If any institution is equipped to handle questions of strategy, it is Harvard Business School,
whose professors have coined so much of the strategic lexicon used in
classrooms and boardrooms that it’s hard to discuss the topic without
recourse to their concepts: Competitive advantage. Disruptive
innovation. The value chain.
But when its dean, Nitin Nohria,
faced the school’s biggest strategic decision since 1924 — the year it
planned its campus and adopted the case-study method as its pedagogical
cornerstone — he ran into an issue. Those professors, and those
concepts, disagreed.
The question: Should Harvard Business School enter the business of online education, and, if so, how?
Universities
across the country are wrestling with the same question — call it the
educator’s quandary — of whether to plunge into the rapidly growing
realm of online teaching, at the risk of devaluing the on-campus
education for which students pay tens of thousands of dollars, or to
stand pat at the risk of being left behind.
At Harvard Business School, the pros and cons of the argument were personified by two of its most famous faculty members. For Michael Porter,
widely considered the father of modern business strategy, the answer is
yes — create online courses, but not in a way that undermines the
school’s existing strategy. “A company must stay the course,” Professor
Porter has written, “even in times of upheaval, while constantly
improving and extending its distinctive positioning.”
For Clayton Christensen,
whose 1997 book, “The Innovator’s Dilemma,” propelled him to academic
stardom, the only way that market leaders like Harvard Business School
survive “disruptive innovation” is by disrupting their existing
businesses themselves. This is arguably what rival business schools like
Stanford and the Wharton School have been doing by having professors
stand in front of cameras and teach MOOCs, or massive open online
courses, free of charge to anyone, anywhere in the world. For a modest
investment by the school — about $20,000 to $30,000 a course — a
professor can reach a million students, says Karl Ulrich, vice dean for innovation at Wharton, part of the University of Pennsylvania.
“Do it cheap and simple,” Professor Christensen says. “Get it out there.”
But
Harvard Business School’s online education program is not cheap,
simple, or open. It could be said that the school opted for the Porter
theory. Called HBX, the program
will make its debut on June 11 and has its own admissions office.
Instead of attacking the school’s traditional M.B.A. and executive
education programs — which produced revenue of $108 million and $146
million in 2013 — it aims to create an entirely new segment of business
education: the pre-M.B.A. “Instead of having two big product lines, we
may be on the verge of inventing a third,” said Prof. Jay W. Lorsch, who has taught at Harvard Business School since 1964.
Starting
last month, HBX has been quietly admitting several hundred students,
mostly undergraduate sophomores, juniors and seniors, into a program
called Credential of Readiness, or CORe.
The program includes three online courses — accounting, analytics and
economics for managers — that are intended to give liberal arts students
fluency in what it calls “the language of business.” Students have nine
weeks to complete all three courses, and tuition is $1,500. Only those
with a high level of class participation will be invited to take a
three-hour final exam at a testing center.
“We
don’t want tourists,” said Jana Kierstead, executive director of HBX,
alluding to the high dropout rates among MOOCs. “Our goal is to be very
credible to employers.” To that end, graduates will receive a paper
credential with a grade: high honors, honors, pass.
“Harvard
is going to make a lot of money,” Mr. Ulrich predicted. “They will sell
a lot of seats at those courses. But those seats are very carefully
designed to be off to the side. It’s designed to be not at all
threatening to what they’re doing at the core of the business school.”
Exactly,
warned Professor Christensen, who said he was not consulted about the
project. “What they’re doing is, in my language, a sustaining
innovation,” akin to Kodak introducing better film, circa 2005. “It’s
not truly disruptive.”
‘Very Different Places’
Professor
Christensen did something “truly disruptive” in 2011, when he found
himself in a room with a panoramic view of Boston Harbor. About to begin
his lecture, he noticed something about the students before him. They
were beautiful, he later recalled. Really beautiful.
“Oh, we’re not students,” one of them explained. “We’re models.”
