Corporate America Goes To School
Deep in the bowels of the University of Pennsylvania's Hutchinson Gym, crew coach Bruce D. Konopka is putting a group of novice rowers through their paces. But these aren't robust freshmen straining to pull their oars through the greenish water of the rowing tanks. They're top executives from financial services company Liechtenstein Global Trust (LGT), including its chairman, His Serene Highness Prince Philipp von und zu Liechtenstein.
The group is learning to row as part of a two-week, customized executive education program designed expressly for LGT by Penn's Wharton School. The Wharton stint, part of a four-year program at LGT, includes courses on corporate finance and risk management. Although the activities are designed to help execs from LGT's two main units, asset management and private banking, understand each other's businesses, LGT also thinks such interaction out of the office will help it win, develop, and keep top-quality people. "If you use [only] the checkbook," says Prince Philipp, "you get mercenaries."
While not every exec wants to row his way to success, more and more agree that executive education can help foster smart, flexible managers. After years of paring corporate fat, companies are realizing that many strengths and skills got trimmed with the excess poundage. Now, they're spending big bucks on nondegree management development and executive MBA programs in hopes of recapturing lost talents.
But the surge in executive education isn't only about gaining an edge in the market. Companies are using it as a tool to win back the loyalty of the troops after years of downsizing. In a market short on top talent, many also are offering access to education as a lure for new hires. "Quietly," says B. Joseph White, dean of the University of Michigan Business School, "companies are substituting education for security."
Along with a vibrant economy, those trends are fueling a spending boom on all things educational. Corporate expenditure on training and education at the management level hit an estimated $16 billion in 1996, according to Training magazine, up 14% from 1995. Some $3 billion goes to universities, with the rest spent on in-house programs and consultants, says Jeanne C. Meister, president of Corporate University Xchange, a consulting firm. In a BUSINESS WEEK survey of corporate human resources execs, 42% said they were sending more people to B-school exec ed programs than five years ago, with 33% sending the same number. Some 62% cited a new emphasis on management development as a main reason.
Along with rising demand, however, have come rising standards. Companies are no longer passively accepting what universities and others spoon-feed them. CEOs and other board-level execs have become far more involved in program planning. Beyond standard general management courses, they're demanding real-time, "customized" programs tied to issues such as entering a new market or developing an Internet strategy. Some have even more ambitious goals, such as changing execs' notions of competition.
RECORD LEVELS. Take a program under development by Sony Corp. subsidiary Sony Electronics and the University of Michigan, called "Leadership 2000." Directed by C.K. Prahalad, professor of corporate strategy and international business at Michigan, the plan is to teach Sony execs to create new opportunities from the convergence of the audio, video, media, and PC industries. By encouraging managers from different businesses to interact more, Sony hopes they will think of new ways to leverage technology, much as Sony did when it made the transistor radio portable. "If we don't pull this off, we wither and die," says Sony President and Chief Operating Officer Carl J. Yankowski.
Such custom programs mean a lot more work--for participants and providers alike--but they also mean more revenues. At Babson College, for example, which primarily does customized programs, revenues have more than doubled in the past five years, rising to $6.4 million. Overall, average revenues from the 35 schools surveyed rose to $11.4 million, up 61% from five years ago. In executive MBA programs, too, enrollments are hitting record levels even as average tuition at leading schools has risen 32% since 1993, to $50,584.
In this crowded arena, which schools best meet the needs of Corporate America? Focusing exclusively on the end user--the corporation--BUSINESS WEEK asked heads of human resources and management development at 394 companies to rank their top choices in executive education. We received 120 responses, a rate of 30%. To round out the survey, we also asked the heads of 35 leading exec ed and 61 executive MBA programs to assess themselves and their rivals. The results of the corporate survey, as well as deans' views, can be found on pages 72 and 80.
