S+B: So students aren’t really excited by the prospect of helping large U.S.-based companies conquer global markets?
KHURANA: One of the big challenges we’ve had is that the original logic for founding business schools, back in 1908, was to produce managers to run large, complex organizations that were having a larger and larger impact on the social welfare of the country. The underlying notion was that companies should be run not just in the interest of shareholders, or labor, or the state, but also in the broader interest of society. Managers were seen as an emerging class of professionals, who would be able to adjudicate the claims of these different stakeholders and lead the institutions according to the long-term best interests of the institutions and the country.
The world of 2013 looks really different. Most of our students are not interested in working for large, complex businesses. Two-thirds of them are interested in the services and advising world, which means consulting, or in the world of financial transactions. One reason is that the compensation is so different. If you go into a management training program at General Electric or Procter & Gamble, you won’t get the same compensation as you would in a transactional business.
S+B: Do U.S. business schools still have a monopoly on the best business insights?
KHURANA: That, too, is changing. For a long time, people came from around the world to Harvard Business School or Stanford to learn the management practices of U.S. businesses. Whether that meant total quality management, Michael Porter’s five-forces analysis, or innovative human resources practices, they had something of value to take back to their home countries.
But today, some of the most innovative business practices are happening outside the United States. These include some of the interesting management practices at technology-services companies like Infosys, the bottom-of-the-pyramid strategies like those that Tata is pursuing with the Nano car, or the rapid innovation of some Chinese companies. We’re living in a multipolar world, at least as far as capitalism is concerned.
That requires a reconfiguration of how American business schools “think” and approach the world. We’re not the center of gravity anymore, and we can’t just be a source of best practices. We have to increase our research reach and our understanding of what is going on in other parts of the world and bring that knowledge together.
The good thing about emerging markets is the opportunities—in healthcare, energy, entrenched poverty, and the environment. But our Western style of leadership doesn’t translate all over the world. In the fastest-growing economies, you can’t just take advantage of opportunities that exist. You can’t take things like literacy for granted; you can’t assume that electric power will be on 24 hours a day, or that roads will be available. You have to create your business opportunities. You have to get active in building institutions.
In the U.S., when executives talk about the role of stakeholders, they talk about customers and shareholders. We look at chief executive officers as being the “white knight” opposed to an evil, intrusive government. But in other parts of the world, the government is not the enemy. It’s your best customer. Other stakeholders—like NGOs, labor, social movement groups, and more empowered consumers—are also more powerful than they are in the United States. Also, with globalization, large numbers of non-Americans have taken senior roles in major companies. This morning, I taught a case study on AIG’s financial products unit. This was the group that brought down AIG. We had one of the most senior AIG executives in the class, discussing paying $165 million in retention bonuses in 2009, which had caused an uproar at the time. One of the students asked, “Did you try to appeal to people’s patriotism instead of paying them bonuses? Did you say, ‘This is important for our country’?”