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This Executive Policy Seminar and our conference on Intervention in Financial Markets celebrate the Tenth Anniversary of the Capital Markets Research Center. We are privileged to have with us both Donald P. Jacobs and Stuart I. Greenbaum. Stuart graciously agreed to introduce Don Jacobs, our Seminar speaker, and to chair our conference. Don founded the Banking Research Center of the Kellogg Graduate School of Management at Northwestern University, which was then expanded under Stuart's leadership.
Stuart Greenbaum became the Dean of the J.M. Olin School of Management at Washington University in St. Louis in 1995. He assumed this position after serving as Director of the Kellogg Banking Research Center for twenty years, Associate Dean at the Kellogg School, and distinguished professor and the H.L. Stuart Professor of Banking at Kellogg. Stuart is the founding editor of the Journal of Financial Intermediation and a renowned scholar in the area of financial services.
Don Jacobs and Stuart Greenbaum
were the inspiration for the development of the Capital Markets Research
Center. It is difficult to express how much I admire these two men and
how much I value their friendship. Please join me in welcoming Stuart Greenbaum,
who will introduce Don Jacobs.
Introduction
Stuart I. Greenbaum
David, many thanks for assembling this impressive group of scholars, including Maureen O'Hara and Curt Hunter, along with many other friends for this Executive Policy Seminar. Permit me to say a few words about our distinguished speaker, Donald P. Jacobs. This is both easy and difficult. My acquaintance with Don extends back to the mid-1960s, almost 35 years ago. We have been friends, of course, but so much more. Donald is a mentor to me; he has been a protector; and he has had a profound influence in shaping my career. Indeed, I blame him for my mistakes at every opportunity!
In 1974, I was languishing at the University of Kentucky, having earned a sabbatical after seven years of dubious service. My wife and I decided we would like to spend a sabbatical year in Europe, and I knew that Don had contacts. He responded to my inquiry by saying he knew of nothing for me in Europe, but he invited me to spend a year as a visitor at Northwestern. Chicago weather was not exactly what Elaine and I had hoped for, but I was flattered by the generous offer. So we packed our two toddlers and our bulldog into a station wagon and headed for Evanston, Illinois. That year Donald was offered the Northwestern deanship. He had been Chairman of the Finance Department, Director of the Banking Research Center, and a chaired professor. He was at the peak of his academic career and widely sought after as a consultant, speaker, and researcher. Don's leadership of the Hunt Commission had presented major reforms to the nation's financial system. I recall that Don was skeptical about becoming dean and I, some might say self-servingly, urged him to do so. He immediately offered me his job as Director of the Banking Research Center and a position as Professor of Banking.
Donald is the longest-sitting dean among major business schools. I would argue that he reinvented management education in the United States. Under his leadership, the business school became a business as well as a school: less isolated in academia and more customer-oriented. Milton Friedman once observed that a university is the ideal environment for scholarship, except for the presence of students!
Donald transformed the academic environment from one where faculty members only spoke to each other, into one where professors speak to business. This was a revolutionary idea back in the 1970s. It may not seem that way now. The Kellogg School led the way and harvested fabulous returns in both cachet and cash flow: the two goals we pursue in the world of business education.
Even the most distinguished educators have paid homage to Don Jacobs by copying the master. You can tour the country and categorize business schools as early and late acceptors of Don Jacobs's concept of graduate management education. There are no longer any detractors; there are just late acceptors. The Kellogg rankings speak for themselves. The school has never been lower than third in the Business Week rankings, and Kellogg has been number one three times since the poll originated in 1988. Some might argue that Kellogg is always number one, but that the magazine has to make some change in the rankings or people would stop buying it.
Equally impressive has been Don's true development of executive education. Over 1,200 degree students and 5,000 non-degree students are now enrolled at the Kellogg School. Its Allen Center presents over 100 custom and open enrollment programs per year.
Don has also developed important international strategic alliances. Kellogg now has significant programs in Thailand, Israel, France, Germany, and China, showing the school's international focus and creating a brand identity that has no peer in my view.
Most deans retire in frustration,
but Donald goes from one success to the next. He has been a joy and a wonder
to observe, and I count myself fortunate to be his friend. I am privileged
to present Donald P. Jacobs.
The Future of American
Business Education
Donald P. Jacobs
The sensible thing for me to do now would be to say thank you and end with that. First of all, I should say that I am happy to participate in this Tenth Anniversary. The Capital Markets Research Center has represented the McDonough School of Business in a wonderful way and has a reputation for attracting people that are well recognized in the finance and capital markets. The list of attendees at this Seminar is proof.