In nondegree executive education, the overall winner in the BUSINESS WEEK survey was Harvard University, followed closely by Michigan. Northwestern's J.L. Kellogg Graduate School of Management, Wharton, and Stanford University rounded out the top five. We also asked execs to rank the schools' strengths in specific subjects. Among the results: Wharton dominated in finance, Thunderbird--the American Graduate School of International Management--won in global business, and Harvard led in general management. For custom programs, Kenan-Flagler Business School at the University of North Carolina at Chapel Hill came out ahead.
For Harvard, that's a welcome vote of confidence after a major overhaul of its program. After virtually owning the field for decades, Harvard's lead was challenged in the late 1980s by a handful of aggressive schools more responsive to customers' needs. In 1995, after the arrival of Dean Kim B. Clark, it hired consultant McKinsey & Co. to help with a revamp. The conclusion: Many companies associated Harvard only with less popular general management courses--and perceived its faculty as "stodgy and arrogant," says Bob Fogel, Harvard's executive director for executive education.
Now, Harvard offers more open enrollment programs targeted at people with similar needs, such as the Program for Global Leadership, for new general managers with international responsibilities. Harvard also has increased its course offerings from 24 to 56 in five years, with many more short courses tied to current faculty projects. And customized programs have gone from 2% of revenues to 15%.
NEW FOCUS. Still, that's tiny compared with many schools in BUSINESS WEEK's survey, which get an average 44% of revenues from customized programs, up from 28% five years ago. Yet it was enough to persuade Hans W. Gutsch, senior vice-president for human resources and environment at Compaq Computer Corp., to choose Harvard to develop and run its six-day Lessons in Leadership program, which begins on Oct. 26. Three times a year, Compaq will send 50 execs through the intensive program, which features top Harvard faculty teaching subjects such as strategy and finance, together with directed work on company-specific projects. Alongside faculty, Compaq CEO Eckhard Pfeiffer will run a session on leadership.
The specialization trend is evident in other ways. Case studies are losing ground to real problems that bedevil students back in the office. In the week-long Global Leadership Program run by Columbia University's B-School, execs from 16 companies helped James R. Danks, general manager for international sales for window maker Pella Corp., develop a Korean strategy. He left with a plan--as well as some contacts from Korean student Won Il Kim. The new focus is also true with executive MBAs. The University of Tennessee at Knoxville will soon offer an MBA for doctors, and Washington University's Olin B-school has a degree in manufacturing management. Michigan is developing MBAs for groups of Chinese and Brazilian companies.
If specialization is boosting revenues for B-schools, it has made the sleepy summer vacation extinct. Planning alone can require months of meetings. And deans complain of a shortage of top professors to teach and design the courses. "The real competition is for faculty," says Glen L. Urban, dean of Massachusetts Institute of Technology's Sloan School of Management. As a result, profs have more leverage than ever before to choose the programs they want to be associated with. "You can't get the faculty to take on a dull project," says Brandt R. Allen, head of the University of Virginia's Darden Graduate School of Business Administration's exec ed program. "Even if you pay a lot of money, they won't do it."
Meeting demand has led some schools to do something that was once unimaginable: share clients with other schools and consultants. "Two years ago, the idea of two universities working together would make someone want to throw up," says Albert A. Vicere, director of the Institute for the Study of Organizational Effectiveness at Pennsylvania State University's Smeal B-School. "Now, you're seeing a lot more openness." Columbia, for example, asked Kellogg to help it run a program for Deloitte & Touche's partners because the volume was too great. Exec ed director Ethan Hanabury says about half of Columbia's $12.7 million in exec ed revenues comes from partnering, next to almost none a few years ago.
All of this benevolence makes it tough to tell how brutal the competition really is. Even as the numbers of providers are rising, with not only B-schools but consultants in the mix, companies are slimming down the list of providers. "We're being much more thoughtful," says June E. Delano, director of executive education at Eastman Kodak. "We're looking at cutting the number of schools we use."
Come a downturn, the trend may well accelerate. "The strong will thrive," says Michigan's White. "The weak will die." The pressure has forced schools to do what they've preached, but seldom practiced: listen to the customer. It's a lesson they might have learned in B-school.