, or simply doing without advanced education and progressing in their current jobs.”
The proliferation of choices available to students, and the questions being asked about the relevancy of an MBA, means that business schools need to urgently re-think their value proposition and construct an expedient strategy that address the best way forward in a highly competitive environment.
Against this backdrop of gloom and doom, it is fair to ask if the desperate situation confronting much of the more developed business school environments has any resonance in Africa. Clearly Africa has a dearth of managerial expertise. According to one study, Africa requires a minimum of a million new managers in order to develop sustainable growth. However, the continent is highly underserviced by quality institutions able to address that need. So while theoretically true, the problems faced in Europe and America are not problems Africa faces. The problems in the northern hemisphere are the classic problems of mature industries struggling with the need to recreate themselves. That is not to say that the issues in Africa are not severe. Lack of resources, understaffed faculties and a business model of limited duration, hampers the efforts in Africa, but the need is so great, and the approach far more attuned to what is realistic, means that Africa will not only whether the storm, but if prudent and visionary, could become an interesting case study on how to manage in difficult times.
As I mentioned earlier, I have come to the position of executive director of Sabsa as an outsider, so the views that I express are evolving ones, and, more likely than not, they will change with time. Nonetheless I have been struck by the focus business schools seem to have on “management of institutions” which has been increasingly divorced from what should be the focus on the “management of business”. What seems obvious to me at the moment, is the observation that business schools, perhaps mindful of the fact that ”management”” is an all embracing, but ill-defined discipline upon which to justify an existence, has placed a heavy emphasis on being bastions of academic excellence, on par with other faculties which make up the university community. As a consequence, faculties are recruited based on their academic performance and with the understanding that they will contribute significantly in research and academic output. Schools seek to emulate the better school while seeking to position themselves as leaders in innovation around niche programmes. Fueling the process is the accreditation procedure supported by rankings, lists and tables all of which are mutually structured around the notion of academic excellence based on a widely accepted global paradigm.
In its simplest expression — elsewhere in the world, but perhaps not here in Africa — business schools have essentially been conveyor belts. Critical to their success has been the necessity of providing their students with lucrative job prospects which in turn attracts prospective students to choose the school and the consequence of good students getting good jobs, builds the school’s reputation which allows it to attract the best faculty possible. It has been a highly rewarding process which has seen business schools emerge as the cash cows for many struggling universities.
As laudable as the approach is, in that process, business schools have drifted further and further away from what were core to their creation and that is to provide quality education to individuals intent on administering and managing businesses. In an effort to become more academic, business schools have unfortunately jettisoned the business community. It certainly was not something done intentionally, but it is an understandable outcome, given the tensions between the University Mother Ship and its awkward subsidiary the business school. For those business schools which are part and parcel of a university framework, the courses they teach are a reflection of university policy or that of government regulators who provide the necessary accreditation for business schools to function.
Nonetheless, the reality is — certainly here in South Africa and probably true for the rest of the continent as well — there is no productive relationship between business schools and the business community. Business simply does not see business schools as the solution to the issues that the private sector faces, whether in terms of government policy or the development of innovative, cutting edge solutions to business problems. Corporates do make use of executive education programmes and specialized training programmes, but there is little or no concerted effort to collaborate in a meaningful way with business schools. Part of this is explained by the fact that many employers, question whether the experience in business school adequately prepares students with how to deal with the nitty gritty real, live work environment.
For someone like myself, coming out of the private sector, this disconnect with the business community is at the heart of growing indifference to business schools. An MBA has become a resume enhancer, but rarely does it provide a quantitative or qualitative step up in the game of running a business. And whilst African business schools may not face the challenges of their northern counterparts with regard to their relationship with business, by not engaging fully with the private sector, they too run the risk of becoming irrelevant.
Paradoxically, getting that exposure to what makes business tick or how to manage it better, is precisely why so many continue to be fascinated with the desire to enter business school. Recently, much has been made of the issues of access and affordability to business schools here in South Africa. Whilst the concerns raised are understandable, rather than being directed at business schools, they would be better answered by addressing the overall educational system.
Although much thought has gone into the government’s white paper on higher education, with respect to business schools, I was intrigued to note that with 55 million people we have 18 member schools as part of Sabsa. In the UK, with a 10 percent larger population, there are 121 business schools. Clearly as one of the world’s foremost trade and financial centers, the multitude of business schools in England may come as no surprise. But how then do we explain Australia? With less than half or our population, they have more than twice the number of business schools. Access and affordability go hand in glove with availability and clearly we are severely lacking in institutions that can address these concerns. In South Africa, the real issue is apparent: if you desire greater access and affordability, build more institutions of higher education.
