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?

(technorati tag)


  • bang on, Michael... the way the institute has responded to the "threat" posed by Rashmi and Gaurav's posts speaks more about the quality of the institute more than anything anyone can say...

    By Anonymous Anonymous, at 11:50 AM  

  • Hi Charu
    This issue is really uspsetting. I need to write more about it. We need to stand up for Gaurav and Rashmi.

    By Blogger Michael Higgins, at 12:17 PM  

  • Thanks for bringing up the issue, Michael. We're hoping that this topic stays active in the blogosphere, both
    at the Indian, and the global level.

    We cannot stand silent as the right to freedom of speech is snatched illogically.

    By Anonymous Anonymous, at 12:50 PM  

  • an excellent post Michael.

    I'm trying to get my thoughts organized on this issue, and then write a post up.

    Incredible behavior by IIPM.

    By Blogger Sunil, at 1:42 PM  

  • Well said Michael. I am going though all the posts on the blogosphere and I can't believe some of the stuff I am reading. The comments on Rashmi's blog are outrageous. The email IIPM sent to Gaurav is hilarious. But beyond all that this whole episode is just mind boggling. You can add me to those who support Rashmi and Gaurav. I will try to post something on my blog too.

    By Blogger Transmogrifier, at 2:05 PM  

  • No Michael, I have no support for the alumni of IIPM. They knew they got suckered by "Prof" A and now they have nothing to say !!

    IIPM is what it is now because people keep flocking to it and paying money. IIPM gets money for ads in mainstream media only through the fees of students. Once the students stop going there, nothing else matters.

    By Blogger Ujval Gandhi, at 4:00 PM  

  • The promotors of IIPM are into film producing too. Perhaps the bollywood ethos has influenced their instutition management too.

    The self-hype on the IIPM and their dean, Chaudari's site seem shameless!

    By Blogger Jagan Mohan, at 4:13 PM  

  • Going through Rashmi's post, I came across a comment by a "IIPM" student

    As you can see, this poor person is still living in a world of delusion. There is no hope for such folks and none of them deserve any mercy!!

    By Blogger Ujval Gandhi, at 4:24 PM  

  • Michael,
    Your analysis that relates to quality of the product has left out an important consideration - what would happen when there is a demand that far exceeds the supply?

    That is the exact case in India - the number of people wanting to get education is increasing at a pace that is so high that any supply, regardless of quality would be taken up.

    By Blogger Nilu, at 4:49 PM  

  • Michael ,

    First of all , great blog. I have been reading casually on and off for the last 2 months.Always been a lurker , but this issue deserves a comment.

    The very fact that fraudulant institutions like IIPM , Amity among many others survive and prosper in India is one case where privatisation has gone wrong. The media created craze for MBA has spawned several dozen charlatans masquerading as management guru . and gullible students in their hundreds of thousands are taken for a ride.

    What we need is strict quality control by an agency or an organisation (of impartial and reputed professionals , academics , managers) for private MBA or engineering colleges - preferably a private concern sponsored by the industry. Those institutes failing to meet the standards required should be boycotted by industry and announced as such , loud and clear so as to dissuade students from getting fooled by glossy ad campaigns.

    Regards ,


    By Anonymous Anonymous, at 7:33 PM  

  • Bravo, Michael.

    There is another angle to the story. The II in IIPM stands for Indian Institute. This is misleading because it conveys a similarity / proximity to the II fraternity: IITs and IIMs, for example, which are world class centres of excellence.

    By Blogger Vijay Krishna Narayanan, at 10:06 PM  

  • The students and alumni of IIPM are pretty much screwed either way. My brother tells me that he's interviewed some IIPM "graduates" and it usually doesn't last more than a couple of minutes. If ever I get to interview an IIPM student, I don't think I can resist asking him something like "Why are you here? Don't you have a laptop to burn?"

    But yes, the point is that the institute doesn't really care about its students. They gets their money from ignorant students who don't take care to research the school before joining. So every blog post we make about this will make a difference. It will increase the odds that a casual surfer learns the truth about this, reads some more, tells others and hopefully, dissuades someone who is thinking of joining.

    By Anonymous Anonymous, at 1:35 AM  

  • Hi Varun Ash and Sunil
    Thanks for the kind words. I really admire the way Gaurav stood up for his principles.

    Hi Transmo..., Hokie, Jagan
    Transmogrifier: The comments by the IIPM supporters on Rashmi's blog are just unbelievable. If the IIPM had any concern for their reputation they would repudiate them.

    Hokie: True, the students were foolish not to do their homework before paying for the coursework. But false advertising seems to me to be a form of fraud.

    Jagan: Film producing and business management, and interesting combination.

    By Blogger Michael Higgins, at 2:52 AM  

  • Hi Nilu, Raj, Vijay, Ravikiran

    Nilu: There may be demand there for more management schools but IIPM isn't filling that demand. Printing a diploma isn't the same as giving an education, and their students are figuring that out the hard way.