I was given a great deal of freedom about a topic and its link to the conference on Intervention in Financial Markets. When I thought about this, I realized there would be many conference participants from The World Bank, the International Monetary Fund, financial regulators, the business community, and academia who know more than I do now about this subject. So, I thought I would discuss the role of management education in your environment. I will also reminisce about our experience at the Kellogg School as a reference point.
It is interesting to talk about management education with this group because you are all senior professionals who are thinking about the future of your organizations and, therefore, are thinking strategically about management education. You are also on all kinds of advisory councils and boards. You employ senior managers who are the result of management education.
My focus is the future of management education and the questions of whether we are in a golden era and whether we have major problems at the next juncture. But, first, we must consider the foundations, and then move on to the future. Some of the history is really interesting.
In management education,
the past was Harvard. Harvard was the institution that originated these
programs. We are all infants in comparison. Harvard was graduating 850
MBAs per year when all the institutions represented at our Seminar here
were graduating less than a total of 200. Harvard really has an extraordinary
alumni base. The model that Harvard developed is what I would categorize
as a best-practices model. The faculty writes a case; students discuss
the case in class; professors give examples of the best practice; and there
is discussion about how managers are solving the problem and who is dealing
with the issue most effectively. That is the Harvard education.
The New Focuses
This approach changed because the world changed. We have three major forces operating in the modern era. First, we faced the question: Are we going to have a planned economy or are we going to have a market-driven world? The market-driven model has succeeded, and we have seen strong development of the private sector in every country. The popular term is privatization.
The second change is the information technology revolution, which really has grown to have immense power. Early in my career at Northwestern, I was appointed to chair the computer committee, and I promptly fired the Director of the Computer Center. I have never, ever done that again. I learned a lesson because I became the Director of the Computer Center, and I bought what was then the great computer of the moment. It was an IBM 709 with 9000 tubes, 64 K memory; it required a room about the size of a classroom that seats 200. What has happened to technology is extraordinary. Today you would not buy a handheld plastic card with so little memory. As far as we can tell, that power curve is going to continue through time.
The third development is
globalization.
These developments have intensified business and management education.
The rate of business change has increased, and a new business environment
has evolved. Corporations are downsizing or rightsizing, whatever you want
to say. They are shedding the vestiges of conglomeration and becoming more
focused. Organizational structures are shifting from triangular-looking
hierarchies to very flat structures. We have global markets with capital
flowing across borders and continents.
Research-Based Management
Education
These dramatic changes required business education and management schools to change, and we have. The change is demanding because we emerged from a best-practices model to a model that requires concepts to be researched-based. Management education must add value, and the value added comes from our research and what we learn. We are educating managers to succeed in a complex, international business environment. The faculty in business schools have changed. Professors have changed from people who described practices to scholars who must have a research base. Management professors must understand how to do research and how to apply the results. They need to be trained in an academic discipline, such as economics, sociology, psychology, mathematics, or statistics.
Kellogg is a successful example. We hired people trained in a discipline when we were making that shift from descriptive teaching to a research-based faculty. Other schools such as Stanford had made this change. Unfortunately, Kellogg was not a wealthy institution so we had to develop another way. We hired young scholars who had unique academic credentials. Then we had the concern of how to stimulate them so they would do research outside their original disciplines. We wanted to discourage sociologists from working only on sociological problems; we hoped that psychologists would study more than psychological issues; and we wanted mathematicians to do more than prove theorems and corollaries. We wanted these scholars to learn about management and apply their knowledge of mathematics, statistics, and psychology to solve business problems.
We built an executive management education center on campus to stimulate a two-way learning process. Faculty would do research and present it to educate executives, and executives would explain the practical nuances about the business problems they faced. The two-way learning process would benefit and stimulate all of us. This made Kellogg a bit unique because we did not recede into an ivory tower. Professors learned to talk to managers and became more effective teachers of students who would be future managers. Kellogg also became attractive to students with significant work experience. Having executives on campus was revolutionary at the time, and it improved every aspect of the Kellogg management education experience for students, faculty, and executives.
When we described the plan to build an executive education center to the central administration at Northwestern, the administration was skeptical that business leaders would come to the campus. The administration recommended converting the facility into an undergraduate dormitory. Now, many schools have similar centers on campus. This environment attracts different types of faculty and students. We began educating students for senior management positions based on their education and prior work experience. This really changed the dynamics of the classes and the dynamics of the school.
