Feature Article

Bricks and
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.
By Daniel Szpiro September/October 2012

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 settings
— 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 campuses 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 institutions 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 video conferencing 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.

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 nondegree 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 officer of a for-profit institute, I focus less on 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 Difference!

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 initiatives 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 creating new knowledge and devising new theories. The primary way for-profit 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 find the for-profit setting to be exciting and compelling. First, by being learner-centric, for-profit schools 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 institutions can offer more affordable tuition to participants.

A Scorecard to Tell the Players Apart?

Despite the differences between the two types of institutions, for-profit and 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 factors— 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 business education.

I'll add another warning: Differentiate 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 compelling for the future of management education.

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

Open Season

As traditional business schools face increasing competition from forprofit and online providers, they also sometimes look to those providers for ways to revamp their own programs. One of the most successful online management education programs is run by The Open University Business School (OUBS). While headquartered in the U.K., it boasts students from more than 100 countries.

The Open University was founded by royal charter in 1969 with the mission of making university education available to everyone through progressive technology. The Business School was launched in 1983 and the MBA program five years later. Currently, one out of five MBA students in the U.K. studies at OUBS.

In January, Rebecca Taylor took over as dean of OUBS after spending five years as head of economics and one year as associate dean at Nottingham Business School in the U.K. She is also an associate director of the Economic p for the Committee of Heads of University Departments of Economics.

The move to The Open University appealed to her, she says, partly because she was inspired by its mission of making higher education accessible to all—and partly because she relished the challenge of leading one of the biggest business schools in Europe.

Many in the traditional academic community are skeptical about the quality and content of online delivery models. What would you tell them about OUBS?
We believe that OUBS is the only school that specializes in online learning that also has been accredited by AACSB, EQUIS, and AMBA. These hallmarks, and our commitment to delivering exceptional pedagogy, can reassure people about the standard of programs we deliver.

We develop our multidisciplinary courses with teams that include academics, education and media experts, and external assessors. We also offer high-quality support systems, which include financial assistance, tutoring from associate lecturers, access to an online library, and a thriving online community. We also invest in the best technology to support our students wherever they are in the world.

What advantages does OUBS offer over more traditional brick-and-mortar schools?
Our students have a totally different experience from those at traditional universities. We have a flexible model of teaching supported by 40 years of experience in delivering distance learning through cutting-edge technology.

Many of our students are working while they attend school, so they not only learn theory, but also how to put it into practice. This means that their return on investment is immediate. Seventy-one percent of our MBA graduates say that they, their organizations, and their colleagues benefit from the program while they're studying.

Our model allows us to deliver cost effectively and at scale. At OUBS, an MBA costs about 16,000 Euros for U.K. students and 19,000 Euros for overseas students, which in U.S. dollars is approximately 25,000 USD and 29,500 USD, respectively.

In a recent dean's message you mentioned some of your priorities for the coming year, such as boosting OUBS' international presence and strengthening its alumni network. How do you plan to go about these tasks?
The international ambition is not just a priority for the business school, but also for the university, so the strategy is already under way.

The vision for alumni stems from the fact that we have more than 84,000 graduates from our management programs. Our alumni are a great resource for the school as well as each other, so we are continually looking for more ways that we can improve and develop this network. For instance, we plan to launch an alumni program that offers more postgraduate career support.

What specific challenges do you see ahead?
One of our biggest challenges is determining how we can stand out in an increasingly crowded market. It is also vital that we remain relevant to our students and their needs, as well as the needs of businesses.

Traditional business schools have adopted many of the characteristics of online providers, such as digital delivery, shorter programs, and customized education. How will OUBS respond to make sure it stays competitive?
Other higher education providers are looking to our model because more businesses and employees require a flexible approach to management education. This means we need to continue to invest in our programs.

This year, for example, we are launching a new MBA curriculum. Because we wanted to offer a program with maximum flexibility, we reduced the completion time to two-and-a-half years. We also completely revised the elective modules. This allows us to offer a more relevant curriculum that reflects current management themes, such as sustainable creative management. It also enables our students to align their MBAs with their interests and career ambitions.

We also constantly invest in our support services, our technology, our infrastructure, and our people.

In this issue, Daniel Szpiro quotes Peter Drucker, who said that "Thirty years from now, big university campuses will be relics." Do you agree with that prediction?
I agree that the higher education sector is seeing a shift from traditional, classroom- based programs to more flexible programs that can integrate learning into the workplace. This is particularly true for postgraduate qualifications such as the MBA. I think students want the content and the community at their fingertips, and see the tutor or lecturer as the enabler rather than the expert.

If you were choosing a business school program to attend today, what factors would you consider?
Any potential student should investigate the options, because any program comes with a cost investment as well as a time investment.

I would look for quality markers such as accreditation, and I would consider an institution's reputation and level of research. I would find out which schools offered programs that matched my interests and that allowed me to study in a way that worked for me.

Finally, I would find out what the people who study at a school are saying about it. At OUBS, our most passionate advocates are our alumni. In a recent alumni survey, 96 percent said that they would recommend us to employees and colleagues; of these, 83 percent said they had already done so within the past two years. I think that speaks for itself.

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