At the AACSB ICAM 2013 Conference, Elaine Eisenman, Dean of Babson College, and Kai Peters, Chief Executive of Ashridge Business School, set out some of the main issues in executive education today. Peters described the period as being one of the “most Schumpeterian times for executive education” and business schools in general. The presentation entitled “The Ideal, the Real, and the Deal” first dealt with some of the key misconceptions concerning education.
“The Ideal” situation for executive education was set out by Elaine Eisenman in a well deigned slide. In the perfect world, this activity would bring valuable research and positive engagement with practitoners as well as increased brand exposure and revenue streams. However, Kai Peters began by pointing out that many business schools do not fully appreciate the strategic value of executive education.
“Many schools think that doing executive education is a way to make a ton of money” he says. “This is not the case.”
In fact, after a study that he had done, only 20% of those he interviewed really saw how executive education could fit into the overall strategy of the business school. This problem has been greater up until now in that executive education was not considered within the rules set out by AACSB. However, with the new standards being brought in, schools that have a certain amount of executive education will be required to justify their overall strategy. Businesses, too, don’t always realize the value of executive e education. Peters cites the example of a European electricity firm that spends a hundred and fifty million euros each year on training. Only ten million of the hundred and fifty million spent goes on executive education to train their staff and improve performance.
Current trends in Executive Education
There is an increasingly crowded market in executive education today. Competition comes from several places, such as consulting firms, but also from corporate universities. This problem is exacerbated for business schools, in that most professors are allowed a certain number of consulting days per year. Ashridge, for example, allows its professors forty-five consulting days. The professors from these schools are often then employed by corporate universities, who short-circuit the business schools in offering similar programs to clients. For a business school to protect its brand value then, there is often a need to talk to faculty and to entice loyalty from them. This is the strategy that Babson has been following over the previous years.
The second issue concerns localization. Both presenters considered that Western Europe and North America were essentially stagnant markets. If they wanted to improve their output, therefore, they have to start looking east. Ashridge’s solution to this is to try and build the equivalent of a Star Alliance partnership in Asia. As Kai Peters pointed out, “we are essentially small and medium-size enterprises dealing with multinational corporations. We are more like restaurants, and we have terrible transaction costs.” If they are able to address these large corporations, then there is a need for partnerships in local areas.
Diversification is another challenge. Entry costs to setting up executive education are very low. As Ms. Eisenman pointed out, “there are lots of mom and pop consulting firms who are setting themselves up on offering some kind of services to clients.” The larger consulting firms can bill clients on a day-to-day basis. This means that they can bill for $2000 a day, which may seem considerably less than the $35,000 that an executive education organisation would bill. However, these small, incremental numbers tend to build up, as they include things like preparatory work, courses, and follow-up. In the end, the cost is actually higher. The market has even seen brokers coming in, with them calling executive education providers, and saying they are acting for a multinational corporation. Babson has decided that it will refuse to work with brokers.
There is so much free content online now, that it is often difficult for people to understand the need to pay large fees or to go away to far away places, which can increase costs greatly. Although it is possible to measure the return on investment for some things like training courses, for longer-term strategic courses, this is practically impossible. However, there are some opportunities. Mr. Peters considers that DBAs today have a great opportunity to bringing new faculty for executive education, as they are essentially people that have a great deal of practice in industry. Also, Ashridge is doing much better on batch sales of programs, offering a wide range of days, from a whole array of programs.
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In this week’s guest post, Peter Lorange, President and owner of the Lorange Institute of Business Zürich and former President of the IMD, Lausanne, asks if innovation in business schools is becoming less and less effective.
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