They
were there to look as if they were learning: to appear slightly puzzled
when Professor Christensen introduced a complex concept, to nod when he
clarified it, or to look fascinated if he grew a tad boring. The
cameras in the classroom — actually, a rented space downtown — would
capture it all for the real audience: roughly 130,000 business students
at the University of Phoenix, which hired Professor Christensen to
deliver lectures online.
Why
had his boss, Mr. Nohria, given him permission to moonlight? “Because
we didn’t have an alternative of our own” online, Mr. Nohria explained.
The
dean had taken a wait-and-see approach — until 18 months ago, when his
own university announced the formation of edX, an open-courseware
platform that would hitch the overall university firmly to the MOOC
bandwagon.
He
said he remembered listening to an edX presentation at an
all-university meeting. “I must confess I was unsure what we’d be really
hoping to gain from it,” he said. “My own early imagination was: ‘This
is for people who do lectures. We don’t do lectures, so this is not for
us.’ ” In the case method, concepts aren’t taught directly, but induced
through student discussion of real-world business problems that
professors guide with carefully chosen questions.
“Nitin
and I are close friends, and we’ve talked about this repeatedly,”
Professor Porter said. “I think the big risk in any new technology is to
believe the technology is the strategy. Just because 200,000 people
sign up doesn’t mean it’s a good idea.” Though Professor Porter
published “Strategy and the Internet” in the Harvard Business Review in
2001, before the advent of MOOCs, the article
makes his sternest warning about the perils of online recklessness: “A
destructive, zero-sum form of competition has been set in motion that
confuses the acquisition of customers with the building of
profitability.”
Mr.
Nohria ultimately chose for the business school to opt out of edX. But
this decision forced a question: What should the school do instead?
“People came out in very different places,” Mr. Nohria said. “Very
different places.”
One
morning, he sat down for one of his regular breakfasts with students.
“Three of them had just been in Clay’s course,” which had included a
case study on the future of Harvard Business School, Mr. Nohria said.
“So I asked them, ‘What was the debate like, and how would you think
about this?’ They, too, split very deeply.”
Some
took Professor Christensen’s view that the school was a potential
Blockbuster Video: a high-cost incumbent — students put the total cost
of the two-year M.B.A. at around $100,0000 — that would be upended by
cheaper technology if it didn’t act quickly to make its own model
obsolete. At least one suggested putting the entire first-year
curriculum online.
Others
weren’t so sure. “ ‘This disruption is going to happen,’ ” is how Mr.
Nohria described their thinking, “ ‘but it’s going to happen to a very
different segment of business education, not to us.’ ” The power of
Harvard’s brand, networking opportunities and classroom experience would
protect it from the fate of second- and third-tier schools, a view that
even Professor Christensen endorses — up to a point.
“We’re
at the very high end of the market, and disruption always hits the high
end last,” said Professor Christensen, who recently predicted that half
of the United States’ universities could face bankruptcy within 15
years.
Mr.
Nohria states flatly, “I do not believe our M.B.A. program is at risk.”
He concluded that disruption is not always “all or nothing,” and cited
the businesses of music and retailing as examples. “In the music
business, all record stores are gone,” he said, while in retailing,
“it’s not like Amazon has eliminated everything; after those debates, my
feeling was that we’re going to be more in that category.”
Still,
Mr. Nohria said, he wanted some insurance. “Our beliefs can always turn
out to be wrong,” he said. Harvard Business School could not afford to
stand on the sidelines. So last summer, he said, he asked the business
school’s administrative director, “What would you say if we started a
little skunk works around this technology?”
‘Hollywood’ at Harvard
That
skunk works, in a low-slung building 300 yards from campus, is not
little. It buzzes with 35 full-time staff members — Wharton’s online
efforts, by comparison, employ one-half of one staffer, Mr. Ulrich said —
who are scrambling to complete a proprietary platform that, after this
summer’s limited go-round, could support much larger enrollments.
