The Future of Online Business Education

The core question facing the business school leadership in implementing an online delivery strategy is a variation of the classic make-or-buy decision, in this case make or partner.
Illustration of woman sitting on books using laptop

Today’s business community calls for web-savvy, problem-solving graduates. As a result, the business education community is under growing pressure to engage in significant programmatic reforms. In the U.S., this pressure is exacerbated by a decline in MBA enrollments, due in part to skyrocketing prices. Global markets are also scrambling to meet industry’s call for more specific skill sets, such as data analysis. The price point for some of the premium executive MBA programs, for example, is projected to surpass US$200,000 within in the next few years. Accordingly, business schools are increasingly relying on the online learning model as a vehicle to meet these challenges.

Typically, online learning embodies a limited amount of direct interaction with the instructor, with most of the assignments carried out in an asynchronous manner by the student and student teams. This delivery mode provides a platform for introducing active and experiential learning, team collaboration, and crowdsourcing as innovative, knowledge-driven constructs. Recent data suggest that more than 80 percent of educators believe online learning can improve student performance and learning outcomes, and almost 70 percent believe that collaborative networks will assist in identifying best practices in management education. According to Richard Garrett of the consultancy Eduventures, “Around a third of graduate education in America is now online.”

Not surprisingly, given these factors, online and hybrid delivery models not only provide a more dynamic learning environment but can also help assuage the current enrollment challenges by expanding market opportunities. Online delivery provides the university with economies of both scale and scope. For example, new product offerings, like a master of science in analytics, can be rolled out quickly and efficiently using the basic design and delivery of an online template. These specialized programs are becoming increasingly prevalent.

The core question facing the business school leadership in implementing an online delivery strategy is a variation of the classic make-or-buy decision, in this case make or partner. Advantages of internalizing both program development and delivery, to name a couple, are better product control and economic viability (no cost sharing). The upside of partnering, on the other hand, includes minimized startup costs, faster response times, and enhanced global marketing. “While many universities take a do-it-yourself approach,” says Garrett, other, more prominent institutions often enter partnerships with online program managers (OPMs). Currently the “Big 5” OPMs are Pearson, 2U, Wiley, Academic Partnerships, and Bisk. These vendors account for approximately 50 percent of the estimated US$1.2 billion online market and offer a full-service repertoire including course design and rollout, program marketing, and student engagement. There are other OPM vendors that provide a more limited service base, a so-called blended approach in which the institution handles some of the tasks, such as course development.

The basic financial model with most OPMs is to share the revenue stream via a long-term contract, which can last a decade or longer. The OPMs claim that these long-term, high-revenue share contracts are required because they assume most of the costs at the beginning of the partnership. However, some OPMs are now transitioning from a revenue-sharing business model to a fee-for-service model, somewhat like Software as a Service (SaaS) cloud computing. In this approach, the OPM requires an up-front fee for each service provided, like course design, with no long-term revenue-sharing agreement. In general, the fee-for-service model tends to provide the institution with more control, less financial risk, and the potential for improved quality through faculty input.

The economics of employing a full-service OPM can be problematic, at best, because the cost share to the OPM can exceed 50 percent. High student enrollments, which OPMs claim is one of their specialties, are needed to make up for the net low margins per student. At a minimum, the academic institution needs to cover the basic operational cost for delivering the program. To that end, paying instructors a high salary to teach each online sections could be a prescription for financial ruin, especially if enrollments lag.

One possible approach to this problem is to revert to the classic undergraduate model with one lead instructor, who is tenured or on the tenure track, and graduate teaching assistants (TAs), who command fewer resources than full-time faculty. The primary duties of the lead instructor would be to supervise the TAs, create the basic webinars, and assign grades. The TAs would then supervise the class for the remaining assignments, such as homework, term projects, team presentations, and business simulations. Some business schools, without the support of an OPM, are already employing this model. In this scenario, class sizes of more than 100 students are feasible and are very attractive to the school economically. In the not-too-distance future, the TAs may be replaced by robotic tutors, which, among other things, can provide support on a 24/7 basis.

The issue of maintaining accreditation comes into play with the OPM model. For example, to achieve and maintain AACSB accreditation, the institution must align with a set of 15 business standards ranging from mission and strategic management to student engagement. In some scenarios, the OPM provides the course instructors, who may or may not have the academic standing to pass accreditation muster. Also, whereas the primary mission of the institution is to focus on quality, the basic objective of the for-profit OPMs is to satisfy their shareholders.

Admissions standards is another area where conflicts can occur between the institution and the OPM. As indicated earlier, high volumes of enrollment are at the core of the OPM model. But what if the volumes needed to maintain financial viability do not materialize based on the institution’s normal admissions standards? An institution would have a difficult challenge explaining to accrediting organizations why there are two sets of admissions standards—one for online students and another for traditional programs.

Regional marketing represents yet another challenge when taking on an OPM partner. Usually, the OPM avoids contracting with two different institutions that offer the same set of products, such as an MBA, in the same general area. A school that wants to partner with a specific OPM probably should sign the contract earlier rather than later or risk losing out to local competitors. However, these marketing issues are more complex. Suppose the OPM has two institutions under contract—one in a large urban area on the U.S. East Coast and the other on the West Coast. Furthermore, suppose the institution on the West Coast has a large alumni base on the East Coast who are prepared to assist in the student recruiting process. How does this dilemma get sorted out, and by whom?

Looking forward, the direction of online graduate management education is to go global, which could result in considerable market overlap among the various OPMs’ customers. Furthermore, some academic institutions have contracts with multiple OPMs at the same time, which can exacerbate institutional control and inefficiencies.

Online learning, with and without OPMs, is decidedly the future of management education. It offers a global experience, engaging students from various parts of the world with different backgrounds and customs, and a dynamic learning environment, which is better aligned with the actual needs of the business universe. To that end, when considering programmatic reforms, the primary goal throughout the management education community should be to develop students with generalized problem-solving skills and learning agility that can easily transfer to the employment marketplace.

No one knows where the online learning model will be in five to ten years, often the contract length for many OPMs; therefore, caution must be a fundamental guideline in developing a long-term, fixed relationship with an OPM.

Owen P. Hall, Jr., Corwin D. Denney Academic Chair, Pepperdine University’s Graziado School of Business and ManagementOwen P. Hall, Jr. holds the Corwin D. Denney Academic Chair and is a professor of decision sciences at Pepperdine University’s Graziado School of Business and Management. He is a Julian Virtue Professor and a Rothschild Applied Research Fellow.