Business Schools Bring Management Expertise to Economically Distressed Communities

The nation’s poorest communities are poised for growth and business schools are making it happen. Once thought to be marred by a tide of crime, homelessness, failing schools and poverty, these neighborhoods are the new frontier for economic development.

A recent study by the Initiative for a Competitive Inner City revealed that consumers in America’s urban areas possess more than $85 billion in purchasing power but at the same time are chronically underserved by commercial enterprises. While this fact speaks to a larger societal issue, it presents great opportunity for resourceful entrepreneurs. The door to these untapped markets has been left wide open for inner-city residents to invest in their communities themselves.

But planting seeds to cultivate successful businesses in these areas is difficult without access to capital and management expertise. Enter U.S. business schools, who, through a variety of initiatives, are positively impacting the economic growth of these disadvantaged communities.

The list of service organizations doesn’t usually begin with business schools, but the evidence puts them in the center of the action – and at the heart of providing real assistance to low-income neighborhoods. While not traditionally seen as a resource for the inner city, business schools are uniquely positioned to help residents of those communities resolve their challenges from within and create measurable economic change for the long term.

"There are predominately two groups of schools involved in initiatives like this," said Michael Verchot, director of the University of Washington’s Business and Economic Development Program (BEDP). "Historically black colleges and universities have a long tradition of working in economically distressed communities. And, in the last four to five years, there has been a growing trend among other business schools to get involved." Verchot estimates that there currently are 30 to 40 business school programs nationwide established to assist in the economic development of these communities.

"The recent attention to these kinds of programs can be traced to Michael Porter’s work," said Charles Hickman, AACSB’s director of member relations. "Instead of relying on subsidies and mandates, Porter states that development plans based on real economic opportunities will encourage growth in these communities."

In short, Porter argues that inner cities have relative financial advantages that smart companies can take advantage of in order to make money and create jobs. A sustainable model for inner cities must be based on legitimate profit because the decision to develop these areas will be driven by capitalism, he said. Corporations want to contribute to disadvantaged communities but also must answer to the bottom line.

Business School Projects in Economically Distressed Communities
Many AACSB member schools are heeding Porter’s call to action and moving forward with their own outreach programs to develop the economies of distressed communities. Following are the descriptions of some of the types of programs, from student consulting to customized education, that are making a real impact in these neighborhoods.

Student Consulting and Research
For many aspiring entrepreneurs in low-income areas, the start-up budget does not allow for a professional consultant to analyze market conditions, evaluate capital needs and help create a business plan. But local business schools provide a more cost-effective solution. Students are assigned to act as consultants to these potential entrepreneurs for little or no fee, bringing the latest in management theory, fresh ideas and a drive to prove their talents and abilities.

During the 1997 academic year, student consultants from Verchot’s Business and Economic Development Program helped create more than 125 jobs and generate nearly $3 million in value-added revenue to Seattle’s Central Area, a low-income community just outside the UW campus. Graduate and undergraduate student teams provided direct consultation to nine local businesses – from an automobile detailing shop to a furniture store – in developing financial, marketing, human resource management, production and accounting practices.

"Our students work one-on-one with the local businesses," said Verchot. "We provide the owners with the knowledge, research and technical skills on how to grow a business."

Consultation to businesses provides half the solution. The revitalization of distressed neighborhoods depends also on a deep-rooted change in community economic policy and practice. Before this reform can be implemented, however, developers need precise information about the area’s challenges and opportunities. Economic reports, produced by business schools, are key tools in exposing and resolving the problems in economically disadvantaged communities.

The challenges faced by the City of South Bend and the South Bend Heritage Foundation illustrate this point. These organizations found it was difficult to assess the financial impact of the decline of the northwestern region of the city. While the symptoms of the problem were easily identifiable, they knew that they would need to have a grasp of the symptoms’ associated cost in order to find a viable solution. The city turned to the College of Business Administration at the University of Notre Dame to research the area and develop neighborhood revitalization strategies.

A team of the school’s MBA students developed a framework for estimating the total cost of decay of the area to the community at large. The formula they developed now is being used by the South Bend Heritage Foundation to evaluate other neighborhoods in the region.

Sometimes student consulting doesn’t involve businesses at all. In an effort to expose Boston’s inner-city students to financial education and real training in today’s technology, Boston College created the "Kids on Campus" program. The nationally recognized program brings middle school-age children to campus for academic enrichment sessions with MBA mentors.

