Education With A Bottom Line - by Stephen Budiansky

PRISM October 99 Cover StoryThe business and engineering deans at Stanford are probably not losing much sleep worrying that they are about to be displaced in the annual university rankings by Burger King University, Xerox Document University, Harley-Davidson University, or Home Depot University. Ask the average executive whether he'd rather have an MBA from Harvard or a certificate from the AT&T School of Business and Technology and it's not likely to be much of a contest, either. And even a technical leader in the corporate world like Motorola is not about to claim that Motorola University has anything on MIT when it comes to generating the basic research and knowledge that is going to create the new technologies of tomorrow.

Yet so-called corporate universities are already shaking up the way both companies and universities think about their roles, their businesses—even their notions of what education is. The last decade has seen an explosion of in-house, corporate universities that offer courses to employees on everything from traditional business-school management topics to foreign languages to environmental engineering. And if current trends continue, there is plenty more shaking to come. The number of corporate universities has quadrupled since the early 1980s to more than 1,600, including more than 40 percent of the Fortune 500 companies, according to the latest survey by Corporate University Xchange, a Manhattan consulting firm that specializes in corporate training. At this rate, there could actually be more corporate universities than traditional universities in another decade.

Retooling Continuing Ed

The rise in corporate universities is presenting both an opportunity and a challenge to traditional universities. On the one hand, it reflects an enormous growth in demand for continuing education and a chance for universities to forge new partnerships with companies that are placing more value than ever on an educated workforce. On the other, it poses a direct competition in an arena where they have had a monopoly for about 600 years. A decade ago universities saw the corporate market, to the extent they saw it at all, as easy pickings. A company wanted to send its executives on a management course; the Harvard Business School was happy to oblige, for a hefty fee, with a program drawn from its regular offerings. Today more companies are treating universities as they would any vendor—they are demanding courses tailored to their specific needs, answerable to their specifications and oversight, and at a competitive price. And given how uncompetitive most universities have been in their pricing and customer service, many companies not surprisingly are finding they can do a better and cheaper job of it themselves.

As you might expect, though, corporate universities are doing that job very differently than their more traditional predecessors. For their "faculty," some companies hire full-time staffers to teach courses, while others rely on in-house expertise. Still others "cherry pick" university faculty members as consultants. The corporate "campus" ranges from Motorola's separate facility to nondescript HR training rooms. But increasingly the model being pursued—especially by larger, global firms—is based on distance learning, so the campus is a virtual one.

The most fundamental driving force behind both the corporate university trend and its migration online is the rapid pace of technological change, which has made continuing education a necessity in more sectors of the economy than ever before. "Things are moving so rapidly that a lot of high-tech products are based on designs less than a year or a year-and-a-half old," says Adam Eisenstat of Corporate University Xchange."It's more necessary than ever to have employees up to speed on the latest technologies—and it's literally impossible to shuffle a worldwide workforce in and out of classrooms to keep up."

Across the Board

In-house training has long been a staple of manufacturing firms—General Motors, for example, took over a local technical college in 1926 to establish the General Motors Institute, which trained students in the latest developments in automotive engineering, alternating their classroom training with hands-on work at General Motors. (In 1982, GM spun off the institute as an independent college, which was renamed Kettering University in 1998. GM recently established a new in-house General Motors University for executive training.) The current boom in in-house educational institutes and corporate universities, however, is spreading well beyond manufacturing and financial businesses—another group that has long emphasized employee training. A recent survey by Corporate University Review magazine found that health care, communications, transportation, utility, retail, and agricultural businesses have also been establishing corporate universities in the new surge.

Some of the phenomenon is, inevitably, a fad that drives itself, the sort of management-speak relabeling of corporate functions that is the bane of American business; just as it is now passé to call a personnel department anything but "human resources," so calling a training department anything but a "university" marks one as behind the latest trends.

