The strange business model – I

Most people these days say that running an educational institute has become a business for the people who set up and pretend to run these institutes. I beg to differ here. I think that the people who set up the educational institutes are not running them like business and time has come when they need to apply some business principles to the way they are running the institutes.

If we look at the trend in the development of educational institutes in India in last 10 years, one thing becomes quite obvious that the demand for the specific type of education has been increasing and the educational institutes are responding by providing different avenues to the aspiring students. There have been a lot of new institutes being setup and tremendous capacities being added to the existing institutes. This is all in response to the rising demand for the specific skills-sets from the industry. The demand supply logic is working perfectly fine in this part of the story, the increased demand of the industry is being compensated for by the increased supply from the educational institutes and hence rise in cost of financing the skilled work-force has been kept in check. But something is wrong in the other part of the story. The demand for the students created by these newly started institutes, which are quite high in numbers and in capacity, is perfectly compensated by the students excited about acquiring the skills that the industry is looking for. But the cost of financing the education is on rise instead of remaining stable if not falling down, though there are more than required students available to any reasonably settled educational institutes. So now there are more and more students, financing their education at higher and higher costs and thus injecting more and more money into the educational institute system. But we are not witnessing any significant uptrend in the quality of education that is being offered at most of these recently started institutes. If we want to see some quality education being offered in these institutes, then the people who are running these institutes need to treat running the institute as running a business, rather in the services domain and apply management and business principles to improve the quality of the service they provide, effectively invest their revenues and provide a commitment to its customers in terms of long term effectiveness of their services.

Let’s have a look at two specific types of educations and different trends emerged in those in last few years. Before emergence of IT, the demand for both engineers and management graduates was limited and driven mostly by the traditional Indian businesses. A few years back completing engineering from a private institute set one back by not more than Rs. 60000 in case of free seat and 150000 in case of payment seat. The figures for management were no different (There were no free seats for management).After the IT boom the demand for engineers and management graduates became so high that smart people took advantage of the situation by setting up institutes to offer these course at exorbitantly high cost. Today earning an engineering degree from a private institute costs anything from 150000 to 320000 with no free seats available. The management degree sets you back by anything from 200000 to 350000. This is more than hundred percent increases in the cost of financing professional education in just a few years. Now consider the increased capacities of the existing institutes and the institutes that are newly started, and this has a multiplicative effect on the amount of money that being poured into the educational institutes in last few years. Where is this money going? We don’t see any significant improvement in the quality of education except for posh buildings of the colleges and ultra-modern infrastructure on campus. A student is paying a huge sum of money to enjoy this infrastructure on the campus of a newly started private institute when some other student is paying the same amount to enjoy the knowledge sharing sessions with some of the best brains in India inside the classrooms of the elite institutes like IITs and IIMs.

Isn’t the business model adopted by the private educational institutes a flawed one? While teaching management principles to their students these institutes have forgotten to apply the same to their business to make it more effective in long term. They seem to be least bothered about the way they are investing their revenues just to attract more and more students. This may pose some grave issues in front of us if we fail to address this issue in time. The time won’t be too far when this bubble in the business of education bursts like the one in the real estate and our next generation will curse us for offering them an education without quality.

 

To be continued in part II