Battle 3 – IIM Indore v/s IIM Kozhikode – Flagship MBA/PGP programmes at Top Business Schools in India are overpriced (FOR)

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 been enabled. CounterPunch from IIM Kozhikode was received 2.5 hours after the deadline and 2 hours after opponent’s counterpunch was uploaded. Penalty will be given for the same.

(Read here for Battle 1IIM 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

FOR the motion : IIM Indore                     (Read IIM Kozhikode’s argument AGAINST the motion)

“Over-pricing” – the act of putting too high a price or value on what is being offered.

         In the past five years, the fees of the flagship MBA program in premier Indian B-schools has nearly trebled. From a fee of Rs.5 lakh in 2009, the fee has nearly trebled to 14 lakh across the IIMs. This in turn has worked as a signalling mechanism with many premier B-schools hiking their fees to the same extent. The fundamental question that is posed at this stage is whether the value that is offered by the B-schools to the enrolled students has increased proportionately with the fee. In the subsequent sections, we will try to answer this question by examining the various facets of the value B-schools provide to students and the costs they incur in doing so.

While most students see placements as the be all and end all of a B-school education, we steer clear of the myopic assessment that B schools are just a ROI catapult.  The basic offering of a B-school is the learning and academics that the students receive that trains them to be effective managers/ leaders. From this perspective, the course curriculum of B-schools has stayed largely similar over the past few years. The costs that go into delivering the course curriculum are primarily twofold. The first aspect is attracting and retaining high quality teaching talent. While most B-schools state this as a challenge, it cannot be denied that there is a consistent pool of talent already teaching in the top B-schools and that the prestige of being a faculty member of a premier B-school is a powerful motivator for people to apply for these jobs. The revised pay commission scales have been quite attractive and act as an incentive to extend tenure. The second aspect includes the course materials. Since most premier B schools follow the case method form of teaching, it would also include the cost of subscribing to case study platforms such as the Harvard Business Review, Ivey League and so on to purchase the cases. Since neither the course content nor the material given out has drastically changed over the past five years, we can safely include that in terms of the academic content provided to students, there has not been a value increase proportional to the increased fee that students are paying.

The other factor for B-schools is the infrastructure cost incurred in delivering the curriculum to students. The primary costs under this would include construction and up-keep of classrooms, auditoriums, hostels and messes. While in the case of engineering colleges and medical colleges, these costs are immense due to the need for setting up laboratories which require expensive, cutting edge equipment, the same cannot be said of a B-school. Any cost with regard to setting up laboratories or other such facilities is negligible in a B-school. Medical and engineering colleges are more capital intensive as opposed to B-schools, and it seems unjustified for a B-school to treble its fees for no significant reason.

Prof.Pankaj Chandra, the director of IIM Bangalore in an interview with the Economic Times mentioned that “The cost of infrastructure has been one of the major reasons for the fee hike since the student numbers were increasing dramatically”. Prof. Ashok Bannerjee from IIMC mentioned that “If we don’t increase fees we might be able to meet our operational expenses, but it won’t be enough for capex” [2] So, essentially what we are witnessing is a simple amortization of Capital Expenditure on infrastructure, over a larger batch of students, and over subsequent batches. A long-term view should’ve been considered and not burden the students at rates distastefully different from inflationary levels.

Since the signalling aspect has been established, we can focus more on the IIM fee hike. The affection for autonomy that IIMs profess for makes it hard to negotiate better for government funds. Autonomy for IIMs and other B-Schools is very important to retain their premier world-class status but it comes at a cost of having to depend lesser on Government funds. Government funds being taxpayer’s money might come with certain clauses attached which is mostly justified as well. Hence, we explore alternative revenue streams for B-schools that will reduce the price of the flagship programme.

The batch-size increase is a significant policy change, and should’ve been carried out in better partnership fashion between the government and the IIMs. An unintended side-effect is that world-class faculty with a keen research and consulting mind-set has had to take more classes of the Flagship programme. Being harsh, but methodical, the impact of this on reducing consultation revenue has to be assessed. Out of the consultation revenue, the parent institute gets nearly 45%, unlike Western B-Schools where the professors get to keep the entire amount post taxes. There used to be a time when the consultation income for the professors used to be higher than the salary itself [3]. Such Industry tie-ups should be encouraged for they foster the growth of both industry and academia, and a long-term solution thus would have been to hire more faculty to adapt to these policy changes, rather than taking a quick-fix solution of burdening the students.

The MDP for Corporates, and sourcing funds from Alumni and corporate donations is something that has frequently come up in discussions.[4]  A pan-IIM mechanism to deliver scholarships as well as fund  Infrastructure initiatives, is a good way to reduce the fees for the Flagship programme. We should remember that the B-School ecosystem in India developed around the PGP, and PGP-ABM programmes, and hurting that model is not beneficial in the long run.