I suppose the one question that comes to mind, is does it all really matter? Perhaps a shakeout of the business school industry is a good thing, weeding out the bad and creating opportunities for newer, more innovative entrants. Were it simply about the profitability of the business school prototype going forward, then it may well be fair to say that the demise of some institutions and a restructuring of the model would be largely inconsequential. However, far more importantly, is what is the fundamental purpose of a business school? If it is not to directly contribute to the betterment of business, then truly business schools are irrelevant.
So, what is the way forward?
The issues facing business schools in the northern hemisphere will largely be sorted predictably by weath. Harvard Business School has just introduced Harvard HBX a virtual online class room able to simultaneously offer a lecture to 60 students situated in various classrooms anywhere in the world. Many are calling it the classroom of the future, but it comes at a cost. No one at this stage is saying how much, but Yale is attempting to develop a similar programme, and its cost is a quarter of a billion, and it is nowhere near as ambitious as the Harvard offering. So money will decide which business schools will become first tier schools and which other schools will have to scramble to survive in the backwash.
Although Africa does not face the challenges of the north, in South Africa, it is slightly different. The quest for quality faculty will remain critical as will be the impact of new technology. The fact that there is so few business schools relative to the demand, means that cost consideration will be less crucial, but will need to be monitored so that the issues of access and affordability are addressed.
Where Africa encounters the same dilemma as its northern counterparts is the relationship to the private sector. So. I would suggest — and I realise it may well be controversial — that given the question of survival for many business schools, what is needed is, as Starkey and LeJeune have called, “”a renewal of the historical purpose of business schools”and that is to focus on two key goals: management education that produces effective business leaders and research that has a positive impact on the practice of management.””
That is it. Nothing more; nothing less.
Controversial too many, because the very nature of education is to be expansive and not restrictive, and a return to a very narrow approach based solely on the needs of business, is probably untenable in this day and age. Moreover it would suggest that the methodology and approaches of the way business is currently being conducted need not change or adapt to the growing dissatisfaction that many have with the corporate world of today. Many would take issue with such a stance.
Finally, it is controversial because it adopts the neoliberal ideology of the value of the marketplace and the attendant support of international capitalism. The volatility and uncertainty of the global economy at the moment; question marks around China; and the continuing complexity of the Greek situation points to the inequities and instabilities that have characterized the difficulties of capitalism.
It may well be that business schools should be at the forefront of creative thinking about an innovative way to do business, but what will ultimately drive the direction in which business schools take whether here in Africa or elsewhere will be its customers, and that is, its students. In time it may well emerge a competing notion of the organization, management, and administration of business which will lead to business schools offering such an alternative. But at the moment, given the nature and way in which business is structure today, the immediate short term approach of business schools — particularly those that wish to survival — should be to move closer to business by generating a more surgical improvement in education which increases shareholder value. It would require a kind of “blending” approach integrating in a meaningful way, academics and practitioners so that students are better able to appreciate the complex intricacies of balancing myriad factors in an attempt to manage a business.
With the right proposition, business schools can do well. Part of the proposition needs to include the advantages offered by a business school association. Aware of the importance of a closer relationship with business, Sabsa is in the process of developing a number of initiatives designed to strengthen ties with the private sector. Among those initiatives are the following:
- The establishment of a private sector, business school Sabsa Advisory board which will collaborate to develop buy-in with industry in the design and execution of relevant education scenarios;
- An analysis of the performance of the business school sector to gain a better appreciation of its strengths and weaknesses and how it can more creatively respond to the needs of business;
- The creation of African based case studies which will resonate with industry and students alike. South Africa has an exceptionally sophisticated business community that has put together some of the most innovative commercial initiatives undertaken by business anywhere in the world. At the same time, it is worth noting that the landmark South African Competition Commission case against the concrete pipe industry is now used as a case study at Harvard.
These are but some of the initiatives that Sabsa is busy putting in place. Although member schools have their own unique focus, I believe as executive director, critical to our future as an association, is the need for stronger, more vibrant links with the business community. If business schools are to fulfil their fundamental purpose, what is required is a symbiotic relationship which services both business schools and the greater business milieu. In so doing, business schools ensure their survival and significance.
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Business schools are the incubators of tomorrow. They provide the platform for stability and growth and allow individuals to masters the skills necessary to create a more responsive, more caring, more inclusive business environment. Faced with the challenge of relevancy, business schools need to reach back and re-introduce the principles which were at the foundation of their creation, and that is a more collaborative, more dynamic, more innovative way to do business. It is, in short: Back to the Future.