We also did something revolutionary
in the classroom; we considered teaching in teams. Future managers are
going to work with other people, and their educational experience needs
to prepare them for this environment. We had very little research about
teams. Today, the notion of educating managers to work in teams is widely
emulated. At Kellogg, we now have serious research we use to teach students
how to operate in teams.
Curricular Innovation
The next issue was how to revise the curriculum. The business world is changing very rapidly and the educational model has to keep pace. We had experienced the model that most people graduate from high school, learn their work as an apprentice, and then work for 45 years. Others went to college, graduated, and then learned their work through apprenticeship education. A few people earned MBAs or law or medical degrees and then continued their education in an apprenticeship model.
It has become evident that because changes are so rapid, an apprenticeship is no longer the best preparation for a long career. By the time you are promoted to a position with more responsibility, you need to know something different from what your predecessor knew; an apprenticeship does not provide sufficient preparation. Maybe without planning it exactly, at Kellogg we had the notion of a lifelong education. Our executive management center with 150 bedrooms is filled with executives who complete programs and then return again for more sophisticated courses. Now you find these executive centers on campus in many universities of this country and abroad. Lifelong education is very well accepted. As a matter of fact, it is not lifelong education, it is continual education. You ought to be able to obtain educational doses whenever you need them.
We also need to change the curriculum rapidly, and the approach to change must be different. The traditional approach was to do some research, develop perspectives you might teach in a course, develop the course, have it critiqued by your colleagues, revise the plan, have it reviewed again, and present the proposal to the curriculum committee. If the idea is finally accepted, then it goes to the whole faculty, which critiques the proposal before the professor revises the proposal again. The whole process may take almost two years. The process is so tedious that schools rarely changed the curriculum.
The Kellogg alternative is to have continual curriculum advances instead of massive curriculum change so that students receive what you advertise. If you know your curriculum needs a massive overhaul, why wait? At Kellogg, faculty have the right to design a new course and deliver that new course if at least twenty students will enroll. After the course is offered twice, there is a review to decide whether the course should become part of the curriculum. Students occasionally take a course that they should not have, but in the last two years 43 new courses entered the curriculum. This introduces an enormous feeling of change. Alumni return and say "I wish I were here now" or "why didn't you have that when I was here." That is really appropriate, and it reminds alumni of their need for continual education.
In a business world that changes rapidly, curriculum development and change is very important. Furthermore, the cost of change must be minimized. It takes a long time to develop a 10- or 15-week course of new material, so now many schools have modules. If a professor has only have five weeks of quality material, he or she can offer this new course and expand it later if.that is warranted. When we thought of this, we wondered why it had not been done sooner. I wanted to teach a course in corporate governance and when we developed modules, I offered that course.
Having students with significant work experience requires professors to teach at a different level and in a different manner. Professors must be in touch with reality. What I am discussing is the notion of modern management when there is rapid change that is enlightened by interactions of faculty with practitioners.
Consider how business education is changing because we face issues with complex solutions. Americans have to learn to teach in that global world. We must begin behaving like global citizens. Information technology is expediting global management processes. We have to integrate the three developments I have mentioned— market-driven privatization, globalization of business, and sophisticated information technology—into the management curriculum, and it will not be easy because academics talk mainly to academics.
Information technology is even more complex to integrate into graduate management education. In academia, we educate people in more productive business practices. In finance, we have financial models that have paid large dividends in the real world, and our graduates learn sophisticated tools. In marketing and organizational behavior, the same thing is true. Professors have insights that are valuable to business people, and we have evolved to focus our research toward real-world problems.
When it comes to information technology, there is such a huge investment in the corporate world and there is such high payoff for their investment that I wonder if academia will ever catch up to the corporate world. At Kellogg, we have had several vacant chaired professorships in information technology for years. I don't know when we will find the right candidates, and yet I believe we have a wonderful program. We are always looking for people who are at the cutting edge of information technology to design new courses and integrate the courses into our curriculum. I am very concerned about where academia is headed in the area of information technology. We do not seem to have the resources to lead.
The solution may be to hire faculty from the real world, at least for short-term appointments. We need a flexible faculty to accommodate these situations.
Students need to integrate their education in academic disciplines, information technology, and entrepreneurship in a global environment. Management students need a capstone experience in a real global environment. I make fun of the old case methodology where it was best-practices education, but, in the past, before students graduated, they had an integrated course. They integrated what they learned throughout the program with a strategy or policy course.
The academic environment and the business community need to continue to develop and support events like this seminar to integrate the two communities. There is a great benefit to everyone. We need to pay attention to the international community to accommodate and educate international managers and be sure that they are a part of all of our programs and seminars. We must include the broadest groups of students, managers, and faculty in all of our activities.