For the ROI aficionados (a belief we do not endorse, but merely present here), Peter Thiel (famous entrepreneur and investor in Paypal, Facebook) speaks of a Higher-Education Bubble. “A true bubble is when something is overvalued and intensely believed.” Thiel loves to make controversial statements, but as budding managers from premier B-Schools, we are smart and sensitive to see the value in these comments. [5]

-Abhishek Upadhya and Nandini Ramani

Counterpunch

IIM Kozhikode’s counterpunch to IIM Indore’s opening arguments

  1. As students of business, we hoped that our opponents were well acquainted with the basics of market pricing. Basic supply and demand factors dictate the higher prevailing prices. In fact, if there was a price mismatch, then we ask this of our good friends – why have they enrolled in a course that is according to them so obviously overpriced with no tangible value addition? Their argument in the first paragraph itself, regarding the cost side of an MBA does not hold water, as in subsequent paragraphs they themselves justified the cost increase based on the quotes regarding infrastructure spending from the directors of various IIMS.
  2. In the next paragraph, they question legions of students, journalists, the industry and public at large, who view an MBA as a professional degree and a means to enhance their career prospects. If we were talking about a doctoral degree in say the philosophical justification for quantum physics or some equally esoteric field of study with no direct practical applications, their argument about pure “learning and academics” might have a modicum of credibility. However, we are discussing about a real-world, applicable skill like management; the value of which is determined through practice. In such a case, the subsequent endeavours, i.e. placements of students, would serve as the primary benchmark to determine the value of the course.
  3. Subsequently, our worthy opponents have claimed that the quality of the faculty currently engaged by premier B-schools across the country have increased manifold due to incentives laid out by the government such as a better pay package and other perks. This line of reasoning, unfortunately for our opponents, discredits their own argument as better faculty naturally entails having to pay them a better compensation. As our opponents have pointed out, having a higher degree of autonomy means not being able to go plead with the government. This naturally leaves institutes with no choice but to raise the fees in order to make ends meet. Also, I would reckon our friends agree that better quality faculty provide a better ‘learning experience’ which would “steer clear of the myopic assessment” regarding B-schools and ROI and hence, a fee increase would be justified.
  4. In the next paragraph, our friends claim, “The other factor for B-schools is the infrastructure cost”, which they state is negligible, contradicting the words of the esteemed directors of various IIM’s. We are at a loss to understand why they would include these quotes in the very next paragraph which go against their fundamental line of reasoning. Are they implicitly questioning the veracity of the justification provided by these eminent academicians? If not, they have simply substantiated our side of the argument.
  5. Following the afore-mentioned quotations, our friends suggest a long term view should have been considered in lieu of amortization of the expenditures. We simply wish to remind them, that by definition amortization is a long term solution to offset current costs.
  6. In the second half of their argument, our friends want to “explore alternative revenue streams”. Does this imply that they have accepted the fact that a fee increase is inevitable lest they find these illusive alternate revenue streams? We too wholeheartedly agree that alternative revenue streams would lessen the burden on students but until such pipedreams become a reality, the students who benefit from such a program would be expected to pay for it.
  7. While we do not want to go into the nitty gritty of their proposed alternative financing plans, we are obliged to point out certain shortcomings in it. If the professors who are currently engaged in teaching take up external consulting projects, then new faculty would be required to compensate for it. This would nullify any potential “consultation revenue” the institute might garner. Also, are they suggesting that these professors who are naturally the most sought after, shirk their primary responsibility of teaching and instead seek out ventures that disadvantage us, the students? Regarding their solution to “hire more faculty to adapt to these policy changes”, are they of the view that such faculty come for free?

 

In conclusion, we find it regrettable that our friends who are also management students do not repose faith in an undeniable metric like ROI. One does not need to be an “aficionado” to accept the logic of a simple cost benefit analysis. Along with thousands of families of students, the industry and the nation at large, we continue to place our faith in the value and the quality of education provided in our B-schools.


 Participant Profiles (IIM Indore)

Nandini Ramani is a PGP2 student of IIM Indore. She is interested in Marketing and did her Summers with Bharti Airtel. She pursues Reading and Music as Hobbies.

Abhishek Upadhya is a PGP2 student of IIM Indore. He is interested in Marketing and did his Summers with Flipkart.com. He is interested in Quizzing, Reading, and is a music enthusiast.
Citations:

[1] : “NIT Council rejects proposal to increase students’ fees” http://www.thehindu.com/education/issues/article2142466.ece

[2] : “IIM fees trebles in 5 years”  http://economictimes.indiatimes.com/news/news-by-industry/services/education/iim-fees-trebles-in-5-years/articleshow/12629380.cms

[3] : “IIM professors earn more from consultancy” http://articles.economictimes.indiatimes.com/2009-10-14/news/27639349_1_iim-faculty-indian-institutes-consulting

[4] : “ IIMs meet to discuss fund raising” http://www.livemint.com/2012/01/13000648/IIMs-meet-to-consider-ways-of.html

[5] :” Peter Thiel: We’re in a Bubble and It’s Not the Internet. It’s Higher Education.” http://techcrunch.com/2011/04/10/peter-thiel-were-in-a-bubble-and-its-not-the-internet-its-higher-education/

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Comments

3 comments

Rohit Kumar

IIM K hasn't submitted their counterpunch. Isn't it unfair that they get more time to prepare and also get to see IIM I's counterpunch before sending their counterpunch? I think they should be disqualified.

Manish Harodia

Excellent counter punch by K. Eagerly waiting for the revert from I, if any. This is a classic move by Inside IIM to not only encourage quality and original brainstorming, but also may give us glaring questions to find answers to!