We Need to Rethink ... Everything

Six powerful forces that are reshaping business  will also transform business education.  And we’re not ready.

“Oh, and one more thing,” intoned Apple CEO Tim Cook, using the line Steve Jobs had uttered so often to make a surprise product announcement at the end of a presentation to the Apple faithful. “We’ve decided to launch an MBA program. We call it the iMBA, and it’s going to be insanely great. Through an app on your iPad or Mac, you can join a global learning community from anywhere in the world, 24 hours a day. Your professors will be the best in the world, handpicked from the top universities. You can assemble your own playlist of courses and only pay for the lectures you watch. It’s just like iTunes: Why pay for the whole album if all you want is one great song?

“Obviously, we will share some of the revenue with the universities, just as we do with record companies, movie studios, and book publishers. Everything you need is in the app—video lectures, inter-active exercises, and live chats with your classmates. And if you need extra help, just come to the Genius Bar in your local Apple Store and get free personal tutoring—if you’ve signed up for the optional tutoring plan, of course.”

Apple’s move had been anticipated ever since its archrival had launched the GoogleMBA. “We just realized one day we had all the ingredients,” CEO Larry Page had explained. “Great content on YouTube, vast library catalogs and access to academic papers through GoogleBooks and GoogleScholar, tools for distributed collaboration via GoogleDocs, live communication through gtalk, a tool for organizing networks called Google+, and most important, an algorithm to figure out what students find most useful.”

To many, this was the most revolutionary aspect of the GoogleMBA. Since the firm tracked how students navigate through the available material, the MBA dynamically adapted—giving more prominence to video lectures that had received more visits, for example, and proposing follow-up exercises based on where previous users had clicked most often. This way, the more students joined the program, the better the experience became.

Business schools had competed hard to have their faculty placed high on Google’s lists, hoping this would entice viewers to enroll in their traditional programs. But fewer and fewer did. Because what really made the GoogleMBA a game changer was the fact that it was completely free.

This is usually when I wake up. What a terrible nightmare! Here is an inconvenient truth, though: For just about anybody outside the narrow circle of business school deans, MBA directors, business faculty, staff, and supporting organizations that comprise our ecosystem, this scenario is incredibly exciting. As consumers, we have all benefited tremendously from Google and Apple innovations, including their transformation of entire value chains. But the notion that they also could transform the business education industry is terrifying, at least to us.

Here’s the good news for those of us in business education: To my knowledge, neither Apple nor Google is planning to launch an MBA. And the bad news? Just because they won’t doesn’t mean we can sit on our hands.

Possibly the most powerful voice forecasting change in education is Clayton Christensen. In his book Disrupting Class, he predicts that technology will radically transform how education is delivered. But that’s only one of the factors poised to reshape higher education. Others are equally sweeping: global debt, demographic change, rapid urbanization, natural resource constraints, and the geographic shift of economic power.

No doubt these agents of macro change will restructure the opportunities for businesses over the next decade. But they have similarly broad implications for manage-ment education. I believe that each driver of change has the potential to cripple schools and programs—and the equal potential to bring about renewal, transformation, and new value creation.

Global Debt

Over the past decade, private and public debt has exploded around the developed world. Some scary statistics are provided in a report from the McKinsey Global Institute, “Debt and deleveraging: The global credit bubble and its economic consequences” by Charles Roxburgh and co-authors. In the U.S., for example, public debt has more than tripled since 2002; in Japan, public debt per capita stands at a shocking US$87,600. In 2011, combined private and public debt in Japan and the U.K. had reached more than four times annual GDP. Overall debt levels averaged between 300 percent and 350 percent of GDP in Spain, South Korea, Switzerland, France, Italy, and the U.S.

While debt has ballooned, average tuition at top universities and business schools has grown between two and three times faster than inflation. An MBA no longer costs the equivalent of a midsize family sedan; increasingly, it’s a top-of-the-line sports car. And who can afford it? Governments are cutting back financial support for universities, banks are shrinking their student loan portfolios, and corporations are slashing their financial support for employees’ business studies.

