A lot of attention has been paid lately to big tech companies buying up smaller firms in billion-dollar deals: In January, Google acquired Nest for $3.2 billion, Facebook purchased mobile message service, WhatsApp, the following month for $19 billion; last week, it acquired virtual reality gaming company, Oculus VR, for $2 billion. There is a lot of discussion about the motives behind these large deals. Some say they are attempts to block competition, while others maintain they are efforts to stay relevant.
I see these deals as a reflection of the uncertainty companies face as they try to identify the next big thing. This is especially true for successful companies like Facebook (FB) and Google (GOOG), which are known for doing what they do tremendously well. They’ve seen similarly successful companies like Kodak struggle as technology moves on, rendering its product obsolete. As a result, companies today are eternally motivated to look outside their current business.
Higher education has hit a wall — particularly the business school. Four issues are upending higher education as it is constituted today:
It is overpriced: While the cost of higher education has skyrocketed, MOOCs (Massive Open Online Courses) have emerged as a game changer, opening doors to an unparalleled democratization of higher education. The marginal costs of online learning are basically zero. And yes, in spite of huge enrollment numbers (often 50,000-80,000 students per class), MOOCs have not yet been able to fully deliver on their high- flying promises. Critics often point to course completion rates–often as little as 5% of the enrollees complete a course–a sign that MOOCs are still evolving.
It is out of touch with the changing market: The old model of higher education worked for a remarkably long period, although not for everyone. Students invested in the pursuit of a career path that almost guaranteed a good income, which then enabled them to swiftly pay back their college loans. Those years are gone. With many industries having moved from the United States to Asia, and with increasing automation in manufacturing and management, many formerly well-paying middle-class jobs no longer exist; they have been replaced by service sector jobs that do not even pay a living wage.
The curriculum is outdated: The intellectual and methodological foundation of business schools is thoroughly outdated. Lectures as a teaching method have been around for more than 2,000 years, and the Harvard case study method for more than 140 years; and yet, they still account for most of what is going on in B-schools today. But what’s worse is that the core curriculum–based on current mainstream economic and management thought–equips students with a mental framework that amplifies our global ecological and socio-economic crises instead of helping to solve them.
Especially concerning business regulations, critics argue, an inside the Beltway mentality prevails. Only the lobbyists and industry insiders are heard.
I am sensitive to this criticism. Five and half years ago, the United States experienced the worst financial crisis since the Great Depression. In response to the crisis, Congress passed the Dodd Frank Wall Street Reform and Consumer Protection Act. One part of the legislation instructed a financial regulatory agency called the Commodity Futures Trading Commission (CFTC) to write rules that regulate “swaps” — the same derivatives that had been implicated in the financial crisis. As the Chief Economist of the CFTC during 2010-2012, I helped with the rulemaking process.
After leaving the federal government in December 2012 to join MIT Sloan School of Management as a finance professor, I set out to study the work that I and other staff members had done on designing new Wall Street regulations.
My goal was to create a scientific tool to evaluate whether thousands of public comments that were delivered in response to the rules proposed by the CFTC were meaningfully taken into account. I wanted to study how responsive the government is to its constituents. Is the government really for the people?
In an exclusive interview with CNBC-TV18’s Malvika Jain on July 02, 2014, SP Kothari, Deputy Dean, MIT Sloan School of Management gave his take on the expectations from Arun Jaitely’s maiden Union Budget and his outlook on the road ahead for the Indian economy.
Below is the verbatim transcript of the interview:
Q: Government is in the process of preparing its first Budget since it took charge. What should be the priority areas where the government should focus?
A: Mr. Jaitley has to recognize and Mr. Modi also has to recognize that changing the furniture around the house is not going to make the house look that much different. It might make it look somewhat different but that is not a game changer and they have to think in terms of policies that dramatically alter if the goal is to increase the per capita income from where it is currently at about 1500 to say about USD 5000 in 10 years. Those game changing policies will have to focus on population growth, they will have to focus on FDI, they’ll have to focus on how our governance is and how our law enforcement is. Just to name a few set of policies that Mr. Jaitley should pay attention to in the maiden budget that he would be presenting on the 10th of July.
Q: Arun Jaitley has indicated that sector specific FDI is something that the government is going to be looking at. Do you think that that is going to be sufficient to spur investment flow into the country?
A: People’s decision to spur investment only partially hinges on what sectors are open for an investment. People’s decision to invest is influenced to a large extent by what kind of climate there is; climate includes what kind of law enforcement there is, what kind of labour supply there is, what kind of tax regime there is, what kind of regulation exists in general and is it easy to do business or not – open new businesses as well as close new businesses. So, the look has to be much more holistic in attracting foreign investment rather than a piecemeal approach by saying that we will open certain sectors for investment and wait for foreign investment to flow. I don’t think that is going to change or make a dramatic improvement in the investment climate.
In the last 20 years, we’ve seen a massive wave of manufacturing jobs move to low-labour-cost countries. Now, many companies are beginning to question whether the cost differential offered by distant suppliers compensates for the cost of working with an extended supply chain. These companies find themselves with massive inventories, yet in spite of those inventories they frequently are not able to meet all demand.
It has been difficult for managers to analyse the cost differential mismatch trade-off because mismatch costs are difficult to quantify. The intuition is that the mismatch costs are high, but the managers I discuss with have difficulty believing that overstocks and stockout costs are high enough to wipe out the cost advantage enjoyed by their offshore supplier. Without solid numbers, it’s difficult for managers to incorporate these costs into decision-making.