SBU’s - The new paradigm in business strategy for Engineering Colleges

SBU's - The new paradigm in business strategy for
Engineering Colleges

By

Dr. C. Kanagaraj
Professor & Head
Gayathri G.V.S
Lecturer
School of Management
SNS College of Technology
Coimbatore

'Men do rational things but only after exploring all other alternatives' was the cryptic comment made by the noted economist late Lord John Maynard Keynes. Almost all the firms in any industry follow the same method, same strategy yet expect different results. Even worse, they believe that by making relentless efforts like a fly smacking on the closed window. They think that they could emerge out as winners but in vain. Same old methods bring the same old results. Educational institutions are no exceptions. Often they teach and seldom they learn.

The Going gets tough

As like any other industry, education sector has also reached its saturation point and inevitably it has to face the declining phase in the near future. Every year there is double-digit growth in the number of institutions added up along with the existing ones. Due to this mushrooming growth, almost all the institutions are forced to encounter problems like:

1. Vacant seats in most of the courses offered.
2. Quality of the students is very limited or students with poor credentials are admitted.

Thousands of students earn their degree without any skill set for employability. Poor education leads to poor employability and that leads to poor admission that too with poor quality students. A vicious cycle is formed.

The ways and means

How to change this situation and to grow fast? Whether a new business model is required or is it sufficient to have the business model already available.

In the traditional business models, the entire institution is treated as a single entity working under a boss who plans and decides everything. Conventional wisdom says that this eventually results in diminishing returns because the organization remains as a fixed factor even in the long run.

Empirical studies in the west have proved that the 'U' cost curves can be changed as 'L' shaped ones by decentralizing the decision-making process. Now the question is how decentralization could be done without compromising the interest of the founders/ trust. What needs to be shared? What is the guarantee for success? It is time to explore and create a new business model like creating SBUs in Colleges.

Creating SBU's – The New Paradigm

What is an SBU?

An SBU is separately identifiable business; have a distinct mission, have its own executive team with profit responsibility. For effective planning and operations, a multi division or multi product organization should be divided according to its major markets or products. Each SBU may be a major division in an organization, a group of related products or even a single major product or brand. The SBU has its own business strategy, objectives and competitors and these will often be different from those of the parent company.

SBU's in Education Institutions

Any organization, which is classified under either, for profit or not profit it has to generate sufficient income to sustain its growth. The traditional management strategy is striving to attain the optimum level of operation so that the least cost combination is achieved. The weakness in this approach is that after the optimum level, any further growth or expansion comes with a higher cost. The diseconomies of scale will dominate the economies of scale and inevitably the average cost curve will take 'U' shape.

Decentralization in Colleges.

This is still considered to be a revolutionary idea for any form of business. How it could be implemented in an organization like an engineering college, which is again a debatable issue.

The first footstep

Declare each individual department as an SBU. Therefore it will act as an independent entity.

The mix of departments should be in such a way that the revenue generated from each of them must be high.

Every department should be empowered aware about the revenue generated by them and their ways of effective utilization.

Role of SBU's

Though the college is the main entity, decisions regarding department's growth should be discussed at the Department level. These institutional entities (SBUs) are large enough and homogeneous enough to exercise control over most strategic factors affecting their performance. They are managed as self contained planning units for which discrete business strategies can be developed.

Composition of Departments- Mix

This matrix of Stars, Cash Cows, Question Marks and Dogs is given by Boston Consulting Group popularly called as BCG matrix. The courses can be grouped and identified where they started based on the current demand and the revenue created by them. The courses that generate steady revenue are grouped as Cash cows and that which is now demanded by all the corporates is grouped under Stars. Question Marks reflect a sort of perplexity about the future of the courses. Finally dogs depict the traditional old courses which are lacking any relevance today.

Management of Funds

Undoubtedly, creation of permanent assets like buildings, purchase of computers, heavy equipments for the labs and other costly items could be retained with the central office. All the recurring expenditures like staff salary, books, purchase of small gadgets, consumables, industry-institute interaction, research works, guest lectures, industrial visits, placements etc., could come under the domain of the department. The next step is to estimate the revenue generated by the department and how much is required for the department for meeting the recurring expenditure incurred now.

Moreover as the growth of the individual faculty member is linked with the growth of the department as well as the college, everyone will work towards the common goal of achieving success in the long run.

The college and the department could share the revenue in a specified ratio by considering all the requirements and other objectives. The golden rule is 70:30 between the college and the department.

Let us assume an engineering department with an annual intake of 60 students per annum. Then the department may have 240 students since engineering is a 4 year program.

Tentative Total Revenue per annum:

Through Fee Collection from students: 240x 50000                                                  = Rs.1,20,00,000
Through Consultancies offered to industries: 6x 20000                                             = Rs.     1,20,000
(at an average of 6 per annum with the fees of Rs.20000 each)
                                                                                                                       Rs. 1,21,20,000

Tentative Total Expenditure per annum (not exhaustive)

As per AICTE norms 1 teacher per 15 students should be appointed. So should have atleast 16 staffs at different levels

Salary: 16x12x15000                                                                                           = Rs.28,80,000
(16 staff members are paid Rs.15000 per head per annum on an average)
Books & Gadgets (LCD, Laser printers etc):                                                             = Rs.2,00,000
Consultancies offered to industries                                                                        =     Rs.50,000
Research                                                                                                          =   Rs.1,00,000
Conferences and Seminars                                                                                   =   Rs.4,00,000
Consumables                                                                                                     =   Rs.1,00,000
Salary for Non teaching staff: 2x12x3000                                                               =      Rs.72,000
(2 staff members are paid Rs.3000 per head per annum on an average)
Miscellaneous (Reserves)                                                                                    =       Rs.38,000
                                                                                                                          Rs.38,40,000

The balance available will be around Rs.82,80,000 which could go to the general pool account of the college

Eventual Destination is …….

Futuristic and goal oriented departments
Functional autonomy and freedom of planning.
Effective planning results in appropriate utilization of resources.
Vibrant and enthusiastic participation in decision making at all levels.
Committed departments ensure every individual's growth

Conclusion:

Success begets success. Optimum resource utilization is achieved only in a system which functions efficiently. As the department knows their fund allocation before hand, they could plan in advance with certainty for the present and for the future. After all one who is fore warned is fore armed.

Dr. C. Kanagaraj
Professor & Head
Gayathri G.V.S
Lecturer
School of Management
SNS College of Technology
Coimbatore

Source: E-mail October 7, 2006