Sunday, July 06, 2014

MBA degree losing its sheen? Management education in India faces sharpest crisis of confidence

Two years after graduating with a master's in business administration (MBA) from GLA University, affiliated to the UP Technical University in Noida, Isha Singh, 25, discovered how difficult life can be in the real world. While she specialized in HR and marketing, the best role she could find herself was as an HR executive in a small firm in Udaipur, Rajasthan. Under pressure from her parents, she also studied for entrance exams for government jobs during her year-long stint, before quitting to further add to her academic qualifications and in the hope of a better job.

While Singh spent nearly a year in the Indian Institute of Mass Communication, Delhi, her move has yielded few results. "I thought this was a good additional qualification, but I am yet to get a job even though I have been interviewed by at least six companies," she says. "I'm confused and clueless on the way forward." AK Verma, Dean, Placements, GLA University, declined to answer queries on the issue, both on the phone and by email.

Singh's quandary is hardly new across India. As young executives queue up to apply to apply for business schools, they are faced with increasingly gloomy prospects. While companies may use the MBA as a basic filter, they are getting increasingly picky with their hires. The management education sector is being roiled by a massive oversupply of talent, coupled with shrinking demand from companies.

Thousands of executives who flocked to colleges over the past six or seven years to bolster their CVs are now facing tough prospects. While those from obscure colleges are struggling for jobs, further up the pecking order graduates in the past couple of years are having to struggle for their preferred role (say, marketing); and, in the top tier too, the gulf between expectation and reality has only widened. The halo attached to the MBA has sharply faded.

From Worker to Leader 

According to estimates from Elements Akademia, a pan-India chain of institutes that focuses on making youth employable, barely a fifth of the students at these lesser colleges get placed. While sectors such as information technology (IT) and IT-enabled services (ITeS) may be generating thousands of jobs, the students graduating from these colleges aren't up to speed on many skillsets demanded by employers and remain unhireable.

Another factor, specific to India, is the nature of students who opt for management programmes. In developed markets, most MBA candidates have five or more years of experience before they apply. What's more the pool of MBA applicants is more diverse --- more people from liberal arts, science and other fields.

In India, curiously, engineers dominate, since it's seen as a quick way to a fancier job and heftier designation. However, when the placement season yields few lucrative offers, students opt for whatever they can lay their hands on. "I was a fresher and I was a non-engineer," says Arul John, a graduate from a B-school in Bangalore, who settled on a job with an out-of-home solutions firm, when faced with few offers.

In the past six or seven years, MBA institutes have been in a rush to tap the burgeoning demand from executives keen to upgrade their skills. Much of this demand has been driven by engineers keen to grow from being grunt workers to team leaders and managers. And, the belief has been that once they return to work, a fatter pay cheque and greater responsibilities await them.

A muted economy and oversupply of management graduates have put paid to many of those dreams. In a hurry to establish their institutes, promoters have paid scant attention to building pedagogy, hiring strong faculty and attracting top companies to hire their talent. "I am of the firm opinion that bad schools must be shut down. Fly-by-night business schools shouldn't be allowed to take students for a ride," says Devanath Tirupati, Dean (Academic) and Director In-charge, Indian Institute of Management, Bangalore (IIM-B). Students from these institutes would agree.

"We had a class of about 400 students and no more than 100 got placed," says Rahul Roy, 25, a graduate of Aurora PG College in Hyderabad. Unlike top-tier institutes such as the IIMs or the Indian School of Business (ISB), students like Roy had to fend for themselves, relying on their own contacts and persistence to get hired. Roy was lucky; he managed to get a job in a small digital marketing agency, but is bitter about how his MBA was sold to him. "The college spoke of some large companies visiting the college, but few of them actually turned up and fewer yet hired anyone," he says.

According to Narasimha Rao, Deputy Director, Placements, Aurora Group, some 60 companies visited the MBA campuses this year and placement has been sharper than previously. He also blamed "the poor attitude of students" for news of underwhelming placements and said the group was building strong ties with industry to place more students. 

Structural Problems 
Students at the lesser-known B-schools are quick to accuse their institutes of poor placement and under-investing in their faculty and infrastructure. Setting up a business school is a time-consuming and expensive process, say experts, and those institutes set up as get-rich-quick method for promoters will wither away. Bala Balachandran, a professor at the Kellogg School of Management in the US and founder of the Great Lakes Institute of Management in India, has a dire warning for the B-school industry here.

