Latha Ramchand, Ph.D.

Two weeks ago, we celebrated the 35^th anniversary of the Bauer Executive MBA Program.  It was a well-organized event and it was humbling to see alumni return to celebrate and reconnect.  It was an opportune moment to talk about where we had come, and more important, where we were headed as a program, a college, and an institution of learning.   You see, #35 is special. It is not 25 and it is not 50, and interestingly 35 is the minimum age you need to be to run for president of the U.S., so obviously it is a turning point presumably representing a maturity threshold.

In our context, for the EMBA program at the Bauer College of Business, what does this maturity point represent?

Yes, we are a large school — almost 6,000 students with a comprehensive range of programs. We graduate about 1,500 students every year, and our programs are nationally ranked — #5 in the country among publics to produce the largest # of S&P 500 CEOs and our undergraduate entrepreneurship program in the top 3 nationally. We now offer the EMBA here in Houston, in Beijing, in Dubai and in India, and debuting soon will be a version of this program in the Woodlands — all thanks to the people, our students, our faculty, our staff, and very importantly, you, our alumni.  And I could give you reams of statistics on what we have accomplished in the last 35 years.

In many ways however, our next move, the shift, or the inflexion, is driven not so much by quantitative metrics, but more by a qualitative shift in our brand — we are moving from a degree-provider approach to a customized, how-do-I-leverage-my-skills approach where we focus on expanding our participants’ sphere of influence.

The big rock of our times, as Jim Clifton describes in his book, The Coming Jobs War, is that currently global population exceeds 7 billion, of which 3 billion are capable of working, but there are only 1.2 billion jobs.  Unemployment on the scale of 1.8 billion, which is almost one quarter of the global population, is the biggest challenge of our times.  Rather than a transactional approach built around helping our participants find jobs, our program today is about helping you find, but more importantly create, jobs and really create opportunities for you and for those around you.

You see, in business schools we don’t reinvent the wheel, rather we help you understand how to move the wheel forward. Any more however, there are too many wheels all on the same street and the streets that were once open are now under construction.  As much as you need to know how to move the wheel forward, the true reward lies in paving a new street where you can navigate your wheel.

If you listened to the conversations coming out of Davos this year, the themes of our day are disruptive innovation, the new normal of slow growth and cautious optimism, and dealing with change.  In the most recent issue of the HBR there is an article on the 100 best CEOs, and the competency that seems to be in demand is the ability to learn even as the world around you changes.  From teaching finance, and accounting, and marketing and information systems, or the basic language of business, our EMBA program — your EMBA program — is moving to a plane where we help you learn, but more importantly we help you learn how to learn.  We have teamed up with Korn/Ferry International to offer a curriculum that will help develop competencies that you can use to move your organizations even during periods of massive change, tools that will help you learn even as things change, to manage even as rules change, and to lead even as the plan changes.

Fortunately, the tools available to us to accomplish this are also evolving — the revolution in technology is allowing us to create customized learning experiences.  So the second theme we are building on is customization — knowledge is standard but the learning experience needs to be customized, and if you walk around the University Classroom and Business Building, which houses the Insperity Center and the new home of our EMBA program, you will hopefully get a sense of that — you can sit in the quiet reading room on the 5^th floor, or you can work with your team of 5 in a breakout room, or you can work with a larger group in our lounge areas, or you can chat with your teammates in Dubai in our video conferencing facility.  I know it is not done yet, but we are getting there.  Bottom line — our maturity lines are the result of us, our programs, our faculty and staff learning to deal with disruptive innovation in our environment.  And we have just begun.

But the bottom line is that now more than ever, as Mitch Joel describes it, we live in a world characterized by six pixels of separation rather than six degrees of separation. We are closer than we have ever been, we can reach out and connect like we have never done before, and that is the third rock driving our inflexion point.  We are reaching out, we are connecting and we want you to connect, we want you to come visit us, visit us and bring a friend, visit us and mentor a student, visit us and share your expertise, visit us and participate as a volunteer, visit us and refer a colleague, visit us and refer a donor.

Let’s connect.

On September 25, the C. T. Bauer College of Business kicked off its Fall 2012 AGL Resources Distinguished Leader Speaker Series with a panel of experts who spoke on the topic of Liquefied Natural Gas.  Steve Cittadine, President, Storage and Fuels for Sequent Energy; Dean Purcelli, Strategic Marketing Advisor for Encana Natural Gas, Inc.; and Michael Wortley, Vice President – Business Development for Cheniere Energy spoke to the audience of over 150 students, faculty, and industry participants about the growing role of LNG in the energy supply chain. LNG, or liquefied natural gas, (“Gas on water”, as Daniel Yergin describes it) is natural gas that has been converted to liquid form for ease of transportation.  It takes up 1/600th the volume of natural gas.