“Here’s
Hollywood,” Ms. Kierstead said on a recent tour, passing an array of
video equipment that’s hauled around to film business case-study
protagonists on location. Nearby, two digital animators worked on
graphics for Professor Christensen’s forthcoming course. Another staff
member handled financial aid.
To run HBX with Ms. Kierstead, Mr. Nohria tapped Bharat Anand,
48, a strategy professor who had been researching how traditional media
companies have coped, or haven’t, with digital disruption. “I think
about those cases a lot,” said Professor Anand, who is also Mr. Nohria’s
brother-in-law.
The
dean handed him a sheet of six guiding principles, including these: HBX
should be economically self-sustaining. It should not substitute for
the M.B.A. program. It should seek to replicate the Harvard Business
School discussion-based style of learning. This was no easy assignment,
Professor Anand conceded.
“What
is competitive advantage?” he asked, invoking Professor Porter’s
signature theory. “It comes from being fundamentally different. We teach
this all the time. But saying it is one thing. Putting it into practice
is hard. When everyone is going free, everyone is going with a similar
type of platform, it takes courage to do your own thing.”
On
campus, Harvard business students face one another in five
horseshoe-shaped tiers with oversized name cards. They fight for
“airtime” while the professor orchestrates discussion from a central
“pit.”
“We
don’t do lectures,” Mr. Nohria said. “Part of what had already
convinced me that MOOCs are not for us is that for a hundred years our
education has been social.”
The
challenge was to invent a digital architecture that simulated the
Harvard Business School classroom dynamic without looking like a
classroom. In a demonstration of a course called economics for managers,
the first thing the student sees is the name, background and location —
represented by glowing dots on a map — of other students in the course.
A
video clip begins. It’s Jim Holzman, chief executive of the ticket
reseller Ace Ticket, estimating the supply of tickets for a New England
Patriots playoff game: “Where I have a really hard time is trying to
figure out what the demand is. We just don’t know how many people are on
the sidelines saying, ‘Hey, I’m thinking about going.’ ”
It’s
a complex situation meant to get students thinking about a key concept —
“the distinction between willingness to pay and price,” Professor Anand
said. “Just because something costs zero doesn’t mean people aren’t
willing to pay something.” A second case study, on the pay model of The
New York Times, drives the point home.
Then
a box pops up on the screen with the words “Cold Call.” The student has
30 seconds to a few minutes to type a response to a question and is
then prodded to assess comments made by other students. Eventually there
is a multiple-choice quiz to gauge mastery of the concept. (This was
surprisingly time-consuming to develop, Professor Anand said, because
the business school does not give multiple-choice tests.)
At
a faculty meeting in April, Professor Anand demonstrated the other two
elements of HBX: continuing education for executives and a live forum.
He unveiled the existence of a studio, built in collaboration with
Boston’s public television station, that allows a professor to stand in a
pit before a horseshoe of 60 digital “tiles,” or high-definition
screens with the live images and voices of geographically dispersed
participants. “I’m proud of our team, and how carefully they’ve thought
about it even before they’ve done it,” Professor Porter said.
The Clashing Models
Not
everyone was so impressed. Professor Christensen, for one, worried that
Harvard was falling into the very trap he had laid out in “The
Innovator’s Dilemma.” “I think that we’ve way overshot the needs of
customers,” he said. “I worry that we’re a little too technologically
ambitious.”
He also feared that HBX was tied too closely to the business school.
“There
have been a few companies that have survived disruption, but in every
case they set up an independent business unit that let people learn how
to play ball in the new game,” he said. IBM survived the transition from
mainframe computers to minicomputers, and then from minicomputers to
personal computers, by setting up autonomous teams in Minnesota and then
in Florida. “We haven’t got the separation required.”
Professor
Porter has expressed the opposite view. Companies that set up
stand-alone Internet units, he wrote in 2001, “fail to integrate the
Internet into their proven strategies and thus never harness their most
important advantages.” Barnes & Noble’s decision to set up a
separate online unit is one of his cautionary tales. “It deterred the
online store from capitalizing on the many advantages provided by the
network of physical stores,” he said, “thus playing into the hands of
Amazon.”