He says that there's a structural problem with management schools, which makes them unattractive to everyone involved. A poor school with weak placements won't attract a strong crop of fresh applicants. In turn, if there are no high potential students for faculty to polish, they won't be interested in their job, which in turn will result in poorly trained students with few job offers. The vicious cycle will only perpetuate in this difficult environment. Balachandran says B-schools too will suffer the same fate as engineering institutes did, which first mushroomed and then shrank. "Only some 200 business schools have closed in India; soon it will be 1,000 out of the current 3,000 or even more," predicts the professor.

The foundations are certainly being rattled. According to a recent research note by Crisil, a research and advisory firm, some 176 B-schools shut between 2012-13 and 2013-14. In a report titled "MBA dream withering away", published in May 2014, it notes that the number of business schools increased from 3,000 in 2009-10 to 4,500 in 2012-13.

However, the interest in B-schools has dimmed recently, the report adds, with average occupancy rate at 68-70%. "There are fewer takers for MBA programmes, especially in tier-III and tier-IV B-schools...several institutes have had to shut shop," the report led by Ajay Srinivasan, Director, Research, Crisil, notes. A graduate of Acharya Institute of Management in Bangalore, Divya Prabhu, 24, exemplifies the growing distrust accorded to management institutes. She wanted to focus on a career in marketing research, but the best her college could offer her was a sales job in a small pharma firm. An electronics and electrical engineer, she instead went job-hunting on her own and, a few months down the line, managed to bag a job in an advertising firm in Bangalore. “The real world we experience is far from the rosy picture painted to you when you plan to do an MBA,“ she contends. 

No Fat Cheques 
The numbers don't lie. According to data from the All India Council for Technical Education (AICTE), the number of institutes affiliated to it went up from 2,614 in 2006-07 to 3,364 in 2013-14. Simultaneously, the number of students went up from 247,201 to 364,421 in the same time-frame. Despite this rapid increase, the interest in doing an MBA course seems to be on the wane, if tests for CAT applicants and takers are considered. That number has dropped nearly 20% and over 24% respectively between 2009 and 2013.

The return on investment in an MBA is also suspect. According to the Crisil study, the aver age salary during placements in 40% of B-schools is less than Rs. 300,000 per annum. Only 1% of the 4,500 odd institutes assures B-school graduates of making money; and only if you study in a tier I college can you expect an average annual salary of Rs. 900,000 or more. The cost of an MBA degree averages Rs. 800,000-plus at a premier institute and Rs. 200,000-400,000 at a non tier-I B-school.

Top colleges seem to be doing well for now. In placements for the class graduating in 2014 at IIM-Bangalore, students saw an average salary of Rs. 1.95 million, with all students placed in just four days. While the top offer exceeded $100,000, some 428 offers were made during the placement process.

"The demand for good management graduates will always be there especially in a growing economy like India," argues Tirupati. "At IIM-B, our programme --- the postgraduate programme in management (PGP) --- is of top quality; our pool of aspirants is large and global, and we strive to maintain our standards, so no worries there. Having said that, we do not rest on our reputation or laurels; there is a constant effort to maintain excellence in research and teaching."

That, however, is cold comfort for hundreds of thousands of management students and graduates who aren't lucky or good enough to study at the IIMs. Over 2,600 students study at the 11 IIMs nationwide, but for the hundreds of thousands more across management institutes elsewhere, prospects have only got dimmer.

Ajay Bhatkal, a veteran executive who advises B-schools on improving placements and curriculum, lays the blame squarely on students. "They opt for an MBA with the perception that they will be managers with a top bank or consultancy with multiple clients and large teams," he says. "Instead, they often end up working in a drudge role for a small company and rue signing up for such a programme." Most colleges he advises struggle with placements, he admits. 
With perhaps just one in 15 students recruited by a large firm this only diminishes the rapidly fading halo around MBA courses further.

Need for Change 
"Rather than a degree to beef up your management skills, in India an MBA is considered a quick way to get a promotion from your current role, or worse, a quick escape hatch from your job," Bhatkal says. Having studied in management schools in India and Europe, he says, the difference couldn't be more stark. European institutes have a broader blend of academics, their students are older and more mature and more aware of the potential and pitfalls of such programmes.

