Despite Disruption for B-Schools, Haas Dean Sees Growing Benefits of Edtech

Surely, one of the most interesting business case studies an MBA class could chew over these days must be the challenging conditions facing business schools themselves.

That thought popped into my head during a long talk with Richard Lyons, a recognized B-school leader who is dean of UC Berkeley’s Haas School of Business. Lyons (pictured) is also known for a startling prediction in 2014. He envisioned that as many as half the world’s 13,000-odd business schools could fold within a decade due to economic forces and the disruptive effects of educational technologies such as online learning.

I checked in with Lyons recently to see whether events over the past two years had softened or confirmed his outlook. While he cautions against taking his 2014 forecast as a pronouncement that big-name U.S. schools would be collapsing left and right, Lyons seems even more certain today that educational technology is a looming factor that even well-ranked U.S. business schools must prepare to face.

The first signs of a shake-out, however, are likely to be seen among the many for-profit business schools counted as part of a global tally of 13,000 schools by non-profit business education network AACSB International (the Association to Advance Collegiate Schools of Business), Lyons says. That tally two years ago included institutions offering undergraduate, master’s, or doctoral business degrees.

Up to five percent of those business education providers could “go away” each year over the next 10 years, Lyons says. “That doesn’t seem like a crazy amount of churn.”

Still, Lyons doesn’t frame edtech’s disruptive power the way some academics did after the debut of the first free MOOCs (massively open online courses) and the founding of online-course hosting platforms Udacity and Coursera in Mountain View, CA, and Cambridge, MA-based EdX in 2012. Critics feared there would be a lamentable replacement of quality campus instruction with impersonal MOOCs that would compete simply by undercutting costs to students.

Lyons weaves a much more complex narrative for the future of business schools in the edtech era. In a working paper on the ongoing disruption of traditional education in the digital age, he declares that some high-end educational technologies such as data-driven course design can indeed transform the nature of a B-school education—but for the better (more on this below). That puts the onus on business schools to either defend their traditional instruction, or reinvent themselves to some extent.

With obvious intellectual relish, as well as a leader’s zeal for his institution’s interests, Lyons analyzes the current competitive dilemma facing B-schools as a bit of a paradox.

Of all the college majors U.S. students can choose, business handily tops the list—with double the number of undergraduate degrees granted compared to the next-ranked category, health professions. Business is also the field that leads the rankings among master’s degrees. Yet many business schools have already eliminated their traditional full-time, campus-based MBA programs, or no longer make them a main focus, even though those programs are still a primary measure of academic reputations among B-schools, Lyons says.

Those full-time programs aren’t necessarily the ones most popular with students, however. Schools such as Wake Forest in North Carolina and Virginia Tech in Blacksburg, VA, have phased out their full-time MBA programs while expanding their part-time MBA programs for students who can’t take a break from their jobs to attend. When school leaders take this tack, one could argue, they’re reacting to financial pressures and financial incentives that might exist even without edtech in the mix.

Full-time on-campus MBA programs have a financial downside, Lyons says. They must compete globally for good students, and they’re also expected to offer financial aid such as significant tuition discounts. By contrast, part-time MBA programs for fully employed adults can collect tuition fees close to the undiscounted sticker price for a full-time MBA degree, which often tops $100,000. That’s because the school is under less pressure to provide financial aid for students who are still pulling down a salary, Lyons says.

Attracting students to a school’s part-time on-campus degree program has often been easier than recruiting full-time students, because many B-schools have been competing only with other schools nearby, Lyons says. Students usually choose a part-time MBA program close to where they live and work, when they’re required to come to campus on evenings or weekends for two or three years. The same local competitive pattern applies to the non-degree executive education programs that have become another important source of working B-school students who can often pay full freight, he says.

A lot of business schools now rely on these fully employed students to sustain the schools financially, Lyons says. He suspects that income for B-schools, on average, has been declining over the past 20 years, and that “many more schools are running structural, operating deficits than there were 10 years ago.”

It’s hard to tell whether the global number of business schools has already started to decline, as Lyons predicted in 2014. AACSB International, which counted about 13,000 institutions offering business degrees at the undergrad level or higher in 2014, reported 16,531 such schools in its latest worldwide tally. But that apparent increase could be due to the fact that the organization’s survey has become more comprehensive, not to actual growth in the number of schools, an AACSB spokeswoman says.

B-school survival tactics and the new dangers of the edtech era

The schools that compete by investing in part-time MBA programs and executive education may be making a good strategic bet, Lyons says. But every step they take along that route also exposes them to competition from the growing number of online business education offerings, including online MBAs. Working professionals with families may look to online programs for relief from the commute to campus. And online competition is becoming global, he says.

“Technology is going to delocalize that pattern of competition,” Lyons says. “It’s not a captured market any more.”

Where digital competition may hit first, and hardest

In fact, the first dominoes likely to fall to online competitors are executive education programs, Lyons says. Coursera, for example, offers free or low-cost courses from respected universities on topics such as corporate entrepreneurship, team building, and data-driven decision-making. What’s more, universities don’t even have a monopoly as online providers of that continuing education for professionals, Lyons says. He has spotted new entrants such as consulting firms and executive search firms that are starting to offer this instruction.

“The whole economic picture is getting disrupted,” Lyons says.

The academic literature on disruptive technology tells us, Lyons says, that … Next Page »

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Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy

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