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A zeroth order business model for Bombay University April 22, 2007

Posted by Sharath Rao in economics, india.

My post on corporatization brought in some interesting comments and questions. Aside from the moral concerns regarding the profit-motive, there were concerns about how would the Bombay University function as a corporation ? How would it raise money ? What is the source of profit ? What was a reply to Abhinav and Aswin’s comments I thought is worth a post. You can catch the previous discussion here.

Firstly, thanks Aswin and Abhinav for keeping that discussion alive and going.

I share your concerns about this specific case Aswin. But I am not sure I agree with this ‘providing the best education’ to ‘ensuring the shareholders are happy’ ” as being an either/or situation. One might as well ask if Infosys’ motive is ‘providing for their customers or shareholders’. Very often these goals are aligned and while sometimes there are issues ( like Google/Yahoo in China for eg. ), but for most part they would be aligned. Infact, aligning the goals of the various stakeholders – employees, customers and big/small investors – is good for the organization’s business model.

Yes, one might imagine education is slightly different because of the intangibles and the immeasurables involved. But I am given to think its a model worth trying out and see how the market reacts. I have no idea about their specific intentions but here is how it might work out. If everything goes well, this is what is likely to happen.

— a) “The only sources of income to a Univ are fees/grants.”

Thats the problem so far. Now the new source is the money they raise from the market. Lets say, to start with they manage to raise some money because of their 150 year old reputation, this enables them to invite better researchers and give them facilities for research that the researchers would not get elsewhere. Because there is money, the researchers will come. And then research grants from industry/government will follow. This sets up a virtuous cycle which brings in better students as well from year to year. Faculty without tenure system will have more accountability and their performance can be reviewed every x years. And this university can work exactly on the problems the industry wants without any guilt – a situation that is scarce in India.

Meanwhile, research generates intellectual property – patents/software products for which the university gets royalty. This is another source of profit. Bright students have an incentive on work on these projects. Additional money may enable them to fund bright students with scholarships etc., down the years even attract foreign students.

At the base of it, its not something new. This is how private universities in the US function, except that the initial corpus typically comes from some act of philanthropy. Here its an existing university which wants to change the way it functions.

— b) As for “If a research group’s focus does not seem ‘lucrative’ will it be trashed for something with more commercial potential ? ” :

Well I wont be surprised. That again is how private universities function ( unless there is a private grant for that). Research with extremely high-risk or no commercial potential is the duty of the government. In other words, if something merely drives a social (or even military) benefit, every person i.e. government through taxes must pay for it. If there is no viable business model, the government can take it and no tears for that.

— c) “Considering that the invigilators are part of the univ itself, who is to stop the univ from relaxing it’s correction of papers..”

Quarterly results may have nothing to do with marks/grades. These are considered the means to an end, not the end itself. Infact, who is going to lose if they do that. The university will be cheating itself because if there are no smart students, there will be no intellectual property, no research, no income. And if rest of corporate India can find honest, committed leaders, Bombay University can as well. In fact the shareholders have the right to reject candidates with shady reputations. Do we have a say in who is the VTU chancellor, if such a need arises ?

Their strategy consultants must already have many more ‘tricks’ up their sleeve. I don’t of course know how things will actually pan out or what they have in mind. These things are easy on paper and I just mentioned the best case scenario. Its a big big challenge and I think in the best case, Bombay University will need about 15-20 years to set up that virtuous cycle. And Aswin’s comment about

— “If the administration can handle this well with integrity and provide value to the Univ, nothing like it. I am merely skeptical about that ..”,

Oh yes, I share that skepticism too. But my concern is more about their failure for reasons other than malpractice. If they can’t pull it off, its bad for everyone. And if they do, it opens up a new set of circumstances for an university to operate in and few others can follow suit. Its worth a try and I wish them good luck.



1. Aswin - April 22, 2007

Great post, Sharath ..

I think one of the biggest problems it will face as a ‘company’ will be that there won’t be any immediate results. Patents/intellectual property gains are going to take years and years, and by then I’m assuming the share value would drop to such an embarassing level that they would revert to the older model.

Lets and wait and see the fun, I guess ! 🙂

2. Sharath Rao - April 22, 2007

Thanks Aswin.

I agree – we must wait and see what happens. The possibilities you suggest are (more than) real.

As an aside, I was thinking that all Bombay Univ. really needs is just ONE of youtube/doubleclick/overture/flickr/delicious/keyhole/picasa

Its either damn easy, or just some luck. You never know where the next black swan comes from 🙂

3. Abhinav - April 23, 2007

Great post.

You answered the questions raised eloquently and I agree that you could have easily earned a living from writing alone:)

Come to think of it, my university was corporatized (non-profit) in April 2006 though it still gets some endowment from the govt. I do not know about Carnegie Mellon.

In fact I would love to study corporate finance/structure during this semester break. To truly understand the mechanics of corporatization.

So thanks for raising the topic! And the new look’s cool. Blogger can never look so sleek..haha..

4. Sharath Rao - April 24, 2007

Thanks abhinav.

CMU is also private university, but gets no aid from the govt. to the best of my knowledge.

you shud consider double majoring in finance/economics/business if u are so interested…or perhaps BS+MA/MS …maybe it will take 4+1 years …

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