Bricks and Clicks Come Face to Face

The new dean of the online Jack Welch Management Institute explores the differences and similarities between traditional and for-profit management education—and what they’re learning as they study each other.
Bricks and Clicks Come Face to Face

“How can earning an MBA help me run a not-for-profit organization?” is a question I’ve been asked many times by managers hoping to advance their careers in this sector. I always point out that an MBA can help them develop their leadership, financial literacy, marketing savvy, and strategic thinking abilities—skills that will be critical whether they’re working in a commercial or not-for-profit setting.

I was reminded of my response to that question recently when I left my role as associate dean for executive education at the Samuel Curtis Johnson Graduate School of Management at Cornell University in Ithaca, New York, to become dean of the Jack Welch Management Institute (JWMI) at Strayer University. Strayer is headquartered in Herndon, Virginia, but the Executive MBA program is delivered entirely online.

Friends and colleagues asked how I would adapt to the differences between the two set-tings—one brick-and-mortar, one digital. I pointed out that while there are indeed differences between the two, there are also important similarities.

They’re alike in that both kinds of organizations are driven by two critical success factors: the imperative to innovate and the need for resources that allow them to pursue their goals. They’re different in the way they deploy resources to achieve their dissimilar missions. I expect to transition smoothly from one type of institution to the other because I respect the similarities, I believe in the differences—and I understand how the two models are converging.

The Imperative to Innovate

I believe in the directive “innovate or die”—I think organizations must keep moving, not only to succeed, but merely to exist. One catalyst for innovation in education, and certainly for business education, has been the adoption of technology for delivering courses.

We’ve reached the halfway point of a dramatic prediction that Peter Drucker made in a March 1997 article in Forbes: “Thirty years from now, the big university cam-puses will be relics.” While there is some question about whether his pronouncement will come true, the trend toward technology-facilitated education, which prompted his remark, has only gained momentum in the years since.

In general, for-profit institution have embraced technological innovations faster and on a larger scale than traditional universities. Today, for example, all of the EMBA students at JWMI study in a 100 percent online learning model; 60 percent of Strayer University students also study in that format. It’s true that some traditional schools have experimented with digital delivery formats; for instance, Johnson at Cornell used boardroom-style videoconferencing in a hybrid EMBA program as far back as 2004. However, most top-ranked schools have been slow to dive deep into tech innovations.

One reason is that different kinds of schools place different amounts of emphasis on accessibility. At JWMI, it’s built into our DNA to provide education for working managers and professionals; therefore, accessibility is a core value. Accessibility is also at the heart of the mission for Strayer University, which was founded in 1892 to provide education to working adults. Johnson at Cornell is a small school in a small town; thus, it turned to technology early on as a means to reach into major business centers across the hemisphere.

It’s taken longer for brick-and-mortar schools to adopt technologically facilitated program delivery, perhaps because they’re more comfortable with their physical facilities. But more traditional business schools are entering the digital domain in a big way. MIT and Harvard recently announced a partnership called the edX initiative, a joint learning platform based on open-access technology. It’s anybody’s guess where their collaboration will lead, but it certainly suggests what the future of education might look like.

In the 15 years left before we can judge the accuracy of Drucker’s prediction, we might consider updating his views about the future of education. Instead of pessimistically forecasting the demise of big traditional campuses, maybe we could optimistically hail the advent of big virtual campuses. For-profit education providers have led the way in this innovation, but traditional institutions are increasingly on the same path.

Daniel Szpiro meets with members of JWMI’s EMBA staff as they review academic policies.

The Need for Resources

Ambitious organizations seek resources to fuel the activities that will help them achieve their goals. Therefore, whether they’re pursuing profits or hoping to amass surpluses, they all would like to do more than simply cover their costs. Business schools are no exception.

While a business school’s most constrained resource is faculty time, capital runs a close second. Schools need capital to develop new degree programs, expand executive development, build technology infrastructure, and create new campuses.

Traditional universities acquire capital in many ways. Particularly among U.S. schools, a key source of revenue is donations from alumni and benefactors.

Indeed, many would suggest that the primary role of the dean at a traditional school is “friend raising”—lining up donors whose gifts supplement an endowment.

Even if that’s accurate, the vast majority of business schools depend overwhelmingly on tuition revenue to pay the bills and fuel growth. For example, for the 2010–2011 academic year, Johnson at Cornell received 78 percent of its revenue through a combination of degree program tuition and non-degree executive education fees. Even Harvard Business School’s 2011 annual report shows that endowment distribution contributed less than 20 percent to total revenue over the same period.

Outside of the United States, in countries where the tradition of alumni and corporate giving is not as strong, endowment distributions can be even smaller. For instance, at Queen’s University in Canada, where I previously worked, outside gifts accounted for only 4 percent of revenue in 2010–2011; the 2009 annual report for London Business School puts the figure at 7 percent for that school.

Strayer University, including JWMI, does not collect any donations from alumni or benefactors, making our institution 100 percent tuition-revenue dependent.