During the past six years, the program has helped approximately 350 underprivileged children improve their grades, enhance their computer skills, and develop their interest in careers and higher education. A new initiative in this program is "Kids Capital Management," in which students learn about the stock market and the Internet with the help of their mentors.

Specialty Courses
Some schools have established courses that expose students to the operations of businesses in disadvantaged communities. As a part of the curriculum, students earn their credits by teaching business solutions directly to inner-city business owners, ensuring that much needed business know-how and support is delivered to the people that need it the most.

MBA students enrolled in Columbia Business School’s "Inner-City Consulting" course work with mentors from Booz, Allen & Hamilton and perform hands-on, pro bono consulting for inner-city businesses and other organizations involved in New York City economic development activities. Students assist in strategic planning, creating Web pages and developing long-term business plans that result in additional financing for clients.

Duquesne University’s A. J. Palumbo School of Business Administration offers a similar course. Student consultants develop sound business plans and feasibility studies for clients in some of Pittsburgh’s most economically challenged communities. Among the class’ clients during the past two years: a medical technology company, a charter public school and a computer networking company.

"We’ve made it part of the core MBA curriculum here to include consultation to inner-city businesses as part of the learning process," said Tom Murrin, dean of Duquesne’s School of Business Administration. Bob Gleeson, associate professor of management and faculty director for the school’s Institute for Economic Transformation, added, "The course is just one part of a series of outreach efforts designed to give students a better view of the overall business landscape. We include businesses from disadvantaged areas as well as affluent areas because they both give a sense of the kinds of problems businesses face in the real world."

Business School Partnerships
In addition to programs operating under the sole auspices of the business school, many schools have established partnerships with outside organizations interested in reaching distressed communities with business education and guidance.

"Helping Entrepreneurs Learn and Prosper," a program designed to help entrepreneurs in Salem, Massachusetts’ low- to moderate-income (especially Hispanic) neighborhoods, was established as a result of a partnership between Salem State College’s School of Business and the Salem Harbor Community Development Corporation. Assisted by teams of university students, the budding entrepreneurs develop business plans for their proposed enterprises, and after 10 weeks of instruction, are ready to begin their own firms. The program currently assists more than 30 fledgling business owners, one-third of whom are minorities.

The Kansas City Community Outreach Partnership Center, the outgrowth of a strategic alliance among the University of Missouri-Kansas City and several government and social service agencies, is another example of a partnership that encourages entrepreneurship among residents of disadvantaged areas.

The Center is engaged in 11 community research and technical assistance projects, targeting housing, family services and economic development needs of the community. The Center’s new Business Incubator Without Walls project, for instance, has helped 22 budding entrepreneurs in these disadvantaged areas develop businesses, providing self-employment and other job opportunities.

Business schools also have created programs to encourage entrepreneurship among inner-city residents. For more than 20 years, Alabama State University’s College of Business Administration has offered free training workshops in business ownership and business management to low-income populations. Since its inception, the program has trained more than 2,500 people, providing them the opportunity to become financially independent. This year, nine clients currently are operating their own businesses through a small business incubator program.

"We have a number of programs that teach residents how to be entrepreneurs," said Percy Vaughn, dean of the College of Business Administration. "And we also tell them when it wouldn’t be a good idea. We’ve saved a lot of people from making mistakes, and helped those for whom the time was right."

Similarly, entrepreneurship programs are the chief effort of the Urban Investment Strategies Center at The University of North Carolina at Chapel Hill. Founded to reach underdeveloped inner cities, the objectives of the Center are simple: encourage and promote entrepreneurship among residents in economically distressed communities as a means to financial independence, and prepare residents to actively participate in the 21st century knowledge-based economy.

Customized Education for Low-Income Students
Taking business education a step further, AACSB member schools have taken the principles of EMBA and part-time MBA programs and developed them for use with low-income populations. The curricula are designed to give students the skills they need to contribute to their local economies.

The Minority Program in Real Estate Finance and Development was created at the request of the Los Angeles Redevelopment Agency (LARA). Though Southern California’s real estate market was booming, there was a dearth of minority developers and entrepreneurs interested in and capable of working on projects for the LARA.

Supported by the University of Southern California, financial and real estate companies, and government institutions, the business school created an intensive, two-week course to expose its students to everything from operating a financial calculator to negotiating leases. With the new skills and knowledge, Los Angeles’ minority population now is able to play a larger role in the real estate and development market.

