The Great Indian BSchool Debate – Battle 3

IIM Indore and IIM Kozhikode will fight it out in the third battle of The Great Indian B School Debate. Comments have now been enabled. IIM Indore's counterpunch has been uploaded. (Read here for Battle 1: IIM Lucknow vs FMS Delhi) (Read here for Battle 2: IIM Ahmedabad vs IIM Bangalore) Please note that the arguments put forward below cannot be ascribed as the participants’ individual opinions. All arguments put forward are only for the purpose of this debate competition.

The Flagship MBA/PGP programmes at Top Business Schools in India are overpriced

AGAINST the motion : IIM Kozhikode               (Read IIM Indore's argument FOR the motion) At the outset, we define some of the key terms in today’s topic. We are restricting ourselves to MBA programmes offered in “the top business schools in India,” by which we mean the IIM’s, ISB, XLRI and the other usual suspects within the top 10-15 ranks. We take “overpriced” to mean that the cost of the MBA programme is high relative to both the future value that one can derive from it and to similar programs offered elsewhere. Over the next few pages we attempt to remove the possible reasons for such a misconception and provide strong arguments highlighting the fallacy of this topic. Over the past few years, there has been an explosion in the number of institutions offering MBA certifications in India. These colleges, mostly private and for-profit, have mushroomed all over the country catering to the perceived need of thousands of Indian youngsters. A highly competitive job market coupled with the sheer number of engineering graduates led to an MBA degree being an important point of differentiation. However, this has now evolved from a differentiating factor to a perceived necessity. Consequently, market forces of supply and demand have given a boost to this ‘business of business schools’. These new institutions offer degrees at various price points and have devalued their own importance. Most of the degrees offered are not accredited, and in most cases are not worth ones’ investment in time and money. We wish to emphasize though that this has nothing to do with the institutions we are concerned with. We simply cannot compare the two groups as they differ wildly in the quality and scope of education and opportunities offered to students. It is thus a common but wrong conclusion to arrive at (namely that the top MBA programs are “overpriced,”) by comparing these. It is important to note that despite the ballooning of such colleges, for potential recruiters, the value of an MBA from one of the top business schools has remained largely unchanged. A cursory look at historical job data for students from these schools will validate this view. Another common source of this misconception springs from comparing these MBA programmmes to other non-MBA programmes. This is even more laughable as there is simply no basis for such a comparison. Thus, one might look at the costs of a four-year engineering program from the IIT’s to that of a two-year PGP degree from an IIM. At first glance the latter might seem high, but when we consider the fact that we are comparing hypothetical career-determining apples and oranges, and that the MBA is considered essential for holding senior positions of responsibility, it starts to look like a bargain. All too often we have seen firsthand how a fresh MBA starts out at a higher position than a more experienced but non-MBA bachelor’s degree holder. We sincerely hope that our opponents do not succumb to such fallacies and take into account the greater picture before arriving at a conclusion. We now make a purely mathematical argument highlighting the mismatch which exists between the costs and future benefits of top MBA programs, much to the benefit of students. Assume a salary of 12 Lakhs at outset of the MBA with an expected annual growth rate of 7% and a working career of 35 years. The cost of the MBA is assumed to be 12 Lakhs. The return on alternate investment opportunity is 10%. Present Value   = -12,00,000 + 12,00,000/1.1 + 12,00,000*(1.07)/(1.1²) + … =  2,48,00,000 Naturally, the benefits accrued from an MBA far transcend the cost figures mentioned above. Also, in a pure mathematical sense, they highlight the obvious cost advantage of pursuing a management degree in India vis-à-vis abroad. Finally, for those who are still not completely convinced of a top-ranked Indian MBA program, we look at similar cases from other countries. To make the comparison fair with respect to exchange rates and cost of living allowances, we consider the ratio of the cost of the complete MBA program to the average first-year salary one can reasonably expect to command upon graduation.

MBA Program		Cost	Median Starting Salary		Ratio (lower is better)
Harvard		174,000	120,000		1.45
Columbia		179,000	110,000		1.63
Wharton		186,000	110,000		1.69
Stanford		181,000	117,000		1.55
London (LBS)		100,000	125,000		0.80
INSEAD		150,000	130,000		1.15
Similar comparisons for top Indian B-Schools (exchange rate Rs55.5/$)
IIM Ahmedabad	25,000			30,000	0.83
IIM Bangalore	23,400			28,000	0.83
IIM Calcutta	24,300			30,600	0.79
ISB Hyderabad	30,000			32,400	0.92

