In a remarkably shoddy example of anti-market propaganda emanating from the Nottingham Business School, the Economist runs a screed that starts out with the debatable but reasonable premise that business leaders exaggerate their omniscience. It somehow ends up with the unsupported conclusion that business schools should abandon economics, finance, and the pursuit of profit for the cant trio of “sustainability,” “social responsibility,” and “leadership for all not for the few.”
The crude equivocating shifts from intellectual humility to moral humility to altruism would qualify for an F in any class on composition, much less philosophy. The vague assertions about “business excess” (entirely unsupported or even defined), the implicit attribution of these excesses to the teachings of business schools (ditto), and the wild leap at the end (replacing business school education with an agora-like setting in which sophists mingle with scientists and philosophers with philistines to figure out what are “social needs”), all conduce to a massive loss of reader brain cells per sentence. This article might be useful as a sort of mine detector–anyone who finds it congenial is best separated from responsibility for educating or commenting on business or economic issues.
This is sobering: The looming student loan bubble – Almost half of all student borrowers were not making payments. 1 out of 4 in debt repayment past due on student debt.: “The looming student loan bubble – Almost half of all student borrowers were not making payments. 1 out of 4 in debt repayment past due on student debt.”
By now, you may be getting sick of reading articles and blog posts about the crisis in higher education. This post is different. It proposes an explanation of why students have been willing to pay more and more for undergraduate and professional degrees at the same time that these degrees are becoming both less scarce and more dumbed down. And that explanation rests on a simple and plausible economic hypothesis.
If you want to see just where the MBA business may soon be heading, read this – just in from Balkinization (HT: Instapundit): The Law School Crunch Is Here–Finances and Quality to Suffer. New numbers released by LSAC show applicants to law school for 2012 are down in every region of the US vs. previous year, with the majority experiencing drops of 15%-20%. Enrollment is also dropping – 2012 may see the lowest enrollments since the 1990s (from 52,000 enrolled in accredited programs two years ago to a possible 43,000 this year). With such a precipitous enrollment drop comes low quality students and severe financial difficulties. The bad news is that even at these low numbers, the number of graduates far outstrips the number of available jobs. Tamanaha estimates the equilibrium number of first year enrollments to be around 35,000. The good news is hard to find.
The law school industry appears to lead its b-school counterpart by a few years. Many of the trends affecting law schools – the most salient being the discouraging cost/benefit ratio facing prospective students – are also affecting graduate business schools. The lag between the two may be due to the fact that, for law schools, the immediate value of a law degree is much more transparent. One cannot be a lawyer without a law degree and the only purpose in having a law degree is to become a lawyer. When the bottom falls out of the market for lawyers, one would expect it to fall out of the market for law education in short order. Since MBAs are, ostensibly, useful in any business endeavor, the connection between the education and practitioner markets is less obvious.
That said, business schools face other challenges. For example, law schools still provide an important certification function and, as such, have presumably retained a requisite level of educational content. This maintains their position as a necessary link in the professional chain. Business school educational content, on the other hand, has been on a downward glide path ever since the advent of Business Week surveys in the late 80s (and the Northwestern response innovation to treat students as “customers”). With no objective certification requirement, b-schools have been free to dumb down the education, admit large numbers of questionably-qualified-but-able-to-write-a-check students, and increase activities that have little to do with learning (e.g., social networking). Simultaneously, we see the stirrings of competition from untraditional sources, such as high quality schools in Europe, China and India (previously a growth segment of the domestic MBA education market), free online courses from top schools such as MIT and Stanford, and alternative forms of education (such as E[enstitute]‘s apprenticeship approach). These differences suggest that the bottom, when we hit it, may be worse than that for law schools.
During a discussion of these developments the other day, a young colleague objected to (what he interpreted as) my Cassandra-like apocalypticism on this topic. The objection was misplaced. I do believe the market for MBAs is going to get a lot tougher in the near- to mid-term – perhaps catastrophically so for programs outside the first tier. In the long-term, however, the turbulence is going to force our institutions … wait, I mean us, the faculties … to revise our business and educational models to compete effectively. The reason to start thinking about the bad-news scenarios now is to prepare. So, when the crunch comes, clear-thinking colleagues can step up to implement successful responses. In my judgment, the market for business education is going to become much more fragmented and diversified. This strikes me as a good thing, with one winning strategy being to take the research-education link and its attending certification role seriously once again. And, that, in my opinion, would be a wonderful development.