ISB Dean Ajit Rangnekar stoutly defends the need for management graduates but admits that there may need to be a sharp correction in student intake for the programme to stay relevant. "Currently, the intake is over 200,000 annually, but I think there will be a correction and the ideal number of graduates should be no more than 50,000-60,000 in India," he says. ISB, Rangnekar says, has benefitted from having a strong faculty and curriculum ---its placements have stayed steady, despite intake doubling from 400 to 800 between 2005-06 and 2013-14. "Every Tom, Dick and Harry thought that spending two years in some sort of business school was a passport to riches --- this is nonsense. With a 20% increase in intake and 5% growth in the economy, there is a painful correction underway," he adds.

Experts think that even though the halo around MBA programmes --- and the people who take them --- has faded, companies in general will continue to need managers for many roles. However, what has changed is the type of manager companies want, and most colleges are unable to make this adjustment, says Narayanan Ramaswamy, head of education at KPMG India.

"Managers can't afford to manage from ivory towers anymore...the world has changed rapidly," he says. "B-schools need to think of the future when they design is still taught using age-old concepts...a marketer is rarely exposed to the nuances of emerging areas such as social media. Colleges need to make their students future ready.“

For wannabe managers, a part of that future may be away from the classroom, with MOOC or massive open online courses gaining currency. KPMG's Ramaswamy says that the traditional MBA --- and managers who emerge from it --- may be under fire from nimbler executives who can multi-task a day job and an MOOC management programme.

Survival of the Best 

Even as the institutes deal with this pain, management graduates themselves are wondering if it's all worth it. Three years ago Nishant Sharma, 29, graduated from IMT, Nagpur with plans to get a marketing job for himself. However, since then he has changed three jobs, cycled through roles in media, in a psychometric testing firm, before moving to Mumbai and clinching a job in the supply chain function with a small hosiery design firm.

"Everyone tells you it is hunky dory in college, but a more harsh reality awaits you once you graduate," says Sharma. An electrical and electronics engineer, he says he has rarely used the heaps of theory he's logged through in class, at work. "The MBA is an overrated degree...I think more people will lose interest in it."

According to Rajiv Krishnan, partner and India leader, People and Organization, Ernst & Young India, the business school market is seeing a consolidation similar to those seen in the markets for business process outsourcing, when a gold rush to tap a potentially massive opportunity melted down once the pretenders faded. Similarly, he thinks that building an education brand, especially in management, will take two or three decades of toil. "You can't use traditional concepts such as break-even to measure the success of a B-school...this will come over time, once they have built this brand,“ Krishnan says. In the interim, B-schools face a bruising battle for existence, as applicants and faculty vote with their feet, pushing the weaker schools out of business.

Vishal Pandit, 30, faced the problems of doing his MBA a tad too early and of finding a job with a start-up, specifically in education. A graduate of MDI, the electronics engineer even added a degree from Europe in the quest for his dream job. While the MDI course was in international management and gave him plenty of exposure to global companies, Pandit had to work hard to find opportunities in his chosen space. He took the long route, opting to help a friend run a soya-processing unit, worked with a sports goods multinational, and only then found his way to Function Space, his current employer, which is a social learning network for science. Having studied in management schools in India and Europe, he says, the difference couldn't be more stark. European institutes have a broader blend of academics, their students are older and more mature and more aware of the potential and pitfalls of such programme.

At the Crossroads 

For young executives looking to take their next step in their careers, this turmoil can be unsettling. With four years of experience in communications, 25-year old Priyanka Tadipatri thought it was time to upgrade her skills. A management postgraduate degree seemed a logical choice -recruiters for management jobs she coveted wanted to see an MBA on her CV and companies used it as a basic filtering tool to weed out applicants. However, in the past few weeks, Tadipatri isn't so sure an MBA is the way to go; she's struggled to find a programme which will give her the required push into meatier marketing jobs she seeks and as the aura around MBA graduates has faded her resolve has dissipated. Instead, she has now decided to do shorter marketing courses to further her career prospects.

As companies mop up the last few hireable graduates, management education in India will now need to deal with its sharpest crisis of confidence --- or risk becoming irrelevant in a fast-changing world.

Source: The Economic Times, July 6, 2014

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