Another minority population being assisted with business education is the Oneida Indian Nation near Oshkosh, Wis. Though the tribe has governed its people according to the laws of the Haudenosaunee (Iroquois) Confederacy for thousands of years, the tribal leaders recognized the importance of Western management and communication techniques in the modern age. To meet this need, the University of Wisconsin-Oshkosh worked with the tribe to develop a customized certificate for Oneida Tribal Management.

Management and accounting faculty and staff provide the instruction, sometimes team-teaching with members of the tribal organization. Since 1987, 125 students have attended courses; in January 1995, the first graduates earned Certificates in Tribal Management after completing the required 178 hours of workshops and seminars. The long-range objective is to have Oneida members trained as instructors so that the program can be offered completely in-house.

Why Business Schools Get Involved
Providing business consulting and assistance to low-income communities is part of a trend within management education to move toward more field-based learning, according to Verchot. "These communities present an excellent opportunity for students to experience hands-on the challenges that face real-world businesses. In class, we tend to assume-away the obstacles that confront businesses, such as under-capitalization, but in the field you have to figure out how to overcome them," he said.

For many universities and colleges, assistance to distressed neighborhoods is part of the mission of the business school. The University of Notre Dame has a long history of community outreach. With a top-ranked reputation for business ethics, it’s no surprise that the administration feels strongly about helping disadvantaged neighborhoods. "It’s part of the fabric of our business school," explained Carolyn Woo, dean of the College of Business Administration.

"We teach our students about interdependence," said Woo. "We help them understand that at the neighborhood, regional, national and even global level, we are interdependent. We affect and are affected by our community; it’s hopeless to cultivate one part of the garden without tilling the rest."

The benefits of the relationships between business schools and low-income communities are felt by both participants. Entrepreneurs use the knowledge and talents of the business school – including research, computer technology, accounting and management skills – to grow and improve their companies. Just as important, noted Vaughn, these relationships provide role models and mentors to the community. "Most of our students come from neighborhoods like these," said Vaughn. "They know the hardships; they don’t forget what it’s like."

The business schools, too, are impacted by their relationships in the distressed communities. In some cases, it even has changed the curriculum. "It changes what and how we teach," said Verchot. "It brings frictions into the classroom in ways that we haven’t experienced before. It shows our students what it’s really like to own a business."

The value of this type of education extends beyond the content of the coursework, too. For students who participate in the consulting and research projects, they’re getting a leg up on their competition after graduation. The valuable experience they gain in communicating complex ideas, teaching in a multicultural environment and turning business theory into practice makes them stand out with recruiters.

The opportunity to function at an advanced level is another benefit for students. After all, how often do you get to recommend a change in the operation of a company – and have the owner actually do it?

And for some students, it’s a life-changing experience. A number of students have altered their career path to include public service to low-income communities. "Students are caring," said Woo. "We need to give them the opportunity to show that they can have an impact, that they can make a contribution to these communities."

The reaction from the corporate world has been overwhelmingly positive as well. "The matter of trying to close the gap between developed and underdeveloped communities is a key concern for Pittsburgh business organizations," said Murrin. "They welcome efforts to grow the local economy."

The corporate community is supportive of initiatives like this because they know that their contributions of time, expertise or money fit into a larger picture. They can spend a few hours consulting on a project and know that it’s part of a larger, integrated program that will involve hundreds of hours of work.

But what would happen if business schools did not provide these kinds of programs? Certainly, social service agencies would continue attempting to meet the physical and psychological needs of inner-city residents. The need for management expertise, however, would go unmet. "It would be a great loss for the small business community, especially the black community," said Vaughn. "They would just get lost."

Verchot echoes Vaughn’s concerns. "As the economy grows, there would be a community that would be left behind," he said. "All sectors need to be growing for a healthy national economy, otherwise, there are increased public and social costs." Without business school outreach, there’s a missing link in the development process of a business. There are some programs for start-ups, but little help for owners who want to grow their businesses from one stage to the next.

The long-term prognosis, however, is quite good for business school initiatives in distressed economies, especially as programs like Verchot’s continue to post numbers that show real impact in their communities. "I think we’re going to see more regular and sincere efforts to help these areas," said Gleeson.

Colleges and universities continue to add to their outreach activities as well. Alabama State University constantly adds innovative programs to reach its neighbors. Duquesne recently launched the Community Manufacturing Initiative to form relationships among the region’s 800 manufacturers and their low-income neighbors. Some students and faculty members at Notre Dame just returned from a trip to participate in the South Africa Small Business Community Outreach Internship Program.

"All business schools have the potential to establish programs like these," said Hickman. "We need to learn from each other how to do it."