This is the answer to those who think we will keep our research-based MBAs above water by making the curriculum more “relevant in the real world” … by which people seem to mean sacrificing academic content for: external projects with business sponsors, “living” case studies, 1st summer internships, support services for personal grooming, etc. As I have long argued, research faculty are not efficient providers of substitute “real world” experiences.
Apropos this discussion, last week, E[nstitute] launched in NYC by founders Kane Sarhan and Shaila Ittycheria. The idea is to pick up promising candidates with a high school diploma and put them through a two-year apprenticeship program mentored by some of NYC’s top entrepreneurs. Impressive.
And, it isn’t just business schools this program threatens — in a recent article, Brad Mcarty, editor at Insider points out, “… the average public university (in the US) will set you back nearly $80,000 for a 4-year program. And a private school will cost in excess of $150,000. At the end of that time, you have a bellybutton,” he writes. “Oh sure, you might have a piece of paper that says you have a Bachelor of Science or Art degree but what you actually have is something that has become so ubiquitous that it’s really not worth much more than the lint inside your own navel.”
That’s strong stuff and, sadly, uncomfortably close to the truth. Moreover, it speaks to strong potential demand for apprenticeship-style entrepreneurship programs like the one mentioned above. Personally, I think it’s terrific. The existence of programs like this create more value at the society level. From the b-school foxhole, they also force research-based MBA providers to think more carefully about what, if any, comparative advantage we have vis the many non-traditional competitors we now see invading our industry.
Hint: the answer will have to involve our research. This is what we do. And, contrary to the whining and hand-wringing of so many traditional MBA providers, teaching young people cutting-edge general principles (i.e., research-based knowledge) has substantial market value. We just stopped doing it a couple of decades ago.
Many of you will have heard by now that Kodak is likely to file for Chapter 11 bankruptcy sometime soon. Their present strategy appears to be to wind down the business by selling off many of their patents. I guess my main surprise upon seeing them back in the news was that they were still in business. Apparently, it takes an extended period for these behemoths to fold for good.
The source of my surprise was the fact that I used to teach Kodak managers in both the executive and part-time MBA programs at the Simon School in Rochester, the home of Kodak’s headquarters. Just to be clear, these men and women were great students … bright, curious, open-minded, and typically well-trained. My purpose here is not to jump on the current bandwagon and blame Kodak’s present troubles on the stupid, selfish, rapacious tendencies of its 1%-er senior managers. Quite the opposite. Rather, I’d like to question what role, if any, the things they learned in b-school strategy classes played in the formation of, ultimately, misguided business plans.
Harking back to the late 90s, when I was teaching EMBA classes that were populated with about 1/3 senior managers from Kodak, I vividly remember initiating class discussions about the disruption digital technology was going to have on Kodak’s legacy business. Unlike the automobile manufacturers of the 70s, who really missed the significance of Japanese competition, Kodak managers fully understood that the new digital technologies were going to change their industry forever. Sure, there was a lot of uncertainty about the speed and path by which transformation would occur. But, it wasn’t the case that these smart people didn’t see it coming. They got it. And they were optimistic and dedicated, in my experience to a person, to implementing strategies that would permit Kodak to successfully ride the new technological wave.
Why were they so optimistic? When challenged to discuss it in class, they proudly explained that Kodak’s “core competency” was “color”. The reasoning went something like, “We understand color and its application to photography better than any other firm. This knowledge will be as important for success in digital applications as it was in analog film. Therefore, we are wonderfully positioned for whatever challenges the market presents.” The problem, from my perspective was two-fold: a) the thinking did not seem to go much deeper than this; and, b) the strategy literature did not have much to offer to help them think deeper than this.
Many have complained that the RBV, which is the source of this core-competency thinking, is a tautology: core competencies are unique resources that cause a firm to persistently outperform its peers; all firms that persistently outperform their peers have core competencies. I don’t agree with this complaint. Indeed, my sense that the pioneers of the RBV were on to something substantially influenced my desire to study strategy. That said, the “theory” underlying the RBV doesn’t go much more than one step beyond the tautology. And, much of where it goes is wrong (e.g., having resources that are inimitable is neither necessary nor sufficient for persistent performance advantage).
