July 2, 2008

The Value-Creation Challenge

Over the last century, business schools have emerged to cover the world, apparently from nowhere. The Association for the Advancement of Collegiate Schools of Business has now accredited 500 institutions in 30 countries.

India is just one example of this phenomenon. In 2006 the Association of MBAs accredited its first MBA program in India at the Management Development Institute in Gurgaon -- one of more than 1,000 homegrown MBA courses in the country. China has also embraced business schools. China Europe International Business School, in the Pudong district of Shanghai, dates back to 1994 and is now ranked among the top 20 schools worldwide. Russia is also a business school convert, with the Russian government now investing heavily in business education. Indeed, the number of countries without business schools or business school affiliations and links is down to a handful of politically extreme or militarily volatile nations.

As business schools expand in India, Asia, and beyond, we need to have a better shared understanding of their purpose if we are to maximize their impact. Until we identify the purpose of business schools we are, metaphorically, building them on sand.

Put at its simplest: I believe the purpose of a business school is to create value. I distinguish between three types of value.

Academic Value First, business schools create academic value through research and its dissemination.

Certain kinds of research will be value-creating primarily through the way in which the research moves the boundaries of academic knowledge and understanding. Other kinds of research will have a more immediate impact on business, its conduct, and performance. Ted Levitt's early work on the then-emerging phenomenon of globalization is one example, and much of the business school research into leadership fits this description. An additional kind of research will create value for both other academics working in the area and practitioners. Most famously, the Black-Scholes option pricing model originated in the academic work of Fischer Black and Myron Scholes.

The challenge is to do research that is both rigorous and relevant -- research that is anchored in theory but oriented toward practice.

For this to be realized, there has to be a clear commitment to fostering a research environment and culture that values all types of research so long as it is of the highest quality.

Personal Value Second, business schools create personal value through their teaching. For our students, personal value derives from the knowledge and skills they develop while studying. Knowledge and skills, together with the development of more individual personal attributes, provide the springboard for building satisfying and rewarding careers. Good teaching is founded on a clear understanding of the sort of knowledge and skills that will be needed for individuals to succeed in the contemporary world. Good teaching is informed by the insights of research.

But it is not just current students for whom a school creates personal value. In the changing world of work, a world characterized by more fluid, plural careers, there is an absolute premium on maintaining one's personal employability. And the key to this is the continuous acquisition of new knowledge and the development of new skills relevant to today's world. It is for this reason that one of the greatest challenges facing business schools is the development of truly valuable lifelong learning opportunities.

Social Value The final element in the value-creating purpose of business schools is social value. Business schools create social value by producing graduates who are well trained and who can make a significant individual contribution: people with the capacity to enhance the value-creating capacity of any organization in which they work; who start their own businesses and create jobs, wealth, and new opportunities; or who engage in the sort of work that has an immediate impact on public policy. And of course successful business schools create social value through academic research that advances the boundaries of understanding and enlightens management practice.

But there is another more specific dimension of social value creation. This has to do with a more active engagement of business schools in the communities in which they are based, through supporting community programs and those who work in the nonprofit sector. The notion of social value is also related to the growing interest now paid to corporate social responsibility in the business world. Organizations must offer something back to the communities they operate in and, more often than ever before, come under pressure from their shareholders to do so. Increasingly, business schools are finding themselves under the spotlight from both current students and alumni to demonstrate their commitment to creating social value, together with the academic and personal value that has for so long been their raison d'tre.

Implementing Values The challenge for each and every business school is to clearly articulate how it creates value along these three dimensions: academic value, personal value, and social value. Each school must know and communicate how it positions itself in terms of value creation. What does it do to create value? How does it do so and how is that distinctive? What is its position in each of the three dimensions of value creation?

The answers to these questions will be -- must be -- different for each business school. There may be differences of emphasis: One may excel at research, another in creating personal value, another may differentiate itself through a focus on social value. To succeed, a successful school must operate successfully in all three dimensions. The potential contribution of business schools to future economic and social development is too large for these questions to be ignored or unresolved.