Note: All figures for Class of 2011 (in $) from respective college websites Conclusion While contemplating the veracity of the argument posed, we also have to keep in mind that the costs for MBA’s abroad are generally 3-10 times higher than those in India. Some of the reasons cited for the disproportionate fees abroad are that they provide a global perspective and also the multi-cultural experience that enables better moulding of future business leaders. As a counter to this, many Indian B-schools have also commenced providing these experiences in the form of foreign exchange programs as well as inducting a more diverse batch of students. The recent hike in fees in many B-schools in India is in line with the spurt in per capita income of the population and as such, cannot be viewed as an unjustified increase. Considering the exorbitant fees charged by many B-schools abroad, the costs involved in obtaining a similar degree in India, is still a pittance. The brand equity of many of the top notch B-schools in India is becoming a major force in the global arena, especially in the Asia-Pacific region. Keeping in mind, the relatively modest fees these institutes charge, their students can safely claim to have had an excellent deal. The table presented above also highlights the value provided by Indian B-schools who actually give more bang for your buck. In this manner, we conclude our case against the motion. - Dipto Kar and Jaykrishnan Parameswaran (IIM Kozhikode) Participant profiles - IIM Kozhikode A graduate in mathematics and physics, Dipto has worked in the fields of finance and construction. He spent five years in the US where he went to college and subsequently worked. He plays the violin and enjoys reading non-fiction. A student of  engineering from NIT Surathkal, Jaykrishnan joined IIM right upon graduation. Now in his second year, he will be spending a semester in France as part of the foreign exchange program. He enjoys reading and plays table tennis and football.

Counterpunch

Counterpunch by IIM Indore 

We see that the arguments from our friends on the opposing side have more or less revolved on the ROI issue. Since they have not analyzed any substantial viewpoints from wider aspects, we will address their concerns with ROI first.

1.  The cost of the program cannot be entirely determined based on ROI. In a recession, the fees of a B-school would then have to be lesser, which is laughable. Salaries are predominantly an external-market phenomenon and can vary with Recession, Business Sectors, Government Policies, and so on, and the absurdity of considering a ratio like this with a one-year sample data-set is downright ridiculous.

2. As for the apples-and-oranges, If ROI is the only determinant, with the salaries which are currently offered at the IITs and NITs with Facebook etc recruiting on their campus, no one would really want to do a flagship programme of PGP. The immediate ROI in this case of an IIT/NIT is much higher, and post some 5 years of experience, the person can opt for an executive MBA programme (thus resulting in a proverbial fruit-matching, if you will).

The flagship programme of BSchools is generally preferred within the first 3 years of work experience, and post-5 years, people with an interest to take up senior positions of responsibility, generally prefer the executive MBA programme from the very same top B schools. With valuable industry experience and a certification from the best B schools, market could prefer them even more compared to their PGP counterparts.
So, for the target market (3 years experience and below), these flagship programmes are indeed overpriced.

3. While comparing with foreign schools, the opponents say that the Indian schools offer a bargain. But that cannot be taken in isolation; the market needs to be taken into account. If you look at the B-schools abroad, many mandate a high level of work experience. These are people who have worked and can afford the fees or at least a part of it. In the case of Indian schools, the participants are almost all with little or no work experience and hence have to rely on loans or family funding to pay the fees. From that perspective it is much more expensive to a large section of the target market. The immediate “financial hit” that the fee amount causes to the student is much higher. The current pressing need is to generate “present Cash flows” to pay for the loan; the lure of “future cash flows” comes much later.

4. The foreign B-schools which the opponents have considered have world class faculty, under whom even our best professors have studied. The brand and knowledge premium delivered by these thought -leaders who have published most of the cutting edge research in the field of management, is immense and worth paying for. Of course, the opponent’s argument of ROI has not really taken this into account.

5. It is meaningless to base an argument of the price of an MBA on the ROI offered as a B-school education is supposed to groom future leaders and managers. With that perspective, it is important to understand how much value and learning Indian B-schools provide before pegging a price on it.

6. The opponent’s meaning of ‘overpriced’: We take “overpriced” to mean that the cost of the MBA programme is high relative to both the future value that one can derive from it and to similar programs offered elsewhere.

By this judgment, it is obvious that if the cost of the flagship programme were made lesser, they would derive even more value from it. This is precisely what happens if you do not judge the innate value derived from experiencing the flagship programme itself, and just continue to hark upon ROI.

But let’s forget all this for a moment, and humour their core mathematical arguments.

• A primitive ratio of Cost of MBA program to Median Starting Salary is calculated to illustrate, well, immediate ROI.
• The Present Value of Future Cash-flows assumes a constant rate of opportunity cost, constant rate of increase in wages. Are these the kind of simplistic models one would use to determine pricing structures in such a turbulent market scenario?

So, summing it up, the opponent’s premise has been on a wrong argument plank. We do not wish to talk on ROI alone and hence we have presented a broader picture. Now that the mythical ROI beast has been put to rest, we could take this debate to the next level.