The world today faces two major challenges in energy.  As the economies of the developing nations mature, the challenge is to enhance supply to meet the demands from these growing markets.  Even as we do this, however, our second challenge is to achieve adequacy without compromising the environment.

Given the recent developments in shale development, natural gas, it would seem, offers a solution to both challenges above. Shale gas production has increased from nothing to 25 bcf/d in less than 10 years.  The U.S. Energy Information Administration’s Annual Energy Outlook 2012 projects U.S. natural gas production to increase from 21.6 trillion cubic feet in 2010 to 27.9 trillion cubic feet in 2035, a 29% increase. Almost all of this increase in domestic natural gas production is due to projected growth in shale gas production, which grows from 5.0 trillion cubic feet in 2010 to 13.6 trillion cubic feet in 2035.

Using thermal equivalence of the two commodities (one barrel of oil contains the energy equivalent of the 5.825 million BTU of natural gas), the price of one mmbtu of natural gas should be roughly one-sixth the price of a barrel of oil.  Currently Brent Crude oil trades at $100 per barrel, and gas (Henry Hub price per mmbtu) at $3.  After including liquefaction, shipping and other costs, the price per mmbtu of Liquefied Natural Gas (LNG) delivered is around $7.20.  Hence there is a margin of around $7.80 when compared to the price of oil.  Even with higher shipping costs to Europe and Asia, the differences are positive. While American gas costs $2.50 per mmbtu, the equivalent prices in Europe and Asia are $12 and $16, respectively. In addition, natural gas is a cleaner option to coal and oil.

Per estimates from the U.S. Energy Information Administration (EIA), net additions of wet natural gas in 2010 totaled 33.8 trillion cubic feet (Tcf), which represents a 17% increase compared to the previous record in 2009.  Dry natural gas reserves increased from 272.5 trillion cubic feet to 304.6 trillion cubic feet between 2009 and 2010. Within the U.S., the savings in converting from diesel to natural gas are significant especially for high horsepower users of power.  At the same time, the increase in production along with a market that does not equilibrate the world price of LNG has resulted in global opportunities for profit.  By re-engineering its import facility at Sabine Pass in Louisiana, Cheniere Energy now has “take-or-pay” contracts to export LNG to countries like Korea and India.

With new discoveries of gas, the market for exports becomes viable.  The transportation costs, however, remain significant. At the same time, the story of oil tells us that transportation costs (which used to be over 30% of the total cost of oil, and today account for 5%) can and do decline with improvements in technology.  Pipelines are expensive to build, and LNG facilities need significant investments. As the price of steel has increased, the cost of building regasification plants has increased.  Even with these costs, Cheniere Energy’s price to deliver LNG to Asian markets ($10) remains lower than the oil-equivalent price ($15). Even if Henry Hub price of gas were to increase by $4, this trade would remain profitable.

Japan is the world’s biggest LNG importer, and China is building LNG terminals.  As the emerging markets in Asia begin to increase their imports of LNG, it is anticipated that the market for gas will move from long-term contracts that are indexed to the price of oil to short duration contracts based on a global gas market. While the nature of the gas business is changing the face of the global market for gas, the geo-political aspects of these developments are not trivial.  The most important of these will be the role of Gazprom as the major gas supplier for Europe and Asia.  The story of LNG has just begun.

It is being touted as a game changer.  It will bring us energy independence. The technology has existed for over 60 years and we are grateful to the pioneer in this field, George Mitchell for his visionary thinking that has brought us to this point.

The technology I refer to is fracking or fracturing, the medium is shale rock, and the participants are in the oil and gas industry.  In 2011 alone over 25,000 shale wells were drilled and early evidence suggests that the U.S. will have enough shale reserves to supply our energy needs for the next century.  Even if this claim is exaggerated, it is useful to understand what the shale gale is all about.  We live in Houston, the energy capital of the world, we are Houston’s business school, and we understand the business of energy.

So we decided to go on a field trip to the closest shale play, the Eagle Ford Shale, near San Antonio.  Thanks to support from our faculty and alumni, we were invited to visits to two facilities – Talisman Energy in Kenedy County and Cameron in Pearsall County.

