World After COVID-19: Sangeet Chowfla, GMAC

and

Administrators, Thought Leadership, World After Covid-19

Online Education: Changing the Value Proposition of B-Schools

Sangeet Chowfla is the President & CEO of the Graduate Management Admission Council (GMAC). In conversation with Soumitra Dutta and Dan LeClair of GBSN, he discusses the importance of connectedness and trust, as well as the changing value equation in higher education. This interview was conducted 9 weeks after COVID-19 was declared a pandemic by the World Health Organization. This is an edited transcript of their exchange.

 

 

More interviews from The World After COVID-19 Series

Highlights from this interview:
  • There will be some reordering of society and business between two extreme views
  • Society has an opportunity to become more connected and less individualistic
  • Expect more government investments in mitigating risk and rewarding prevention
  • The value equation in higher education is being altered
  • This experience reinforces the importance of developing “soft” skills relative to functional skills

Dan LeClair: This is an important time. The Covid-19 pandemic is big, it is global. It is cutting across every possible sector and every aspect of our lives. But we are most interested in the future. Looking ahead, do you see this as a turning point.

Sangeet Chowfla: I think it’s inevitable that there is going to be some kind of impact around the way society organizes itself, our views towards a globalized world, the way business organizes itself, and, getting closer to our particular area of focus, the way management education sees itself or is delivered.

It depends, at this point of time, on what the impact of the virus is. We are still relatively early in what we are seeing. One scenario, which I personally don’t subscribe to, says that in another couple of weeks the curves will start to flatten and economies will start opening up. We’ll have a V-shaped economic recovery and we will look back on this as an unfortunate time in our lives, but not a transformative one.

There is another scenario, which says that the impact of the virus will be more far reaching. We will not recover quickly. Unemployment across the world will surge. It will lead to a reordering of society and business, and a fairly significant backlash against globalization, which has been an underlying trend in our lives for the last three decades. Under this scenario we probably are going to see some fundamental differences in the way the world looks. The reality is probably somewhere between these two extremes, as it often is.

Soumitra Dutta: Where do you think will be the primary thrusts of change, in businesses and governments, or in individual behaviors, and in terms of how our universities and schools operate?

Chowfla: One of the biggest changes we are beginning to see is in the way we relate to each other. I think it starts at the family level and goes to the work group level and to the society level. As we are isolating more, we are beginning to rediscover the value of connectedness. In my organization, we have never spoken to each other more than we have in the last two weeks. And it is strange that I’m saying that, since our offices are completely shut down. There is nobody in the office and there are 200 of us who are completely remote. Before the virus we took for granted that we were there for each other, now we have to work for it and are beginning to value it more. Some people used to say it would be very cool to work from home and have all this flexibility. “I can manage my own life” they would say. If you ask most people today, they would rather work in the office because they like the connectedness. They like the interaction.

We were becoming a little bit of a self-centered society. Whether we were going to work or to university, it was all about me. We are beginning to see that it is actually about a collective good. This may seem a little idealistic, but that is what I’m hoping for.

There are obviously going to be changes in the way we do business and the way that business organizes itself. Traditional ways we organize our supply chains are being questioned and I suspect that policy makers will have to play a role. Today it may be the virus, but tomorrow it may be something else. Our notion of a collective defense also may have to be different. It’s not necessarily about the amount of money we invest in things like armed forces, we have to invest in a variety of areas. For example, 9/11 taught us the importance of intelligence as opposed to militaries. I think this crisis is going to teach us the importance of public health.

In the United States we reward heroes. We reward the fireman who goes in to save somebody from a burning building. But we never invest enough in or reward the fire inspector that stops the building from catching fire in the first place. We reward the heroics of the doctors and nurses on the front line, and we should. They are doing an exceptional job. But we don’t really pay attention to public health and the public health infrastructure. Is that recognition going to end up changing? I hope so. But whether our political environment will reward those kind of investments is still a question. It is hard in any political environment to invest in stockpiles of masks, which nobody ends up seeing. It is a lot easier to invest in fighter jets and aircraft carriers.