Even leaving aside questions about whether we are pricing our programs beyond the reach of most of the population, the simultaneous increase of debt and tuition signifies a brewing storm Of the ten countries that produce the most GMAT test takers, eight of them are considered heavily indebted by The Economist, which tracks them on a “Global Debt Clock” (see www.economist.com/content/global_debt_clock). These include the United States, Canada, South Korea, France, Germany, Taiwan, Japan, and Israel. Of GMAT’s top ten countries, only China and India are considered to have low debt levels.

If business schools want to keep tuition levels high during this time of widespread indebtedness and shrinking third-party financing they will have to create innovative financing schemes. At the same time, they will have to compete with more affordable forms of management education, such as the myriads of online offerings that have sprung up in the past decade. Therefore, business schools will need to devote considerable time to thinking about how—and how much—students will pay for a business education in the coming years.

Emerging Markets

A defining feature of the early 21stcentury is the progressive shift of economic power from North to South and from West to East, and the global financial crisis has vastly accelerated the trend. Emerging markets generally have weathered the recent storms much better, and their young and expanding populations ensure that their weight in the world economy will only grow.

These nations already have made remarkable gains. The Economist estimates that developing countries and emerging markets, which until 1999 accounted for barely more than 30 percent of world imports, now surpass developed countries in this category (www.economist.com/blogs/dailychart/2011/12/world-trade). China, which is the world’s second largest economy, will become  No. 1 before the end of the decade, and India is expected to relegate the U.S. to third place by 2050.

By 2030, when today’s MBA graduates should reach the zenith of their influence, the combined GD of Brazil, Russia, India, and China will be greater than that of the G-7. That club of rich Western economies plus Japan has dominated the global economy since the great-great grandparents of our current students graduated—but that will change.

Most business schools remain ill-prepared for this tectonic shift. Few of our classrooms adequately reflect the growing economic cloud of emerging markets. Sure, in many U.S. and European schools, Chinese and Indian students are well represented—but they are heavily outnumbered by their Western counterparts. And few Western classrooms are acclimated for the participation of students from other dynamic markets such as Ghana, Turkey, Vietnam, and Colombia. But Western schools aren’t the only ones needing to adapt. While there are outstanding business schools in Mexico, Brazil, India, and China, most have failed to attract students from around the world.

As more students from emerging economies enroll in business courses, schools will have to respond with three key strategies:

More alliances. Collaboration among schools is the best way to ensure students from developed and emerging nations are exposed to each others’ economies. For instance, the Global Network for Advanced Management (advanced management.net), which was initiated by the Yale School of Management, brings together 21 leading business schools from developed and emerging markets. Similarly, the Global Business School Network (www.gbsnonline.org) creates networking and capacity-building opportunities for member schools in Western and developing nations.

Shorter and more part-time programs. The two-year full-time MBA model is rapidly losing appeal, as Rebecca Knight observes in a February Financial Times article called “The difference a year makes.” Many students in emerging markets prefer part-time or one-year programs because taking prolonged time off from work carries a high opportunity cost. While business schools in Canada, Europe, and Asia have embraced one-year MBAs, U.S. schools have not, partly because they’re constrained by their faculty and alumni donors. But all business schools must take a quantum leap in program design if they want to bring together part-time students from multiple markets. Affordable solutions almost certainly will involve a significantly greater use of technology.

Redesigned course content. By 2020, Chinese financial markets are projected to be larger than America’s, yet a Western perspective still dominates our finance courses. In many emerging markets, families control most firms and th largest industrial conglomerates. However, in the West we generally teach management from the perspective of publicly traded firms an large institutional investors focused on maximizing shareholder value. Finally, emerging markets have a much different relationship with government than Western economies. It is either more present, as in state-led capitalist markets like China and Singapore, or conspicuously absent, as it is across Africa or in much of rural India.

