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B-Schools and the Business Social Network Service

Volume 3, 2014

This is an excerpt from a presentation during the May 25th LinkedIn Influencers Forum Co-hosted with CEIBS.

By Zhu Xiaoming, CEIBS Executive President

Impact of information dissymmetry

Among the many lessons MBA and EMBA students learn at business schools, one thing they will likely remember forever is that “the minimisation of transaction costs is the core of the market economy.” During the evolution of the modern economy, various systems were invented to lower the cost of transactions: currency, clear demarcations of property, rule of law, modern corporate governance, the stock exchange, etc.

The key to lowering transaction costs is to reduce “information dissymmetry”. George Akerlof (1970) first introduced the concept of this mismatch in available data in his essay “The Market for Lemons”. After that, The Long Tail, Big Data, The World is Flat, The Third Industrial Revolution, The Big Switch, etc, were among a long line of must reads for entrepreneurs interested in theoretical innovations in contemporary economics. MBA and EMBA students, maybe you were knowledgeable ten years ago, but if you have not had timely refresher courses, your existing stock of knowledge is now less than the added knowledge available in the digital Internet era. That’s information dissymmetry!

Nowadays, the digital revolution makes data available for mining and resources are there for sharing, so that cost can be lowered and information becomes more symmetrical. There is an unprecedented opportunity to solve the problem of information dissymmetry.

Why is information dissymmetry so undesirable? This is because it results in a lack of adequate financial services such as loans and payments in remote places, and negatively impacts the people who live in these areas.  That’s why the World Bank and the Chinese government pay such a lot of attention to inclusive financial services. Information dissymmetry also leaves people who are busy with their jobs within contemporary society hungering for communication, contact and interaction with each other. That’s why social media like WeChat have become so instantly popular. Information dissymmetry results in the disparity between taxi demand and taxi location information, making it difficult for passengers to get a cab during rush hour while many taxi drivers can’t get  passengers at night. That’s why taxi apps are so popular.

There is also the current predicament caused by serious information dissymmetry in the career development market. For example, entrepreneurs feel that there are few talented individuals to be found, while excellent employees complain that there are “no good jobs”. There is also the problem of a lack of mastery of basic data mining tools which are key to the exploitation of big data, and there are no technical tools for precise assessment. Now, Business Social Network Service (BSNS) rises to the challenge of striving to reduce information dissymmetry in the field of career development.

CEIBS Knowledge, Volume 3, 2014

Online version of BSNS: LinkedIn
LinkedIn has clearly showed that it is “a great innovation that can solve the problem of information dissymmetry”. How does it do this? Its success lies in its ample use of a combination of “big data, cloud service, platform, and mobile Internet” in today’s digital era. It builds a web-based networking platform, making full use of the worldwide web; it makes it harder to get away with being dishonest about job history, thus improving the quality of job-hunting information; with the accumulation of users, data goldmines are found, and precision of data mining is improved with big data and cloud computing, in addition information storage and computing capacity are enlarged; the communicating experience is improved with the mobile Internet, etc.     

So, what’s ahead for BSNS?  
 From a technological perspective, we can look at the development of BSNS using Gartner Hype Cycle for Big Data 2013. Gartner is the world’s most famous tech forecaster, releasing hype cycles each year, like the one for 2013 that’s shown in Pic 1. On this curve, we can clearly see that the two main types of data technology – social information analysis and social media data monitoring – develop quickly, foreshadowing the entry into the mainstream market of social networks, including BSNS, in the near future.

CEIBS Knowledge, Volume 3, 2014

From an operational perspective, I think BSNS will see three trends in the future. First: it will be “tradable”. For example, the release of the 5.0 version of WeChat has made it much easier to develop digital payment on that platform than others. It’s safe to assume that other transaction types can be developed there as well. Second: “lower cost”. In the past there was “limited data vs complex models”. Now there is “big data vs a simple model”. So obviously costs will be lower. Third: “greater profit as the objective”. According to Alibaba Group’s Big Data Committee, a behavioural analysis of social network users can help predict what cars they are most probably inclined to buy. This kind of information is exactly what car brand promoters need for precision marketing. In the future, social networking products that provide services that sift through target customers for brand promoters, talent recommendation for enterprises, predictions of economic trends for the government, and personal credit ratings for banks will generate a lot of revenue.