9/11 taught us the importance of intelligence as opposed to militaries. I think this crisis is going to teach us the importance of public health.

LeClair: I’m wondering if you could talk a little bit about the implications for the way we view globalization.

Chowfla: We are in the fourth decade of globalization, which has been driven by the free flow of goods, services, and people. And that has obviously led to a huge reordering of supply chains. Very complex supply chains are now spread out across the world, generally in search of the highest levels of efficiency—the lowest price points for every component in our supply chain. I wonder whether we will think about risk adjusting our supply chains and say that the complexity is adding unacceptable levels of risk. Can we really afford to have all the raw materials for critical drugs to be made in one country? It’s adding risk to societies and governments will probably have to step in and regulate, because business by itself may not be willing to step up. So, we may see a resurgence in regulation, which is counter to the general trend that we’ve been seeing around the world.

We have huge movements of people not just for employment and education, but also for tourism and general travel. At least for a period of time, I would expect to see some contraction because of the crisis. And we will see additional contraction because visa regimes are getting tighter and governments are less willing to allow movements of people. If you assume that the virus, in some form or the other, is going to be around for a period of time, you’re going to see lasting impacts on the sectors of our economy which are dependent on movements of people. Education is one, but so is the hospitality industry and the transportation industry. These are big sectors of our overall economy, and as they suffer from the impact there is going to be some reordering. I read somewhere that Marriott has furloughed 125,000 people. That’s already not an insignificant number and if you look at the multiplier effect, it is probably half a million people who are impacted.

The virtuous cycle could become the vicious cycle.

The change in our view about globalization is not limited to a particular area. It is going to have a pretty fundamental effect all around. If you think about tourism or travel there has been a virtuous cycle. There have been more people traveling, more economies around the world doing well, more jobs, rising wages, and more people willing to travel. More volume of travel drives down cost of travel, leading to more people traveling. That’s the virtuous cycle, which has been so useful for us. The virtuous cycle could become the vicious cycle: loss of jobs, loss of income, low volumes of travel, more restriction on travel by governments, reduction of volumes, increase in prices of International air fares and hotel rooms, leading to less people traveling.

An impact I was reading about recently is that many struggling artists, actors, and various other people in the arts community sustain themselves until they make it by working in the hospitality industry. If the hospitality industry is impacted, the sources of livelihood in the arts industry is impacted. So now you’re seeing a second derivative effect as the reduction of travel is leading to a reduction of jobs in the hospitality industry, which is actually leading to less actors on Broadway. It is an interesting chain of events; the economy is incredibly interrelated.

Dutta: You raised very interesting issues around the virtuous cycle and the vicious cycle. What can we do either in business or in government, or as leaders in society and organizations, to prevent the vicious cycle from taking dominance. Some of those elements are being played out right now because of biological concerns, but how do we keep it from being the new normal?

I’m not certain there is an obvious answer. One thing all leaders have to do is reduce the impact of the virus. The better leadership we have that helps us respond to the situation, the lesser the impact will be and the lesser the dislocation is going to be. If the dislocation becomes severe, then the recovery becomes much more complicated. We talk about flattening the curve and its impact on not overwhelming the healthcare system, but we don’t talk enough about not overwhelming our recovery mechanisms. Our economic recovery or social recovery, our confidence to be able to travel and interact with each other again, is dependent on how quickly we come out of this. And if we don’t flatten the curve, it is going to be really hard to rebuild the trust that we have taken for granted.

We have new questions if somebody comes to a university in the United States. Is there a healthcare risk for us if we get into a transatlantic flight? We haven’t questioned that in the past because we trust it. However, if the biological concerns stay on for an extended period of time, then there will be a natural lack of trust, and trust will take a long time to rebuild. So, flattening the curve becomes important for much more than just the impact on our healthcare system, important though that is to saving lives. It really has an impact on how we feel about the situation.

LeClair: You brought us into higher education and business education with the last response. I wonder if we can continue along that line. GMAC is a big player in the industry. How do you see this playing out in business education? What do you think are the big things for us to think about?

