Are business schools immune from the forces of disruptive innovation in higher ed?
“Oh, I wish!” said the Business School Dean.
The recent announcement that Sweet Briar College—a well-regarded liberal arts institution for women—will close its doors this summer has shaken many of us in higher education. Similarly, Thunderbird Business School, the highly ranked and accredited business school (#1 for Global Business according to US News), was taken over by Arizona State University earlier this year, due to staggering debt. In Georgia, we have seen three mergers of major public universities in the last five years.
As an economist, this looks like a market shakeup typically associated with an oversupply situation. A more sophisticated and topical analyst might explain these changes as a result of disruptive innovation in higher education.
Disruptive innovation, coined by Clayton Christensen in his book The Innovator’s Dilemma, is when innovation replaces or displaces an existing technology or supply mechanism. Firms in the industry must decide whether to embrace the innovation or continue traditional methods. Think of Netflix, which has disrupted the at-home movie watching market by allowing you to order movies through a Wi-Fi connection since launching in 1997. Should Blockbuster, the dominant firm in the video rental market at the time, have modified its business model by offering online buying, rather than see its revenues decline? Should they have purchased Netflix for 5 percent of its current market value?
Higher ed has been disrupted by improved technologies and access to mobile devices that enable large numbers of students to access educational content without having to sit in a classroom. Forget about the rise (and fall) of for-profit colleges; ignore the impressive gains made by MOOCs. The recent announcement that LinkedIn has purchased Lynda.com in order to provide courses for free on its website adds yet another (blockbuster) alternative to prospective students looking for knowledge. And oversupply in a market often leads to shuttered providers, like Sweet Briar.
Have business schools suffered? Enrollments are still strong, likely due to the strong market for their graduates. According to Susan Adams of Forbes, only computer science and engineering graduates earn higher salaries than business school majors after (college) graduation.[1] The NCES data shows that no other master’s degree category exceeds that of business administration in terms of enrollments.[2] Third, only an engineering degree makes students more “employable” than business, based on data from the National Association of Colleges and Employers.[3] However, the criticisms aimed at US higher education in the March 2015 Economist cover story, “The whole world is going to university,” are also relevant to business schools.
Included there (and elsewhere) are several arguments as to why colleges and universities in the US are struggling to maintain world leadership and enrollments. For the most part the issue is cost, or rather high tuition. The higher the tuition, the lower the ROI associated with the earned degree.
My advice to business deans: keep watch on students’ ROI. The survivors in this market will be those institutions that keep developing relevant content and enhance the employability and labor market value of students and alumni. In this way, institutions will maximize the value they provide to their students and alumni.
Business schools must lead the way in terms of embracing and fostering innovation, and resist tendencies to resist change.
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References
[1] Susan Adams, “The College Degrees With The Highest Starting Salaries,” Forbes Magazine, January 10, 2014. Accessed at http://www.forbes.com/sites/susanadams/2014/01/10/the-college-degrees-with-the-highest-starting-salaries-2/
[2] NCES, “Graduate Degree Fields,” The Condition of Education, April 2014. Accessed at https://nces.ed.gov/programs/coe/indicator_ctb.asp
[3] “Survey: The five most employable majors,” The Education Advisor Board Daily Briefing, April 17, 2015. Accessed at http://www.eab.com/daily-briefing/2015/04/17/the-top-five-employable-majors
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