A new institute takes a different approach and comes out ahead
From the Chronicle of Higher Education, issue dated September 29, 2006
By SHAILAJA NEELAKANTAN--Gachibowli, India
Business schools looking for an interesting case study might want to start with one of their own — the Indian School of Business.
The story goes something like this: A new business school opens in a country flooded with management programs. It has a rotating list of foreign faculty members, many of whom arrange to stay for just six weeks. The school charges more than four times the tuition of the country's most elite business institutions. And it refuses to seek government recognition.
A disastrous plan? Hardly. Though the six-year-old business school had a rocky start and is still not making a profit in all its programs, it is producing some of the highest-paid graduates in the country. Other business schools are copying some of its strategies. And it is flooded with applicants eager to fork over tuition that is three times the average salaries they were earning before they enrolled in the school.
The 260-acre campus here in Gachibowli, about an hour from the information-technology hub of Hyderabad, breaks with the traditional higher-education model in almost every way. Its facilities are fully modern: Every classroom has videoconferencing capability, and every desk has wired and wireless Internet connectivity.
The institution has academic alliances with elite business schools in other countries, including the Wharton School, at the University of Pennsylvania; the Kellogg School of Management, at Northwestern University; and the London Business School, of the University of London. Eighty percent of its faculty members are from abroad, mainly from universities in the United States.
The school is making a big impact in India, prompting new thinking about private higher education in a country where almost every other top academic institution is financed and overseen by the government. It is challenging the notion that higher-education institutions need government accreditation to succeed. And its accelerated one-year program, in a country where the two-year M.B.A. is still the norm, has proved enormously successful.
"Its excellent faculty, impressive infrastructure, and the compressed one-year program have revolutionized the management-education world in India," says A.S. Murthy, senior vice president for human resources at Satyam Computers, a global information-technology-services company in Hyderabad that has hired graduates of the school.
Ironically, though, the very elements that have helped the Indian School of Business become such a success may limit its international standing. Because most of its faculty members are part-timers, it has been unable to develop a strong research program. And to attract more full-time professors and maintain its state-of-the-art facilities, it must raise a lot of money that high tuitions alone won't cover. (Administrators decline to say how large the school's endowment is or how much money it hopes to raise.)
The school's success comes at a time when the rest of India's higher-education system struggles to keep up with the needs of the country's booming economy. India's 300-odd public universities serve only 7 percent of the 18- to 24-year-old population, and the government does not have the money to increase capacity.
The state of professional graduate education is particularly bleak. Demand for professional courses in management, engineering, and medicine far outweighs the number
of seats available at public universities and institutes. Private professional schools have proliferated, but many of the more than 900 management schools are of poor quality — either strapped for funds or purely money-making ventures that focus on fees rather than on faculty. Meanwhile the business community complains loudly about the limited supply of well-trained managers who can help companies negotiate an increasingly sophisticated, internationally competitive market.
"As India is growing rapidly, it needs more of all kinds of institutions of higher education," says Rajat Gupta, founder of the Indian School of Business. "If we get complacent about our education system, we will run out of qualified people. A business school like ISB is important for economic growth, to create enterprises and to provide leadership to existing businesses."
Mr. Gupta is a senior partner worldwide and a former managing director at the consulting firm McKinsey & Company. The school's governing board and executive board also include Rahul Bajaj, chairman of Bajaj Auto Ltd., one of the world's largest manufacturers of motorcycles and scooters; Michael Dell, chairman of Dell Computer Corporation; Patrick Harker, dean of the Wharton School; and Laura D. Tyson, dean of the London Business School. Its backers include Indian financiers, expatriate Indian technology entrepreneurs, and corporations including Novartis, Goldman Sachs, and Citigroup.
Not surprisingly, the school opened with considerable hype, touted as India's answer to Harvard Business School. But there were teething troubles: High tuition discouraged prospective students, and potential employers were slow to accept the school's accelerated program.
But the school has justified all the hoopla, say academic observers and corporate human-resources managers.
"In 2001 most of the Indians taking the GMAT submitted their scores to Harvard," says David A. Wilson, chief executive of the Graduate Management Admission Council, which provides the Graduate Management Admission Test. "In 2005 the largest number of candidates taking the GMAT in India sent their scores to the ISB, replacing Harvard as their top choice. That's really a substantial shift."
Mr. Wilson, who visited the institute in May, says he was impressed by the depth of the faculty and the quality of the students.
The dean, Mendu Rammohan Rao, announced in April that a 2006 graduate had been offered the highest salary among all of India's management graduates this year — $233,800 for a position in Britain. That status previously was earned almost exclusively by graduates of the six prestigious public Indian Institutes of Management. Three other graduates of the Indian School of Business bagged offers with salaries over $200,000.
The school's one-year postgraduate program in management costs students up to $32,000, and still operates at a loss.
