“Disruptive
innovation, a term of art
coined by Clayton Christensen, describes a process by which a product or
service takes root initially in simple applications at the bottom of a market
and then relentlessly moves ‘up market’, eventually displacing established
competitors.”
To put
out simply, a disruptive innovation is cheaper, dumber, and unattractive to the
existing set of customers. Rather it attracts a new segment of customers. Lets
evaluate the 1year MBA program being offered in India by IIMs, ISB and few
other premium management institutes on the same scale of disruptive innovation.
a Unattractive to a typical MBA
aspirant – In India we
are taught to learn and then earn contrary to the western philosophy of earn
and learn. Learning, in India, for few doesn’t stop after graduation as they
chose to complete their masters in business management before they take on the
corporate world. Many students chose an MBA early on (read just after the
college or when they have 1-2 years of experience) as they think that a
two-year program from IIMs is a sure shot way to success in life. For many of them
“Placements” is the biggest attraction, probably higher than the learning part.
Then there are few who are so nostalgic about their graduation days that they
are driven towards another college stint. Similarly many other reasons do exist
for young people to choose a regular MBA program.
This mindset has created a flux of
young, mostly fresh out of college, aspirants, who compete vigorously to secure
a seat in the prestigious two year MBA programs in IIMs and other reputed
institutes. Data corroborates this hypothesis, as 80% of the two year MBA class
at IIM comprises of people with 0-2 years of experience. For these folks time is an abundantly
available resource as they try to take mileage out of their MBA. And mileage is
important, as placement is the key driver for their MBA. For them a one-year
capsule course is not attractive, as it doesn’t have the mass placement muscle
that a two-year program enjoys.
b. Dumber: Compare 860 contact hours of a
two year full time MBA (IIM-C data) with a 800 hours one year full time
program. Holy Cow! You may wonder.
That’s the reality! The course design for a one-year MBA program is no
different. The same knowledge capsules designed for a two-year participant are
shrunk slightly and made available to a one year MBA participant. The teachers,
the courses, the structure, the workload, the assignments, the methodology
everything remains the same. So from outside (well from inside as well) it
appears to be a dumber course. It appears that not much intelligent thought has
been put in the course design and execution making it dumber and unattractive
for many. Also many wonder if one year is good enough to transform an
individual, which they think a two-year program does help in achieving.
c. Cheaper – I know many would be inching to
grab me by my scuff reading this absurd statement that one year MBA is
cheaper. Lets look at it
objectively. Two year MBA at IIMs will roughly cost 12 Lacs or so for two
years. Plus the living expenses would constitute another 8 Lacs or so. So one
can expect to dish out a total of 20 Lacs in two years. Is that it? No way. One
needs to add the opportunity cost of two year of job forgone to calculate the
total expense. So suppose a guy with 6-8 years of experience earning 10-12 Lacs
of yearly income goes for a two year MBA, his total expense would be:
Two year MBA – 12 (tuition
fees) + 8 (living exp) + 2*10 (opportunity cost) = 40 Lacs for two years.
Plus he only starts earning after
two years. In contrast a one-year MBA student spends 14 (IIM-C) -20 Lacs (other
IIMs) as tuition fee and then 5 Lacs as living expense for a year. After adding
opportunity cost of job it comes to:
One year MBA - 20 + 5 + 1*10 = 35
So total comes to 35 or so for a
year. Hardly a difference of 5 Lacs one may wonder. Not exactly! One saves a
year of employment, which can give around 18-20 Lacs in return, which is 50% on
average more than what a two year program can fetch for a fresher, and that too
a year early. So by the time the clock his two years the situation is:
Two year MBA – 12 + 8 + 2*10
=40 + a 12 Lacs job (on average)
One year MBA - 20 + 5 + 1*10 = 35 – 18 =17 + 18 Lacs
job (on average)
So it doesn’t make sense for a less
experienced guy to go for a one year MBA right now. In other words one year MBA
attracts those 20% of students who are not interested (or can’t afford) in a
two year MBA. Thus the argument that it attracts a new set of consumers in the
market holds good as it brings in those students who otherwise would not have
pursued MBA.
To give credit to Mr. Christensen –
a one year MBA does fit the bill for a disruptive innovation. As it has picked
up and become popular in Europe, it has the potential to become the preferred
course in India well. As the popularity will grow, as the alumni base increases
and does well, these one year programs would start attracting folks with the
3-5 years of experience. And time may not be far away when these courses may
become equally popular if not more.
However, the focus of the institutes should
be on making the course more relevant than just re-packaging the same two-year
course. That would take the proverbial
dumbness out of these one-year programs.