Chowfla: Well, there’s the obvious which everybody’s dealing with, including GMAC, every business school, and every university system. And then there is the not so obvious that everyone is just beginning to see.

The obvious is that, in a world of social distancing and reduced travel, we have technological solutions on offer. Everybody is going at 100 miles an hour trying to stand up more remote options, online programs, and the like. Business schools are doing that in their programs. GMAC is doing that. We recently announced a virtual GMAT exam. Our events business recently piloted a whole virtual tour in Jakarta, and we are converting our entire summer and fall schedule to an online format. Every university system or business school seems to be going down a similar path. Some of it is a continuation of investments people were already making, and are being accelerated at a more rapid rate.

Anecdotally, for example, we are beginning to see students say: I have my notion, or my value proposition, of a business program. It is partially fact-based learning or knowledge transmission based and partially experience based. As a matter of fact, in business education we have spent a fair amount of time talking about the experiential value of the MBA. It’s been about creating the network, getting the experiences, and all that. But if you take that away or diminish the experiences in some way because people are not getting together, you’re left with the knowledge transfer part of it.

There is a question we are already beginning to hear from candidates. They are turning around and saying it is fine that I got accepted for fall 2020. But if it is an online program, am I really in for $120,000 in tuition over a two-year period? The value proposition is different. If it’s knowledge transfer, then maybe I can get it from a MOOC. Or maybe I can get it from a pure online program for $20,000. The cost benefit equation has suddenly been altered and we probably are going to see that in yield loss in this particular cycle.

This is even bigger when you’re talking about international mobility. Are you really going to travel and study across the world when two things are changing? One is governments. As you see more unemployment, there will be more restrictions about job availability and work visas. If you are the prototypical Asian candidate wanting to study in the US, your probability of getting a job in the US has just been reduced. At the same time, the program is now becoming much more of an online experience. You are not actually going to the US. You are signing up for a very expensive MBA program and sitting at home in China or India. That’s not what we designed our programs for or priced our programs for. Something is going to reorder itself beyond the fact that everybody’s going to have to go online.

The canary in the coal mine is going to be yields. Because we made acceptance decisions in business education, the early response is going to be students who turn around and say thank you very much, but this is not what I signed up for. And schools are going to see yield loss as a result of that. And if that becomes significant, it is going to be a strong signal to business schools that something’s going to have to give.

Dutta: I was wondering whether how you see this digital acceleration picking up in the way we structure our programs.

Chowfla: There are two pieces. One is the educational process, or pedagogy. The other is the model. The world of business is changing and our program content will change accordingly. Personally, and maybe I’m overly optimistic, I suspect we’ll figure that out relatively quickly because there are a lot of people with a lot of ability working on this. Not every professor knows how to teach in an online format and there will be a couple of winners and losers in that particular process. But I dare say that, given a period of time and given enough resources, we will be able to get there.

I worry more about the business model question. If you’ve looked at digitization in any other industry or when digital transformation has happened, concepts of time and place have gone away. And there’s been more concentration. Business schools and university systems are very much built around the notion of time and place. They exist in a certain location and you go to a class at a certain point and there’s an interaction built around it. Time and place have always limited scale from taking over.

Do we start seeing what we’ve seen in entertainment or in ecommerce? The convenience store 7/11 was built around time and place. It wasn’t the biggest store, but it was there. It was at the street corner in your neighborhood and open for an extended period of time. Amazon Prime has made that irrelevant to some extent. Do you start seeing some of that in business education? Do we have, as a result, way too many business schools and way too many, at least from a teaching point of view, faculty. And then the question is can we afford to have the faculty that we have now? That is in aggregate rather than at the individual school level. Even if we needed X-thousand faculty from a research point of view, we can’t afford to pay them. So, there is a reordering that ends up happening in the economic model of business schools and overall education.

Time and place have always limited scale from taking over. If you take time and place away, we have a completely different dynamic in business education.