    Raj: I suspected that someone was lurking...
    I disagree that IIPM and Amity are example of free markets not working. They are working in their own way. I doubt if IIPM will be around in a few years. The market will just spit them out.
    I must admit though that fraudulent claims are fraud and should be a crime. A contract is a contract and if you agree to sell me a horse, you cannot give me a zebra.

    Vijay: The name is misleading. But if you don't do enough homework to know that IIPM is not affiliated with the famous II government run institions, then what does that say about you as a potential manager?

    Hey, I noticed that you restarted your blog after 3 months. I hope to read more posts.

    The whole laptop burning thing is so bizarre. Did the IIPM have any laptops to burn?

    By Blogger Michael Higgins, at 3:06 AM  

  • nice blog! blogrolled you!

    By Blogger Vikram, at 5:28 AM  

  • Raj sya: "Those institutes failing to meet the standards required should be boycotted by industry and announced as such , loud and clear."

    But but but... External imposition of strict quality control is not necessary. Producers of poor quality goods or services self-destruct over time, exactly like the Yugoslav vs. Japanese cars. If IIPM grads only last two minutes in interviews as per ravikiran, then how long can the parent institute last? Bringing the government or some other "powerful" body creates only yet another agency that can be used to brazenly bribe, lie and deceive. Of course, a private body may be les susceptible to this but why bring another layer of middlemen?

    The only question is what happens to those left holding the bag? Well, if you bought a Yugoslav car, you have to write it off nad buy another one. Ditto here. Your IIPM graduates better go get some "real" education somewhere and chalk off their I
    IIPM adventure as "what does not kill [one] only makes [one] stronger."


    By Anonymous Anonymous, at 5:35 AM  

  • i wonder if IIPM realises that IBM sold its laptop and desktop division to LEvono almost a year ago. Levono is a Chinese Company. IBM holds 20 percent of Levono, and that is the extent of involvement.

    Imagine a leading B school not knowing this )

    and i think that blogdom needs to come out to speak against intimidation.

    By Anonymous Anonymous, at 5:52 AM  

  • Hi Arbit, S. and Harini
    Arbit: Thanks
    S: I agree that the market will eventual filter out these bogus institutions. However I do think that there is a need for reliable rankings (I think there are some sort of ranking system) and also a need to prevent false advertising. In the US a firm cannot make demonstably false claims. They can claim that "they're the best" - that's just opinion - but if they say "we were ranked no. 3 by X" then that better be true.
    Harini: I had thought about that. I'm not so sure the Gaurav really needed to resign. I do not believe that IIPM would have carried out any threat. IBM should be very upset at IIPM.

    By Blogger Michael Higgins, at 6:51 AM  

  • Quote: ... a firm cannot make demonstably false claims. They can claim that "they're the best" - that's just opinion - but if they say "we were ranked no. 3 by X" then that better be true.

    If I lie about you, its between the two of us, you can take me to task for lying about you, or you can ignore me. In your scenario there are two cases:

    1. ranking by X exists: X can sue the firm saying they are ruining the reputation of X's rankings. The punitive damages there will put the firm out of business.

    2. There is no "ranking by X". In this case, the market based public discovery of this fact will result in the firm losing its clients. What is that saying about fooling all the people all the time?

    What does regulation add, except for some more bureaucratic red tape? People left to themselves are smart enough to be self-policing. De-regulation may make exposing frauds initially slow, but people get more vigilant and independent, speeding up the process way more than any regulation can!

    By Anonymous Anonymous, at 7:18 AM  

  • Great post Michael. A lot has already been said (and will be said) about the way IIPM went about this shameful business.

    I would like to comment on the Reputation as a business asset part. Companies in India are slowly realizing the potential of reputation. In fact, when I was in India, my father was telling me about getting banks and businesses together to realize the potential of companies using their reputation as collateral. Reputation is probably, one of the biggest assests a company can have.


    By Blogger Iyer the Great, at 7:35 AM  

  • *applause*
    Best thought out post I've seen on this subject so far.:)

    By Blogger Aishwarya, at 9:36 AM  

  • Thanks for your support on this matter, Michael. Your post makes compelling reading and the analogy with PT Barnum is apt. Ultimately, IIPM is going to realise that the public thinks of it as nothing but a circus and Mr. A C as its star joker!

    By Anonymous Anonymous, at 10:51 AM  

  • Hi Anon, Rahul, Aishwarya, and Ravi
    Anon: I agree that the first rule is always caveat emptor (buyer beware). But I believe that it is and it should be illegal for firms to intentionally misrepresent the products they sell. This is fraud, and fraud is a crime. I don't think the law is enforce in India.

    Rahul: Indeed, I think this just shows that the economy in India is getting to be more mature. There will always be a few firms that will try to strike it rich with a dubious product but the successful firms will be the ones that consistantly invest in reputation, and they will tend to grow and dominate the market over time.

    Aishwarya: Thanks for the kind words. I've read many really good posts. Anna's on Sepia Mutiny is really good.

    Ravi: I've been reading Gaurav's blog for many many months so naturally I would want to write about this.

    Although I would have written about this anyway I suppose. I read the comments at Youth Curry and was shocked.

    By Blogger Michael Higgins, at 2:23 PM  

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