So, my energetic, smart, dedicated EMBA students, when presented with a strategy theory that was frustratingly close to a tautology, developed a strategic conceptualization of their firm that was – not surprisingly – frustratingly close to one as well. At the end of the day, it seemed to be an article of faith among my students that “knowledge resources about color” were going to save the day. (As we are all only too aware, smart people are masters at locking onto a favored idea and finding all kinds of arguments to support it.) As a teacher, it was incredibly difficult to push them deeper into a critical analysis of how, specifically, this “color know-how” was going to be their lifeline. New competitors, new product distribution channels, radical changes to how photographs are shared and consumed? No problem — we know color!
Part of my teaching frustration, which became part of my research motivation, was that the extant literature did not offer much in the way of tools to help these folks think about such issues in a complete, consistent, and efficacious way. Worse, in my judgement, teaching those folks a shallow set of ideas actually facilitated their transition into a dangerous state of groupthink. Holding up a piece of tautological thinking as the pinnacle of scholarly theory doesn’t exactly encourage students to think beyond tautology.
Our field has more than its share of interesting conjectures (i.e., informally generated speculations). What we need now are more scholars who are willing to roll up their sleeves and dig into the details. And patience. Lots of patience.
Lots of talk about education being disrupted (here are some previous links). Here are a few links:
- How Online Innovators Are Disrupting Education
- Technology Cannot Disrupt Education from the Top Down
- Why Online Education is Ready for Disruption, Now
- More on MITx at Wired
- Chronicle on Disrupting College, Clay Christensen et al on Disrupting College
Here’s some info from a year in EdTech Trends:
Million Dollar Moments
Yes, we saw big M&A deals this year: Pearson plunked down $230 million for Schoolnet and another $400 million for Connections Education. Permira Fund wrestled PlatoLearning for the privilege of paying $455 million for RenaissanceLearning. ePals debuted on the Toronto exchange. Edtech M&A activity was north of $1.6 billion this year.
Here are a dozen top edtech investments this past year:
- $33M Knewton
- $32.5M 2tor
- $30M Kno
- $20M CampusBookRentals
- $17M Inkling
- $17M Zeebo
- $13M Edmodo
- $11M Dreambox
- $10M ConnectEDU
- $10M MyEDU
- $8M Instructure
- $7M Grockit
Here it is: MIT Announces Platform for Free Online Courses
MIT is planning to launch an open platform for free online classes, complete with certification for those who demonstrate mastery of their topics.
The key part of that sentence is the, “complete with certification” bit. I have to admit, that came faster than even I expected. As many who read this site will know, MIT has been running the OpenCourseWare site for 10 years which, according to this article, boasts 2,100 courses and has been used by 100 million people. Offering actual courses with instructor interaction and evaluation is new.
In related news, my good friend Scott Page (Leonid Hurwicz Professor of Complex Systems at Michigan) is going to teach a free online course on modeling in January that presently has over 10,000 people signed up. I understand the free online course in Technology Entrepreneurship being offered in Jan. by Stanford’s Chuck Eesley beats that by a factor of 3+. A couple of days ago, I commented to a colleague, “Well, when they figure out how to add the certification function, we’re in trouble.”
It is now official: we’re in trouble. In case it is not obvious, let me explain why. This technology removes a significant number of capacity constraints. Now, basically every student interested in, e.g., technology entrepreneurship can sign up for a course offered by one of the best researchers and most outstanding teachers at one of the world’s the top business schools … and obtain evidence of having completed it satisfactorily. Admittedly, the certification is not, for the moment, what it needs to be. For example, my guess is that verification of who is actually being assessed is not airtight. However, this technology will certainly evolve. At that point, why does Stanford need an admissions policy? Just let everyone who wants to take a shot at learning enroll and, then, let the chips fall where they may. Let’s face it, admissions procedures are notoriously inaccurate anyway.
Here’s a prediction about what will happen in the near future. With places like Stanford and MIT racking up tens of thousands of students for their free online courses, top-tier wannabes will have to follow suit. I can pretty much guarantee that sometime soon your dean will figure out that having thousands of students enrolled in your free online courses will be a necessary component of marketing the bricks-and-mortar program. The fear will be that schools that don’t offer such programs won’t be taken seriously. And, ultimately, I think, that fear will be well-founded. Also, given the fact that every university enjoys government subsidies of some kind or another, there will be major political pressure to provide the social good of low-cost, open access courses.