Other forms of professional education have different barriers. Medicine requires time and place, you do need to learn in more of a physical environment. Some of the sciences require a different form of laboratory collaboration, which requires people to come together. It’s not entirely true to me that business education requires that, so it could get disrupted faster than the other disciplines. If you take time and place away, we have a completely different dynamic in business education.

Dutta: Some qualities we expect from students are related to trends we have seen in the past. How has the virus changed what we should be building in terms of student profiles for future success?

Chowfla: That’s a great point, what does leadership look like post COVID-19? I can tell you what I believe it shouldn’t look like. Maybe we can start there. It shouldn’t look very self-centered, individual-success driven. It is going to be hard for the type of leadership which is around the self and the ego, and the reflection of largely personal and financial success. That model of leadership is going to have a very difficult time rallying people to a common cause, assuming we have more of a remotely distributed workforce, because the glue that gets people together when you are physically distributed is some sense of mission and purpose.

Also, on this notion of the corporation as purely about shareholder value as opposed to stakeholder value; if it is purely about profit being the only motive, it is going to be hard to manage the kind of workforce that we are going to end up seeing.

One of the things that we have to figure out is how to evaluate for character traits, which is much more difficult than intellectual traits to evaluate or measure right now in a reliable way. And the program content has to focus on developing that value system, because that what I think that is going to be successful in the future.

What was always true, just became a lot more true. Collaboration, communication, visioning, and the ability to communicate direction with clarity were always important in leaders. But I think these traits just became that much more important, because our roles as leaders in these particular times is to do just two things. The first is to be really clear in communicating direction, vision and purpose. Secondly, it is removing bottlenecks that exist within the organization or the environment that stop the organization from delivering on that vision, mission and purpose. There is very little else you can do when you’re in lockdown at home. And while you won’t always be locked down, that kind of reality will end up replaying itself.

Those skills are going to be much more important than, for example, knowing how to price an option using the Black Scholes model. Not that pricing an option is not important, but it isn’t really one of the differentiating skills. Functional skills may be necessary at a certain level of the organization, but the differentiating skills are going to be what we loosely call the soft skills.

Dutta: What do you think will change in your own leadership approach. How will you change as a result of what is happening right now?

That is something that I ask myself every single day, especially these days. What do I need to do that’s different? One thing I do know is that what made me successful so far is not going to make me successful tomorrow, because something is different. I spend an inordinate amount of time right now listening, communicating, and protecting. The organization also operates in some kind of a Maslovian hierarchy. If everybody is concerned about food, shelter, and water, they are not going to deliver what the organization needs them to deliver. So I need to first try to give everybody a sense of comfort. I also believe that that comfort does not come from happy talk, but from a mix of brutal honesty and a realistic expectation of hope.

We recently had a staff meeting and I started by saying, listen, I’m just going to be really clear with you. I’m going to be brutally honest, I’m not going to sugarcoat anything because everybody needs to know what’s going on. Organizations are going through change, 90% of our testing centers are shutdown, which means 90% of our revenue has stopped. We have no money coming in. We have to be very clear to people and actually call it as it is, and not just paint a rosy picture. Even if it’s difficult, the real truth is reassuring by itself.

The second part is so what’s the way out, where’s the light at the end of the tunnel. What do we know? What do we not know? All of us are in search of that light at the end of the tunnel. Even if we don’t have clarity about the light, the fact that we are looking and engaging everybody in search of that light, becomes a very important part of what we do as leaders. It is making certain that everybody is on board so that we can find a way to the end of the tunnel.

Every organization. I suspect is facing some kind of existential turmoil at this point in time. I told my management team, you worry about 2020, I’m going to spend pretty much all my energy trying to figure out what’s going to happen in 2021. I will make certain that we are ready for 2021 and we have the resources, whether it’s the human capital resources or the financial resources, because if you start worrying about 2021 in December of 2020, it is going to be ugly.


This interview was conducted by Soumitra Dutta, Chairman, and Dan LeClair, CEO of GBSN. This edited transcript was prepared by Shefali Rai, Research Associate, GBSN.