We left campus just after 7 a.m. on Thursday and reached Kenedy County by 10:40 a.m. Our first stop was the completion site operated by Talisman Energy.  The heavy equipment, the line of trucks and the complete self-sufficiency at the site (with para-medical facilities, power generators, food and lodging) spoke to the cost of the operation and the expense involved in keeping anything idle on the site.  Creating a community in the middle of nowhere, knowing that it will have to move easily and seamlessly to the next site at the end of 35-45 days requires nimble talent, or what we call agility.  The team of engineers that explained the technology to us were young, knowledgeable and worked as a team with respect for what they all did.  The implications of team work were even more apparent on the rig.  Dressed in protective coveralls, boots, hard hats and goggles, we went up the rig and learned about the ‘dog-house’, the ‘monkey-board’, the ‘opossum-belly’.  Understanding the entire frac process was interesting, and the focus on safety and risk management was obvious in the operations.

The generational gap between the talent that is getting ready to retire and the younger group speaks to the cyclical nature of this business.  Supply of talent to this industry moves with the price of oil and natural gas, and the low oil prices of the 80s is reflected in the generational gap in talent.  At the same time, the steep increase in the demand for talent to support the drilling, fracking and completion jobs but also ancillary services in the area is telling.  Hourly wages for workers here are around $24, and the local McDonald’s is hiring workers at $15 an hour.  Real estate is expensive, and the number of eateries has apparently mushroomed.  The unanswered question is – how long will this last?

Overall, we came away with a keen appreciation for the technical side of the business, and the need for preparedness in crisis.

On Friday, we visited the Cameron facility.  If the previous day was all about the engineering and technology needed in shale plays, the Cameron visit underscored the importance of the business side of the equation.  Cameron is about pressure control and fluid management.  Learning the underlying value chain in this business is fascinating.  Not only are several players involved in this process from drilling to hydraulic fracking to flowback and well testing and finally to the production, but the economic drivers are not the same. The presentation by Brian Matusek, VP for Business Development, was informative for several reasons.  At Cameron, the process begins with an evaluation of the business model and the return on investment.

While the risk of a ‘dry hole’ seems less of an issue with shale plays and horizontal drilling, there are, we were told, gradations of shale ranging from Tier 1 through Tier 5.  Once the business model is evaluated and the economics make sense, the facility is built, and the operations team takes over.  As technology improves and regulation changes, the customer’s requirements change.  Cameron’s goal is to provide value in this changing environment.  They operate in several countries around the world, including Argentina, France, Poland, Germany, Algeria and Australia.

While technology required for shale drilling has made significant strides, the investments needed are large and time to completion is key.  Drilling in shale plays has gone from 75-day cycles to 25 days.  In addition, utilization rates can make a big difference in the economics.  Cameron’s goal is to help customers reduce the number of days it takes to drill and also manage completion in short cycles.  In short, their business model is built around their customer’s model.  As a result, Brian explained, customers buy integrity as much as they buy equipment. That said it all.  A great lesson indeed for me and our students.

How do you build a culture of business agility anchored around integrity?  At Cameron, the folks we met understood their part of the business, and they also had a genuine appreciation for what others around them did. The team culture seemed more than just a business necessity.  It was also apparent that grooming the right talent and succession planning were built into business operations at Cameron.  The right leadership makes all the difference, and it did us proud to remember that Cameron’s CEO, Jack Moore, is one of our very own — he is a Bauer graduate.

Most importantly, we learned at both site visits that safety is never taken for granted.  At all points during the visits we were instructed about safety rules and encouraged to report unsafe conditions.  Every person we met, whether at the drill site, the completion facility, or the pumping site, had safety as their top priority.

No doubt the industry has had its challenges, but the story is one of human error, not one of intrinsic risk.  The industry needs more spokespeople to get the facts out and let everyone appreciate that while human error is always a possibility, a strong culture, rooted in integrity is consistent — rather is key — to building a sound business model.  And it can be done.  It is being done.  Talisman Energy and Cameron, we salute you.  Thank you for a great learning experience.

About three weeks ago, I attended the finale of 3 Day Startup, hosted here at the Bauer College of Business.  3 Day Startup is a program whose goal is to educate students to think like entrepreneurs.   It is hosted at universities and is built on the philosophy that you learn by doing.  To date, and as their website suggests, “over 1,000 students participating in 3 Day Startup events in 6 countries have given rise to 16 companies collectively raising $4 million in investments.”  Students from across campus apply to be part of the program.  Per Hesam Panahi, the faculty member who hosted the event on behalf of the Bauer College, over 120 students applied to participate.  These are students from the colleges of engineering, education and technology, the law school, and of course, Bauer.  Forty-three students were selected to participate, and they came together between Friday and Sunday to convert their ideas into a business plan.  On Sunday, I watched as these students grouped into six teams pitched their ideas to a panel of experts.  You can see photos from the event here.