In
the Christensen model, these very fortifications become a liability. In
the steel industry, which was blindsided by new technology in smaller
and cheaper minimills, heavily integrated companies couldn’t move
quickly and ended up entombed inside their elaborately constructed
defenses.
“If
Clay and I differ, it’s that Clay sees disruption everywhere, in every
business, whereas I see it as something that happens every once in a
while,” Professor Porter said. “And what looks like disruption is in
fact an incumbent firm not embracing innovation” at all.
In other words, it’s not that U.S. Steel was destined to be undone by minimills. It’s that its managers let it happen.
“The
disrupter doesn’t always win,” argued Professor Porter, who nonetheless
called Professor Christensen “phenomenal” and “one of the great
management thinkers.”
Who will win the coming business school shakeout? Professor Porter acknowledged that it’s a multidimensional question.
Most schools offering MOOCs do so through outside distribution channels like Coursera,
a for-profit company that has Duke, Wharton, Yale, the University of
Michigan and several dozen other schools in its stable. EdX, of which
Harvard was a co-founder with the Massachusetts Institute of Technology,
counts Dartmouth and Georgetown among its charter members.
“These will come to have considerable power,” predicted Jeffrey Pfeffer,
a professor of organizational behavior at the Stanford Graduate School
of Business. He pointed to the aircraft industry: “In order to get into
China, Boeing transferred its technology to parts manufacturers there.
Pretty soon there’s going to be Chinese firms building airplanes. Boeing
created their own competition.” Business schools, he said, “are doing
it again; we are creating our own demise.”
Professors as Online Stars
The
worry is all the more acute at midtier schools, which fear that elite
business schools will move to gobble up a larger share of a shrinking
pie.
“Would
you rather watch Kenneth Branagh do ‘Henry V,’ or see it at a community
theater?” asked Mr. Ulrich at Wharton. “There are going to be some
instructors who become more valuable in this new world because they
master the new medium. We’d rather be those guys than the people left
behind.”
This
raises a still more radical case, in which the winners are not any
institution, new or old, but a handful of star professors. One of
Professor Porter’s generic observations — that the Internet increases
the “bargaining power of suppliers” — suggests just that. “It’s
potentially very divisive in a way,” he acknowledged. “We’re all
partners; we all get paid roughly the same. Anything that starts to
fracture the enterprise is a sobering prospect.”
François Ortalo-Magné,
dean of the University of Wisconsin’s business school, says fissures
have already appeared. Recently, a rival school offered one of his
faculty members not just a job, but also shares in an online learning
start-up created especially for him. “We’re talking about millions of
dollars,” Mr. Ortalo-Magné said. “My best teachers are going to find
platforms so they can teach to the world for free. The market is finding
a way to unbundle us. My job is to hold this platform together.”
To
that end, he has changed his school’s incentive structure, which, as in
most of academia, was based primarily on the number of research
articles published in elite journals. Now professors who can’t crack
those journals but “have a gift for inspiring learning,” he said, in
person or online, are being paid as top performers, too. “We are now
rewarding people who have tenure to give up on research,” Mr.
Ortalo-Magné said.
Mr.
Ortalo-Magné spins out the possibilities of disruption even further.
“How many calculus professors do we need in the world?” he asked. “Maybe
it’s nine. My colleague says it’s four. One to teach in English, one in
French, one in Chinese, and one in the farm system in case one dies.”
What
is to stop a Coursera from poaching Harvard Business School faculty
members directly? “Nothing,” Mr. Nohria said. “The decision people will
have to make is whether being on the platform of Harvard Business
School, or any great university, is more important than the opportunity
to build a brand elsewhere.
“Does
Clay Christensen become Clay Christensen just by himself? Or does Clay
Christensen become Clay Christensen because he was at Harvard Business
School? He’ll have to make that determination.”
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