Chocolate and Gold Coins

Monday, October 10, 2005

Reputation as a Business Asset

Many businesses need not worry too much about their reputations. The product they make is easy to evaluate. If the price is reasonable, the product will sell even if you never heard of the company.

Other products are inherently different. The may have aspect of them that make it difficult to determine their quality. An automobile is like this. It may be easy to see if it looks nice and if it runs smoothly in a test-drive, but only time will tell if the car will be a “lemon” or a “peach”. If the automobile has a reputation for needing frequent service, the reputation of the automaker will suffer.

The Japanese automakers invested heavily in quality, the Yugoslavian ones didn’t. Over time the Yugoslavs left the auto market and the Japanese dominate. It seems obvious that you want to invest in your reputation but it isn’t quite as easy as it sounds.

Firms that invest in their reputations can almost mint money over time, because the barriers to entry are huge. The only way to compete is to invest in your reputation for many years, but in the short run, you don’t have a reputation and you need to cover your costs. Also, if your management is lax, your employees will let you down and destroy what little reputation you have. It takes many years to build a reputation, and only an instant to destroy it (a message many parents have shared with their children). Therefore, a firm with a good reputation in an industry where reputation is key can be fairly confident that most of their potential competitors will mess up over time and ruin their reputations.

Nowhere is reputation so vital as in the area of education. The product requires many years of work to produce, and only after you leave the institution do you get to see if the student made a wise decision in choosing that institution. Institutions like Harvard and Yale have spent literally centuries building their reputations. Other institutions compete, but it won’t be easy to gain on their reputations. Harvard and Yale get the best students and the best teachers because they have such stellar reputations. Chances are excellent that these institutions will be at the top of the list even one-hundred years from now.

At the extreme other end of the reputation scale is the infamous IIPM. Instead of investing in producing a quality product, they have invested heavily in advertising. Most quality education institutions let their reputations do their advertising. I have never seen an ad for Harvard and Yale and don’t expect to. But the IIPM apparently works on the P.T. Barnum theory of reputation: “There’s a sucker born every minute.”

But even a bottom-dweller in reputation hates to see more bad press in print or on the web. This might explain why this institute has been extremely aggressive in suppressing bad news coming from popular Indian blogs. In particular, the IIPM has reacted strongly to pieces written by Gaurav Sabnis and Rashmi Bansal. This blog post by Rashmi Bansal has some outrageous comments by some pseudo-blogs that are sympathetic to IIPM.

Who would make such outrageous and potentially libelous statements? It is possible that these comments are from misguided supporters of IIPM but it is very doubtful that there are any such supporters who would be so motivated to make such uncivil comments. Another possibility is that these comments all come from a single disgruntled student who really wants to trash the reputation of the IIPM (and is succeeding). But in that case, the IIPM should be quick to denounce these comments. The IIPM cannot claim to be ignorant of them because their other actions suggest that the IIPM is very much aware and concerned about blogger’s comments about the IIPM. A third possibility is that these comments were created by people directly under the employ of the IIPM under the specific guidance of senior IIPM management. There may be a fourth possibility, but I cannot think of it.

Now, today comes the incredible news that the famous Indian blogger Gaurav Sabnis has resigned to prevent an absolutely outrageous (and thoroughly non-credible) threat from the IIPM against his employer, IBM. The behavior of the IIPM is unbelievable. You must read his post. Why would an institution that needs to protect its reputation act so brazenly?

Let us assume that an institution, not the IIPM but an imaginary institution, decides to create bogus blogs and libel its detractors in the blogosphere. They also make wild threats like threatening to burn laptops to get a blogger to retract a story that is negative about that institution. What would motivate the management of an institution where reputation is key to act so immaturely and so recklessly? There can be only a few reasons that I can see. One is that these are idiots (we can never rule that out), but even most idiots need motivation to do idiotic things. The other possibility is that such an institution is fairly desperate. Perhaps the institution faces emanate bankruptcy and sees little to lose from desperate measures. Maybe the senior management did things that would be very embarrassing (or even criminal) in an effort to keep their business going while they worked desperately to avoid the inevitable collapse. Before the collapse, they might see little reason not to lash out irrationally at everyone they see as their enemies. If you have nothing, you have nothing to lose.

I have no idea if any of this would apply to the IIPM. I cannot know anything just by speculating on motive. However, I would say that there is a very high probability that the IIPM story that we know so far is just the tip of a giant iceberg. The way the supporters and the management of the IIPM are behaving is inconsistent with the way I would think the supporters and the management of a reputable institution would behave, and reasonable people would wonder what the IIPM is really up to.

Many bloggers have taken great pains to explain that their issues with the management of IIPM should not reflect on the students IIPM. There is an important point here: is the management of IIPM think at all of the reputation of their alumni? The management of the IIPM are free to trash the reputation of their school but don't they have an obligation to protect whatever little respectability that an IIPM degree might confer on a graduate? In a few years (if not already) a graduate of the IIPM might as well go into a job interview with a dunce cap on his head rather than admit to attending this infamous institution. Is the IIPM mananagement even considering this? Did P.T. Barnum spare a thought for one of his suckers?

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