It was impressive to watch how these students who did not know each other on Friday morning, had bonded over the weekend, discussed, refined and conceptualized their ideas, conducted market research (yes, they went out into the community, interviewed potential customers and even received indications of buyer interest), coded their ideas into applications that could be loaded into mobile devices, and put together five-minute pitches that were evaluated by an expert panel.    The ideas were interesting, and the feedback was encouraging.

It was inspiring to see the power to do something big bringing strangers together.  And better still, they had taken their big ideas and built a customer plan around it so they could monetize the innovation.  As Jim Clifton notes in The Coming Jobs War, “money and good jobs come from the business model, not the innovation.”  Innovative ideas are many, entrepreneurs are few.   It is the passion and the obsession to solve problems that fuels entrepreneurship.  What is the mystery sauce that generates the entrepreneurial mindset?  Talk to me.

With much to be thankful for, I look back at a year filled with achievements at the Bauer College that make me, along with our students, faculty, staff, alumni, partners and friends, proud. Even as the college mourns the loss of a visionary leader, Dean Arthur Warga, we move on knowing that he would be pleased to see the results we have to share.

We started 2011 with an efficiency award in January. The Rockwell Career Center at the College was named one of nine colleges and universities nationwide by University Business magazine’s “Models of Efficiency,” a program sponsored by Higher One. The company assists in college business office operations and identifies new approaches for streamlining higher education operations to deliver superior services to students in less time and at lower cost. Against the backdrop of budget cuts, the recognition reinforced the fact that at Bauer, we mean business.

This year, we were also happy to hear of the confirmation of our re-accreditation by the Association to Advance Collegiate Schools of Business (AACSB). AACSB announced on Jan. 5, that the Bauer College maintains its accreditation in business and accounting. With less than 5% of the world’s business schools being accredited, the AACSB accreditation is the hallmark of excellence in business education. Achieving accreditation is a process of rigorous internal review, evaluation and adjustment and can take several years to complete, during which a school develops and implements a plan to meet the 21 AACSB standards requiring a high quality teaching environment, a commitment to continuous improvement and curricula responsive to the needs of business.

UH football Coach Kevin Sumlin spoke at the February Bauer Alumni Networking Breakfast and predicted, “The stars have got to align, but if I didn’t feel like we are close to something happening, then I would have a different attitude,” Sumlin said. “It’s going to be a fun year. This is going to be a great year.” And it has been indeed.

In March, Rebekah Elliott, Taylor Herbert and team alternates Jozette Bionat and Adrian Sese, all undergraduate marketing students in the Program for Excellence in Selling (PES) competed against 60 of the top graduate and undergraduate sales programs in the nation and came away with the first place trophy at the National Collegiate Sales Competition held at Kennesaw State University. During the same month, Prof. Craig Pirrong, director of energy markets for the Global Energy Management Institute (GEMI) at the Bauer College was featured in a panel discussion hosted by the CME Group, the Commodity Markets Council and the Natural Gas Supply Association. The panel discussed developments in derivatives trading and the impact of the financial-overhaul law that was being discussed in the U.S. House of Representatives.

In April, continuing a tradition more than 10 years strong, students from the Finance Association at the Bauer College dominated the Houston round of the CME Group Commodity Trading Challenge. The open outcry competition requires students to test their ability to buy and sell oil contracts using the traditional trading terminology and fast-paced hand signals. Bauer students made up half of the top 10, with Francis Dorrego taking the first prize of $1,000, Laurentino Rangel and Kirsten Mayell taking fourth and fifth place, respectively, and Wallis Paez and Rong Yu rounding out the top 10. They then headed to NYC to participate in the NYMEX Outcry Competition in April where they placed in the top ten nationally. Also in April, two teams of graduate students from the Cougar Fund — Maria Asher, Krishna Danda, Horacio Mendez and Russell Schulze; and Anitha Ramaraj, Greg Spahr and Peter Vo — placed in the top three spots in both the Texas Investment Program Symposium (T.I.P.S.) Portfolio Competition and the CFA Institute Investment Research Challenge, hosted by Rice University.

In May, the Sales Excellence Institute (SEI) at the Bauer College celebrated its 15th anniversary with a week of “sellebration” to recognize the faculty, staff, alumni, students and partners who have built the program into the top sales program in the nation. At commencement festivities held during the same month, the college welcomed a group of 35 senior executives from one of China’s largest energy companies who traveled from Beijing to receive MBA degrees as part of the college’s Global Energy Executive MBA (GEMBA) program in Beijing.