Therefore, it appears that all business schools—both traditional and for-profit—must depend to a large extent on the tuition their programs generate. Certainly when I was at Johnson, I was directly responsible for ensuring that my programs brought in enough tuition to sustain them.

Interestingly, at Strayer University and JWMI, the organizational structure separates the academic and administrative operations of the school. Ironically, this means that, as the chief academic office rof a for-profit institute, I focus lesson the financial performance of the school than I would as dean of a traditional institution.

Whether they call it a profit a surplus, or a “net positive cash flow from operations,” all business schools are working hard to generate tuition revenue in excess of expenses. These extra funds will not simply sustain them, but will allow them to pursue new opportunities and make strategic investments.

Vive la Différence!

If these are two important commonalities between the traditional and for-profit business school settings what are the important differences?

The analogy that comes to my mind is the airline industry. Before deregulation, airlines could assemble a portfolio of routes and services and set rates that would cover all their costs. Of course, that meant passengers on some popular routes were essentially subsidizing routes that were less popular or more expensive to service. But deregulation allowed competitors to effectively unbundle the complex portfolios of the established giants and eroded the incentives for cross-subsidizing.

Similarly, traditional business schools include two main activities for which the costs have to be covered: teaching and research. Faculty-led research is an integral part of the mission for most traditional schools. Although traditional schools’ financial statements rarely specify all of the direct and indirect costs of faculty research, it’s clear that the activity is an expensive one that occupies a significant portion of faculty time. While some professors generate external funding for research, the majority of the cost of their research is covered by tuition collected from students. This dedication to research makes most traditional universities faculty-centric organizations, where research activities are cross-subsidized by students’ tuition fees.

By contrast, for-profits are learner-centric. They have “unbundled” teaching and research ini-tiatives to focus on their primary mission, which is teaching students.

Both the research mission and the teaching mission have value. One way traditional universities earn academic esteem is by their faculty creat-ing new knowledge and devising new theories. The primary way for-profi schools earn esteem is by pursuing excellence and gaining new insights in teaching the practice of management. For example, at JWMI, the curriculum is infused with the experience of Jack Welch and the knowledge of other business leaders.

There are two reasons I fin the for-profit setting to be excitin and compelling. First, by being learner-centric, for-profit school can be more nimble as they design new programs and adapt existing programs to meet the evolving needs of managers in a changing global workplace. Second, by uncoupling research subsidies from program fees, for-profit insttutions can offer more affordable tuition to participants.

A Scorecard to  Tell the Players Apart?

Despite the differences between the two types of institutions, for-profitand traditional business schools are starting to see their models converge. Both kinds of schools are seeking to grow their tuition revenue base to fuel strategic plans and adopt innovative technology that will enhance accessibility.

The inevitable outcome of this trend will be to provide learners with more choices, more formats, and more opportunities to identify the path or program best suited to their needs. It isn’t clear what fac-tors—such as cost, reputation, and accessibility—will influence students most as they choose among programs. What is clear is that schools must follow that “innovate or die” mandate if they want to remain among the most viable options for students seeking busi-ness education.

I’ll add another warning: Differ-entiate or wither. I predict that, in a space that will be defined by providing choice, the new touchstones for a successful business school will be agility and relevance. That’s why I moved to a setting that embraces those characteristics—a setting that I believe will be increasingly com-pelling for the future of management education.

Traditional Versus Online Education

Why are traditional business schools facing such stiff competition from online and for-profit providers? Maybe becaus brick-and-mortar schools have been slow to create the kinds of anywhere-anytime learning environments that the alternative providers have been so adept at devising. At least that’s the tale told by data from the Knowledge Services division of AACSB International.

In the past ten years, the number of online programs offered by AACSB member schools has gone up by more than 11 times—but since the earlier num-bers were miniscule, those gains aren’t particularly impressive. In the 2001–2002 school year, across all educational levels, 0.3 percent of business programs were offered online; in 2010–2011, that number stood at 3.3 percent.

The biggest increases have been in master’s degree programs—not surprising, given the growing number of executive MBA, global MBA, and fully employed MBA programs that cater to working professionals from international cohorts. In 2001, among specialist master’s programs at AACSB schools, only 0.6 percent were offered online. Ten years later, that number was 3.3 percent. In generalized master’s programs, the numbers rose from 0.5 per-cent to 3 percent.

Some traditional schools are figh-ing hard to make their marks in the virtual world. For instance, several prestigious schools, such as Duke University and Indiana University in the U.S. and IE in Spain, offer MBA pro-grams that have only limited residential requirements; most of the content is delivered online.

Even so, the digital space is largely owned by for-profit providers suh as the University of Phoenix and Kaplan University. For instance, total enrollment in the University of Phoenix-Online was 115,053 in 2010—which was a huge leap from its 2000 number of 11,908. (Figures were supplied by the National Center for Education Statistics using its Integrated Postsecondary Education Data System.)

The data suggest that, when it comes to digital delivery of business education, traditional business schools aren’t just facing tough competition from alternative providers. At the moment, they’re barely in the game.

 

In June, Daniel Szpiro took his post  as dean of the Jack Welch Management Institute at Strayer University in  Herndon, Virginia.