To remain relevant, our pro-grams must imbue in participants a keen awareness of the social, political, and cultural context of business; how that context varies across a more diverse set of major markets; and how to manage resulting challenges.

Constrained  Natural Resources

Sustainability used to be the exclusive concern of environmentalists. No longer. Rising costs, governmental regulations, and consumer awareness of environmental issues are forcing managers to reduce the raw materials, energy, and water they consume in business operations.

To prepare managers for this new reality, we can’t simply offer a single course on corporate social responsibility while leaving the rest of the curriculum unchanged. Rather, we must weave sustainability into multiple core courses, from product design and supply chain management to strategy, marketing, communication, and environmental accounting.

Plenty of observers are tracking our progress. For instance, author Giselle Weybrecht published The Sustainable MBA: The Manager’s Guide to Green Business in 2010, and every other year, the Aspen Institute releases the Beyond Grey Pin-stripes report, which ranks schools by their commitment to social and environmental sustainability.

But in addition to teaching sustainability, we must become greener in our operations. Many new landmark business schools are pursuing LEED certification, which rates buildings on their sustainable design features. Other schools are conserving natural resources by switching to all digital documentation. For example, IE Business School expects this year’s introduction of digital documentation to save up to 17 million sheets of paper per year, the equivalent of about 300 trees.

Besides paper, lighting, and heating, there is a significant aspect of business schools’ environmental footprint we often fail to appreciate: travel. When IE conducted an environmental audit of its MBA program, it found that the lion’s share of environmental impact stemmed from students’ travel to and from campus.

The problem is even worse in executive programs. A March 2011 feature on Poets & Quants  (poetsandquants.com) is fittingly titled “Clooney Has Nothing On These MBA Warriors.” Author Andrea Carter describes a student who flies from Seoul to San Francisco every other weekend to attend Wharton’s Executive MBA program while another flies from Dubai to Chicago with the same frequency to be a part of the Kellogg program at Northwestern. IE had a student who flew in for-nightly from New Delhi.

While these “MBA Air Warriors” may be the exception, there is a clear trend of leading business schools launching programs with modules scattered around the globe to expose students to business dynamics in pivotal markets. One particularly ambitious pro-gram takes students to ten cities on four continents. I did a small calculation. To participate in this program, a London-based student would rack up air miles resulting in 9.7 tons of CO2 emissions—almost the entire annual per capita emissions of a European and five times the annual emissions of an Indian. Are we hypocritical if we fly students from around the world to Brazil for a module on the economics of rainforest conservation?

Recently, I was struck by an ad in The Economist in which the Wharton School proudly declared that participants fly a total of 3.8 million miles a year to attend its executive education programs in Philadelphia. Offsetting these emissions would require about 88,000 mature trees.

Companies are using technologies to reduce business travel so that they can save money, minimize staff time away from the office, an lessen their environmental impact. There are many reasons why business schools should embrace technology even more, and adjusting to a resource-constrained world is certainly one of them.

Widespread Urbanization

In 2011, humanity passed a mile-stone: For the first time in the hi-tory of our species, more than half of us lived in cities. Rapid urbanization, particularly in developing countries, drives much of the previously discussed economic growth in emerging nations. It’s also an important reason for the environmental challenges described above.

Impressive statistics illustrate the magnitude of change. Between now and 2030, 400 million Chinese will move to cities, which means that the country will have 225 cities of more than a million people. By comparison, Western Europe today has 11 such cities. One often cited statistic is that China will have 20 cities of more than 20 million citizens by 2020. Similarly, India will add 215 million city dwellers by 2030, more than the entire population of Brazil. The biggest urbanization push will happen in Africa, however, with Abidjan, Nairobi, Dares Salaam, and Luanda all expected to surpass the 10 million mark by 2025, joining existing megacities such as Cairo, Lagos, and Kinshasa.