Offline version of BSNS: business schools
For many years, college professors have been producers of knowledge and students have been their consumers. Students are presented with diplomas after completing their studies, and do not interact with their alma mater for years. Their relationship is just like the shopkeeper and customer in the traditional one-direction market, who have nothing to do with each other after the deal is done. Business schools should change this old approach. In today’s world, they should regard themselves as platforms, and stick to opening up and the maximisation of services. More than 30 years ago, Alvin Toffler wrote The Third Wave, from which people usually remember the definitions of the first, second and third wave as the revolutions of agriculture, industrialisation, and informatisation. However, one remark in the book is often forgotten: in the future, consumers will be “prosumers”. If we take business school students as “prosumers” of management knowledge and turn their understanding of future industrial trends, their management practices and their ideas about business education into part of the case writing and improvement of teaching methods at business schools, we will be able to facilitate its upgrade from Version 1.0 to Version 2.0, which is more like a dual-direction market.

CEIBS Knowledge, Volume 3, 2014

BSNS as O2O: CEIBS’ New Objective

In the 3.0 version of business schools, professors should be the facilitators of BSNS; MBA and EMBA students will definitely benefit from it. Maybe we can call this model the O2O version of BSNS.

So, how is CEIBS facilitating BSNS? First: there is deep trust among CEIBS alumni. A lot of companies were founded by CEIBS alumni, some of whom were members of the Gobi Desert Challenge Team. They trust each other deeply and work well together. Fangdd.com sells real estate online and is now a leading company in the field across China, with total business volume of RMB 40 billion in 2013. Second: high level of CEIBS alumni. Sixty percent of CEIBS EMBA alumni are at vice president level or higher, and 100% of the members of CEIBS Entrepreneurial Camp are primary founders, with RMB 210 million in assets, on average. Third: the CEIBS community’s capacity for growth. There are currently nearly 14,000 CEIBS alumni, with 1,100 added each year. CEIBS now holds 500 forums each year in Beijing, Shanghai and Shenzhen, compared to the previous 200 per year.

Compared to LinkedIn in the cyberspace, business schools are still closed entities, in a sense. Can they borrow from LinkedIn’s methods to become more open? I think it’s possible.

In this sense, CEIBS can collaborate with LinkedIn in the following ways: build a life-long career development platform for MBA graduates; expand the alumni network platform with BSNS and create more business opportunities; as well as use LinkedIn as a case in the Shanghai MBA Case Development and Sharing Platform that’s managed by CEIBS.

In the future, BSNS’ O2O version will be the new objective for CEIBS.

CEIBS Knowledge, Volume 3, 2014

Q&A excerpt:

Q: When do you think the founder of a startup should consider hiring a professional executive to be CEO?

A: We can divide successful startup founders into two categories – those who can also do a good job at corporate management, such as Liu Chuanzhi (though he eventually took the high road to hand over the CEO position to Yang Yuanqing) and those who are not that good at corporate management, just as an excellent composer is not necessarily an excellent singer because the latter requires different talent and expertise. Some IT company founders are so young that they don't have  much management experience. In that case, some of them, such as Apple and Google, will hire professional executives to do their jobs.

Deciding on the exact time to hire a professional executive to be CEO also depends on the founders' mindset. Some founders are unwilling to hand over the CEO position to a professional executive because they want everything under their own control. Thus, for them, the handover period is impossible to decide. But for those who enjoy challenges, are satisfied with their entrepreneurial success and are willing to hand over the CEO position to a professional executive, the perfect handover time is when the founders have achieved entrepreneurial success.

CEIBS professors Liang Neng, Kevin Li and Gong Yan are doing excellent research in this field, they are always available to answer your questions.