While summer is traditionally a slow time, not so for Bauer students. What started as a conversation between Department of Finance chair Praveen Kumar and Bellaire Mayor Cindy Siegel became a project developed by MBA students to give the city a practical and usable framework to project its financial position in the medium and long run and to allow the city managers and its elected representatives to examine effects of various policy changes. At the same time, Cougar Fund graduate Jason Wangler was named one of America’s top stock pickers by The Wall Street Journal.

In August, we heard the news that the world’s best student marketing team is here at Bauer. Four MBA students, Erin Blatzer, Lauren Davis, Carolina Thomas and Jeffrei Clifton were named the first place team winners in the 2011 Google Online Marketing Challenge – a competitive event where 4,429 collegiate teams from 68 countries participate. Not only was the Bauer team #1, it was the first time in four years that a U.S. based team had won the coveted first place. Better still, their project, which they worked on for over three months using a $200 AdWord budget, helped promote concerts for the Houston Symphony.

Also in August, the college lost a bold visionary, Dean Arthur Warga who passed away after a valiant battle with cancer. It was no coincidence, and as if to honor his legacy, that the college celebrated in September its #1 ranking in entrepreneurship in the undergraduate program, an honor received for the third time in five years and for the second consecutive year. Also in September, GEMI, at the request of the Independent Petroleum Association of America (IPAA), hosted a week-long leadership program for energy professionals.

In October, Bauer hosted Pulitzer-prize winner Daniel Yergin who spoke on energy, the environment and the economy. The college also partnered with Invesco to host a financial boot camp for women, which was well received and appreciated.

In November, the Wolff Center for Entrepreneurship presented CougarPitch in its inaugural year as the campus elevator pitch competition. Thirteen finalists competed in three categories — faculty/staff, entrepreneurship student and general student — with each giving a two-minute pitch in front of a voting audience. The first prize winner was a pre-nursing student who won a cash award of $1,000 for her idea of creating a better online study guide for the national nursing exam. The event attracted over 200 participants and will become a regular Bauer calendar event in the future.

Hours before kickoff of the Nov. 19 University of Houston-Southern Methodist University football game, former Cougar offensive tackle James Hong (’05) who runs Little Coogs, a program that gives Houston-area at-risk youth a taste of Cougar pride through tailgating excitement at every home game, arranged for over 3,000 hotdogs, chips and drinks to be delivered to the Bauer tent so the over 1,500 at-risk kids that he brought to the game could have a good time. James is a Houston native who holds dual degrees in finance and management and is president of the Bauer College Alumni Association (BCAA). We are so proud of you, James.

December graduation was special this year, as the University of Houston’s first Tier One graduate walked across the stage at the Bauer College commencement. The Tier One Scholars Program is part of UH President Renu Khator’s initiative to attract and engage high caliber students. Graduating in a year and a half with a degree in accounting, Lei “Sally” Wong, remarked, “I’m very thankful for the Tier One Scholarship. With it I was able to focus solely on my studies and not have to worry about tuition,” she said. “My class rank in high school allowed me to attend any Texas public university. I chose UH and have never regretted doing so.”

We have much to be proud of and we owe it to our faculty, and staff whose commitment to student success is inspiring. Happy New Year everyone – onward and upward.

It sounds too cliché-ish but it is certainly true that travelling abroad is an enlightening experience.  I was in Beijing in November and in Dubai more recently, teaching in our Global Energy EMBA (GEMBA) program.  These trips reinforce my belief that while people look, speak, dress, eat and talk differently, we are very similar in many respects.  People everywhere want to have a good time, eat well, and appreciate the opportunity to be heard and listened to.  When convinced that the listener can be trusted, most cultures are willing to critique themselves and appreciate the opportunity to learn from others.  This does not, however, equate to global integration.  In fact I am not sure what ‘integration’ means – does it mean we all buy the same bundle of goods and listen to the same music and watch the same movies?  Does it mean that chains like Walmart are able to sell to consumers in India (India is currently debating the benefits and costs of allowing companies like Walmart to sell to Indian consumers and the rhetoric has a strong political tone)? Does it mean that in a country like Dubai where the local population accounts for less than 15% of the population, immigrants are allowed the rights to citizenship? How do we preserve the ability to understand and appreciate differences without standardizing everything we do?

I visited a friend in Dubai who lives in an apartment surrounded by neighbors from Syria, Iran, Iraq, India, Australia, and the U.K.  Children of these neighbors play and work together, celebrate holidays together and trust each other in a way that is refreshing.  In a world where Facebook and Twitter have changed the way in which we cultivate relationships, there is still no substitute for physical proximity.  Travel will not go out of fashion in my life time.  What do you think?