Historically, urbanization has been good news for higher educa-tion. A greater concentration of people lowers the unit cost of providing services, and a critical mass of students is a prerequisite for universities to flourish. Particularlyfor post-graduate business schools, however, current urbanization trends pose a challenge.

As business activity gravitates toward global hubs, schools located in or near these leading cities will have privileged access to companies, information, and recruits. But what about the rest? Will schools in Charlottesville, Cranfield, Hanove, and New Haven be at a disadvantage when it comes to competing with their peers in Singapore, London, Shanghai, and New York? How will schools in São Paulo, Cairo, and Jakarta leverage their vibrant localities?

In a recent editorial, Della Bradshaw of the Financial Times pondered how much location matters for the future of business education. As with everything, though, constraints are a key stimulus of innovation: The Kenan-Flagler Business School at the University of North Carolina in Chapel Hill launched a rigorous online MBA program so it could serve talented students far beyond Raleigh. Other schools need to con-sider their own creative solutions.

Aging Populations

We now have seven billion people on our planet—and many of them are old. In 2005, the average age of our population was 28.1 years. By 2050, it will be 37.8, and in the most developed countries it will have surpassed 45 years. Societies in Japan and Southern Europe are aging so fast their populations are shrinking. Meanwhile, much of Africa and Asia will continue to see population growth.

Widespread aging has implications for the distribution of purchasing power, the viability of current welfare state models, and the availability of qualified human capital, among other issues. This makes me wonder why demographics isn’t a mandatory MBA course.

By now, most business schools have embraced the idea of enroll-ing 30-to-40-year-old managers in specially designed EMBA programs. But what about the growing number of people in their 50s, 60s, or even 70s who embrace new professional challenges after decades of work experience? While GMAC data shows deans are excited about rapid growth in the “pre-experience” segment, the real opportunities may lie with the “ultra-experience” group. I don’t know many schools that have begun to think about how to serve these students, but the potential will become increasingly clear.

Tech Revolution

Technology’s transformative impact on education is undoubtedly pervasive. More business schools are embracing online and blended pro-grams, but they also face stiffer com-petition—from free content providers such as TED and Udacity to fee-based distributors such as Udemy. Harvard and MIT recently announced that they will distribute online courses via their new edX platform, which includes built-in exams and certificates. This maybe the game changer that causes universities to rethink the way they view online learning. Yet if the experience of other industries is any guide, the players whose technology will have the greatest impact on education aren’t even on our radar screens today.

A Cautionary Tale

Jack Welch once warned that when the rate of change outside the organization exceeds the rate of change inside, the end is near. There can be no doubt about the rate of change outside. The question is whether we can boost the rate of change inside business schools.

Let me conclude by describing a 125-year-old organization that is admired for its capacity for innovation. It attracts the world’s best scientists and has preserved a flexible network structure. It is truly intern-tional, with campuses in the U.S., U.K., China, India, Finland, Kenya, and Switzerland. Its brand is globally renowned, yet its operations are always locally anchored. It’s no surprise that the organization controls 46 percent of its market and has reached a market capitalization of US$151 billion.

The organization I just described is Nokia—in January 2008. As of May 2012, Nokia’s market capitalization is US$10.7 billion, a 93 percent drop in just over four years. What went wrong? Nokia felt it had its competition cornered, as it outperformed the likes of Motorola, Samsung, Sony, and LG across many indicators. Yet it didn’t have Apple or Google in its view. When those two entered the mobile phone business, they redefined th value proposition and changed the rules of the game forever.

Will Apple and Google similarly impact the education market, or will disruptive innovation be brought by someone or something we haven’t bothered to consider? In either case, let’s make sure business education doesn’t become the next Nokia. Let’s prepare ourselves for whatever the future holds.

This article is based on a keynote address delivered at the GMAC Leadership Conference in February 2012. At the time, David Bach was dean of programs at IE Business School in Madrid, Spain. He is now senior associate dean for executive MBA and global programs at the Yale School of Management in New Haven, Connecticut.