By comparison, the Indian Institutes of Managements' two-year master's of business administration costs $6,500 to $7,500.
Mr. Gupta, who is now chairman of the Indian School of Business, says the high tuition is necessary to "build a world-class institute with the best infrastructure and faculty in India, without government help."
Students say the cost is worth it. Members of the 2006 graduating class made $11,200 a year, on average, when they enrolled, and received offers of $26,155, on average, upon graduation.
"We can easily get bank loans now, and we know we will be well placed after graduation to be able to pay off the loans," says Megha Kapoor, a student. Admission is need-blind, and the school offers financial-aid packages to students who do not qualify for loans.
But Mr. Gupta and Mr. Rao play down the financial incentive.
"An exciting career, not necessarily the big bucks, is the prime criterion," says the dean, pointing out that graduates are entering fields that M.B.A.'s do not usually join, like media, health care, and real estate.
"The program is very innovative, and the elective subjects taught incorporate all the latest developments in business," says Premchand Palety, head of the Centre for Forecasting and Research, an independent research firm in India, and one of the authors of The Outlook Guide to the Best Business Schools in India.
"I found that even the IIM's [Indian Institutes of Management], until some years ago, were teaching case studies from as far back as the 1960s and 1970s," says Mr. Palety. The Indian Business School is unique in the country, he believes, in that it teaches live cases. "At a time when things are changing so fast in the business world in India and globally, one has to keep up," he says. "The IIM's take too long to change anything."
Because the Indian Business School did not seek government accreditation, it cannot call its graduate program a degree. Trying to get accreditation from the government bureaucracy would have taken forever, says Ajit Rangnekar, deputy dean. "Early on we realized we have to be smart about which rules to break," he says.
Now other business schools in India are adopting some of the Indian Business School's ideas. The Indian Institute of Management at Ahmadabad, for example, has started a one-year graduate program for people with work experience.
Rashmi Bansal, a graduate of Ahmadabad who has written extensively for local magazines about business programs in India, says the Indian Institutes of Management are looking for new ways to expand and are even considering hiring foreign visiting faculty. "As alumni we are encouraging these things," she says, "because now there is an ISB to contend with. All these years the IIM's ruled the roost, and there was no competition."
Prakash Apte, director of the Indian Institute of Management at Bangalore, declined to talk about the Indian School of Business and whether it was inspiring changes. Administrators at the institutes in Ahmadabad and Calcutta did not return calls requesting interviews.
With a program designed so a visiting faculty member can teach an entire course with only a six-week commitment to living in India, the young school has attracted an impressive roster of scholars from a number of the world's top business institutes.
"My motivation to teach at ISB is that India is a neat place," says Richard P. Waterman, an associate professor at the Wharton School who has been part of the Indian School of Business's faculty for four years. "It is changing rapidly, and it is fascinating to see that. Teaching here also gives me a broader perspective on what students are interested in generally and what careers they are looking at."
Employers and students alike say the exposure to business professors who have an international perspective is a key selling point of the school.
"I didn't apply to Wharton, because there I would have had only faculty from Wharton," says Shaista Vadra, one of the 428 students enrolled in the one-year management program. "Here I have teachers from Wharton, London School of Business, Kellogg, and so many other top schools."
But to be ranked among the world's top business schools, and to gain accreditation from AACSB International: the Association to Advance Collegiate Schools of Business — goals that it hopes to reach — the Indian School of Business needs to build up its permanent faculty enough to strengthen its research programs. The school has 20 permanent and 80 visiting faculty members.
Arthur Kraft, chairman of the accrediting group, says it has strict standards regarding the number of "actively participating faculty." The association, he notes, looks carefully at how much visiting faculty members get involved in a program.
"For visiting faculty to be counted, it has to be actively involved in developing curriculum, mentoring other faculty and students," he says. "Visiting faculty can have a very positive effect."
"The faculty question is a key one," says Mr. Gupta. "We have to increase permanent faculty, but that takes time, especially if we want to have quality." In order to retain a global character, he says, the school will specify that at least 40 percent of the professors be visiting from abroad.
Meanwhile, to recruit more permanent faculty members, it has started devising what it calls "centers of excellence" — in entrepreneurship and development, analytics and finances, global logistics and manufacturing — that are financed by companies or individual donors. At these centers, a focus on emerging markets will underlie all research. The school has one endowed chair, for research in real estate; more are in the offing.
An executive training program started five years ago has helped the Indian School of Business as a whole break even, but it will need a lot more money in the years ahead to keep its facilities up to date and to continue to attract good faculty members. But Mr. Gupta is bullish. He is convinced that by tapping the top executives and companies represented on the school's governing board — potential donors so far excluded from fund-raising efforts — he can build a significant endowment in just 15 years.
That would be an impressive accomplishment. "Most of the top institutions in the U.S. are hundreds of years old," says Mr. Gupta. "We are just six years old. That's a small period in the life of an institution."