Then, eventually, the marketing device will actually become the core educational product. What will that wold be like? Will we see Stanford or HBS or Chicago become the Amazon.com of MBA education? At p = 0 pricing, does everyone but a few super-programs go out of business? If so, would that have the perverse effect of turning university-based b-schools into pure, state-supported research institutions?
Folks have long argued whether MBA education is more about learning things versus providing aspiring business managers with a signaling device (see, e.g., Ezra Zuckerman’s comments to my related post over at orgtheory.net) . If I had to make a conjecture, at least for the medium-term, I believe that the online course technology is going to make the split between the signaling and actual learning functions more pronounced. The bricks-and-mortar programs will be all about signaling and the online courses will be mostly about learning content. In their refined role, the bricks-and-mortar MBA will continue to be pricey and even more about being accepted into one’s aspirational social network, much like the private mens clubs of the 18th and 19th centuries. At the same time, those who are interested in learning graduate-level business content will be able to do so at relatively little cost online (though, this too will serve as a signal in its own right and may even be a requirement to admission to the social club, er, full-time MBA program).
What happens in the long-run is less obvious. After all, once the local, full-time MBA experience becomes pure signaling and social networking, it will face numerous substitutes. After all, there are lots of ways to burn money … and bona fide social clubs still exist. What then?
Finally, there is the question of what happens to the business research community? While I can easily imagine a superstars market evolving, in which the Scott Pages and Chuck Eesleys of the world educate a massive share of the market, I also see an educational role for those doing relevant, state-of-the-art research. Those of us who manage to establish international research reputations are, almost by definition, in possession of scarce, valuable knowledge. Therefore, I am reasonably optimistic that most of us will continue to make a living doing some facsimile of our present jobs. Whether richer or leaner, I can’t say — the monetization model of the future is opaque.
A list of miscellaneous links:
- John Cavanaugh, Chancellor of the Penn State system, has an interesting piece on accreditation in an era of open resources.
- David Warsh on how business schools got to be the way they are.
- Will your college survive?
- Higher education bubble wikipedia entry with lots of links.
- MIT’s new online initiative, MITx.
- The Economist on the university challenge.
Another class to add to the mix (here’s the previous post) — Chuck Eesley is teaching a free online Technology Entrepreneurship class. I exchanged emails with Chuck and a mere 33,000 people have signed up for the course. So far.
Here is the headline from Financial Times editor Della Bradshaw: From the editor: Trouble at the top. “A spate of deans’ departures raises questions about the way they were appointed,” writes Bradshaw. The examples given in the article are the short tenures of Robin Buchanan at LBS, John Wells at IMD, and Frank Brown at Insead. The basic gist of the article is that these examples illustrate bad governance practices at non-university-based schools. What’s bad? Well, according to Ms. Bradshaw, too much faculty involvement in the Dean selection process.
Of course, most US and UK university-based business schools follow a straightforward system in which the president (US) or vice-chancellor (UK) appoints the dean of the business school based on recommendations from a search committee or firm. Presidents hire and only presidents can fire.
But, at non-university schools, faculty meddling is allowed to a shocking degree …
It is hard to imagine any other organisation – commercial or academic – allowing the workers to effectively decide who will be their new boss. When the FT is next looking for an editor, will jobbing journalists be asked to vote?
Can you imagine?!
I’m not quite sure where to begin with this. But, let me try. First, Bradshaw cites no evidence that these short tenures were bad outcomes. Rather, they may be the kind of flexible, timely, and appropriate decisions that schools should make upon learning that the new Dean is a dud. Managing a research-based business school is a tricky endeavor. On the one hand, a Dean needs to have the management chops to run an organization constrained (yes, constrained) by insanely dense complementarities between policy variables. On the other hand, he or she also needs to understand the research world, both in order to construct a sensible educational vision as well as to manage faculty resources. The problem is that each of these skill sets typically takes a career to develop and, hence, are rarely co-occurrent in a single individual. Perhaps we should be surprised that the rate of Dean turnover isn’t higher.
