Profit versus purpose

In 2002, Charles Handy wrote a celebrated article in Harvard Business Review titled ‘What’s a business for?’ The central premise of the article was that profit could not be the raison d’etre of a business. Profit, in Handy’s view, was akin to oxygen for a business. We need oxygen to breathe, but we do not live to breathe. The analogy holds true for business schools.

An organisation needs to create surplus over an extended period of time, if it is to survive and thrive. The very same things that lead to maximum short-term profit may erode reputation and trust and, hence, adversely affect medium term profits. Consider a reputed academic institution with high selectivity, which has more than 90 applicants for every admitted student. A criterion of short-term profit will suggest a short-term increase in fees. However, this may imply that many meritorious students are turned away, recruiters may have lower satisfaction and, ultimately, erosion will lead to lowering of applicant numbers, which in turn will affect profits.

Therefore, the sensible thing for a business school to do is to undertake actions which further social contribution and consequent reputation while maintaining a targeted surplus. This implies that surplus/profit is a constraint which has to be achieved, but not the purpose of existence.

How does a non-profit orientation help? It does so, by putting the focus on the student and the value proposition. Today, the need is for students to understand India as a whole – students, who understand the affluent India which lives in its metros, and the struggling, striving India, which lives in its villages and slums. If today’s business is driven by the small, affluent section of India, tomorrow’s business, will be driven by the aspiring India.

Secondly, business today has tremendous power in society. Every year, business schools send out hundreds of aspiring leaders in industry. If these students are admitted and groomed in a strong value system, then they have the power to positively shape management practice. In order to be able to teach ethics meaningfully, it is critical that both the institutes and its students ‘walk the talk’.

This is not so much a function of whether the institute is legally a profit or non-profit organisation (although a non-profit one has fewer short-term compulsions), as whether leadership is far-sighted, value based and ‘walks the talk’ with integrity.

Thus, the issue is not one of ownership or profit/non-profit, as one of enlightened leadership and a broader definition of what management education should be. Management is not restricted to the management of large commercial organisations; effective management is needed in the social sector, in family business firms, in political organisations, in professional sports, in government and more… Looking at management more broadly will facilitate innovation in new courses and relationships.

Institutes like IIM-Ahmedabad, IIM-Calcutta, XLRI, S.P. Jain Institute of Management & Research, have all taken recent initiatives to enhance social entrepreneurship and impact the society at multiple levels. Anil Gupta, a member of the faculty of innovation at IIM-Ahmedabad has done sterling work on grassroots innovation. IIM-Calcutta has launched a social entrepreneurship challenge in partnership with NDTV. My institute (SPJIMR) has, for over 10 years, run an initiative, whereby every student of our flagship PGDM programme interacts for five weeks with rural NGOs across the country, in the process, learning to apply management processes to problems that are inherently unstructured.

The student of tomorrow needs to understand India in all its dimensions. He/she needs to be grounded, self confident yet humble and willing to learn. This implies that top institutes will need to continually refresh curriculum, build a strong foundation of value-based experiential learning, and create interactive two way classrooms. As the impact of this kind of a far sighted approach, may not always reflect in short term outcomes, implementation will be easier with an orientation that is not too focussed on the immediate measurable of the short term bottom line.

A focus on quality and contribution is needed for the sustained success of a business school. While a non-profit status may be useful in this regard, it is not an essential condition for sustainable success.

Enlightened leaders who build strong student focussed faculties and a value focus in every activity of the institutes, may be well placed to lead and sustain the institutions of tomorrow. In that larger sense, a strong purpose can be shown and felt by both commercial and non-commercial organisations.

At the end of the day, purpose trumps and often predicts profit. Recruit and develop leaders with a sense of purpose and strong values, and profit can be a happy by-product of doing the right things.