Second, it appears that Ms. Bradshaw has never heard of a governance form called the “partnership.” Traditionally, faculty have been run along the lines of a partnership, much the same as in law firms and consulting practices … and for most of the same reasons (aligning decision rights with inherently decentralized information and creating effective incentives). True, the partnership model for b-school governance has been greatly degraded in recent years. In its place, we now have the corporate-style administration. This modern administrative form — untethered from from faculty oversight — is, in the parlance of our times, a bug and not feature. Treating faculty as mere “workers” (or, worse, as a frustrating “problem” to be sidestepped whenever possible) results in misaligned decision rights and incentives, which then contribute to undesirable behaviors like: the mindless chasing of rankings put out by popular business periodicals; expanding capacity to what may be an unsustainable level; the dumbing down of graduate business education; and, a shocking rate of tuition inflation. This is why, whenever I hear university administrators refer to themselves as “The Senior Management Team” (typically, embedded within some self-congratulatory announcement), it really makes my skin crawl.
By the way, in terms of her own experience, Ms. Bradshaw was an English teacher before joining the FT, where she has served as a journalist for the past 20 years. As far as I can ascertain, her experience includes neither scholarly research nor business unit management. She has been involved in the FT rankings since their inception in the 1990s. Think on that.
The NYT on The Dwindling Power of a College Degree (HT: Glen Reynolds). Up to the 1970s, less than 11% of the population graduated from college … and most of those had good jobs. “Today nearly a third have college degrees, and a higher percentage of them graduated from nonelite schools. A bachelor’s degree on its own no longer conveys intelligence and capability.”
This statement requires some refinement. According to the BLS, the median weekly earnings in 2010 for those holding a bachelor’s degree was $1038, versus $626 for those with only a high school diploma. The respective unemployment rates were 5.4% versus 10.3%. Professional degrees, like MBAs, performed even better: median weekly earning of $1,610 and an unemployment rate of 2.4%. On the surface, college still looks like a good deal and an MBA even better.
Unfortunately, these aggregate statistics do not tell the whole story. First, the discrepancy in outcomes for degrees that require math versus those that do not is enormous (e.g., $98k for Math & Computer Science vs. $29k for Counseling Psychology). Second, the statistics do not distinguish between recent versus long-time grads. Last, and most important, they do not account for cost. From 1978 to 2008, the inflation rate for college tuition was 3x that for the general cost of living. At this point, it is not hard to show that, for the low-paying humanities degrees at least, college is now a bad deal.
The analysis in the NYT article is vague but appears to suggest that a weakening of unions and a less progressive income tax schedule are somehow responsible for growing income inequality, a consequence of which is somehow bad employment outcomes for college grads. My own view is that greedy university administrators (lolz) opened the floodgates to anyone who could write them a tuition check and pressured faculty to dumb down the curricula to accommodate them. Add easily available, government subsidized loans and, not too surprisingly, tuition rates exploded. Low quality, high priced education is the result.
As I have suggested here and elsewhere, the trends in MBA education parallel these developments. Today, the content of a typical MBA curriculum has a lot more in common with a Social Work degree than one in Chemical Engineering. Relative to the content delivered, current tuition rates border on the absurd. I believe a market correction is on its way. If and when that happens, and only then, will MBA programs return to taking the notion of a research-based graduate education in business seriously.
Via StrategyProfs reader Andrew Boysen’s Twitter feed (@boysenandrew) — some upcoming, very cool, free online classes: Model Thinking by Scott Page (University of Michigan) and Game Theory by Matt Jackson and Yoav Shoham (Stanford).
Love this trend of free online classes, I’m auditing that mega Artificial Intelligence class just to see how a class with 100,000+ registered students might actually work (I’m guessing a small fraction actually do the work – but still fascinating).
Here’s the pitch for that class by Scott. Sounds fantastic.
A lot of alternative ways for teaching strategy seem to be emerging. I recently, for example, ran into a cartoon series that tries to teach basic concepts of strategy: Atlas Black: Managing to Succeed (there’s even a movie trailer, here’s the WSJ story: can b-school students learn from cartoons?). Cartoons and strategy, really?
Hmm. I have to say that everything in me resists reducing strategic and organizational knowledge to cartoons, seems to really cheapen the field. I’m sure they are not meant as stand-alone materials – but still. To put my Mike hat on – are there equivalent cartoons to teach the hard sciences, say, physics? And, at what level can you teach something via cartoons? Obviously the intended audience matters – a lot.
There’s also a strategy novel – written by Jay Barney and Trish Clifford:What I Didn’t Learn in Business School: How Strategy Work in the Real World. I haven’t read it – though am curious and plan on getting to it sometime soon.
If any readers have already read it – leave a comment.