But beyond either technological need or management fad lies a simple business reality. "Corporations [that] are in business for profit have historically stayed away from the education business, and have accepted whatever the academics have offered," says Joseph DiGregorio of Georgia Tech. "But they've recognized two things in the last ten years. One is that what the academics have had to offer in many cases has not always been of good quality and hasn't had much of an impact on their employees. And the other is that higher education is a $300 billion a year business—and I think companies have recognized that this is a big growth business that they've somehow missed."

Forty-four percent of that post-high-school education business is now directed toward serving the needs of non-traditional, working adult students. Those are generally professionals—engineers, as well as accountants, physicians, managers, architects, and many others—who need to keep up with new developments in their field. Only 32 percent of all post-secondary students now fall into the category of traditional full-time students. The remaining 24 percent are part-time students working toward a degree. At Georgia Tech, for example, there are 14,000 students on campus; enrollment in continuing education courses totals 18,000 per year. Continuing education is a $15 million a year business at Georgia Tech, which concentrates its adult programs on engineering and engineering-related subjects such as technology management. Most courses are one- to five-day programs.

Many universities, like Georgia Tech, have recognized the opportunity, and even necessity, of moving into this area, and are trying to become much more responsive to the needs of their corporate customers. For now, at least, universities still have a number of things going for them. "We've got the reputation, we've got the tradition," DiGregorio says frankly, "that's why we can charge more. But in ten or fifteen years we're not going to have that monopoly that we've had with working professionals. And unless we as academics become more market-driven and customer-driven those companies are going to beat us to the punch."

Universities are used to building hefty overhead fees into all their contracts with outside entities, from corporate partners to government agencies that provide research grants. They have also tended to see professional schools as cash cows that can subsidize the rest of the operation. They have had a captive market for the most part that will pay whatever universities charge. But that attitude, as more and more companies are realizing, has left a market niche wide open.

Motorola University 

Motorola University 

Economic Realities

Many corporate universities have been set up as quasi-independent, competitive units that market their offerings to other divisions of the company. The company's business units can spend their education and training budgets however they like. But when managers see that a traditional university might charge $3,000 a day for an ISO 9000 course that is offered by their own corporate university for less than $300 a day, it becomes hard to justify going outside. And when it comes to springing for a full program of management training of the sort provided by business schools, the $50,000-a-head tuition costs for an MBA-type program would simply break the budgets of companies that are facing the twin pressures of reducing costs to stay competitive and dramatically increasing the amount of post-graduate training for managers. It's not hard for a corporate university to beat those prices. And by putting into practice elementary principles of competitiveness, corporate universities are often also naturally far more responsive to the needs of companies than are traditional universities.

Few corporate universities offer degrees—yet. In surveys, virtually all corporate university deans say that the major goal of the university is to have a direct impact on company productivity, to convey the corporate culture, and, at times, to help implement a strategic change in direction within the company. Another key reason many companies are establishing their own universities is to provide a centralized department that handles all training needs worldwide, something that new Web-based technologies are for the first time making it feasible to do.

You don't need to go through the considerable hurdles of attaining accreditation and offering a full curriculum for a degree program to achieve any of these goals. Nonetheless, almost half of the 140 corporate universities that responded to one recent survey already offer academic credit for at least some courses (almost always in partnership with a local or national university), and some are already offering degree programs as well.

While degree programs may never be a high priority from the perspective of corporate training goals, they are clearly in demand from the professionals themselves. And at least a few corporate universities are beginning to see that as they learn how to compete in the education business there is no reason they shouldn't enter new markets. "They certainly see the possibility of profiting from their courseware," says Eisenstat, who quotes the old line—"anything worth doing is worth making money at"—to explain the interest of at least some corporate universities in taking the next step and actually entering the education business.

Xerox Document University 

Xerox Document University 

Exploring New Markets

Motorola University, established in 1981 and a consistent leader in corporate university trends, has moved steadily to develop expertise that translates into new external business opportunities. With a staff of 400 professionals plus a "flex force" of 700 contractors, Motorola U. now offers scores of courses—as well as textbooks and other instructional materials—to paying customers on the outside as well as to Motorola employees. These "products" range from courses in "Managing the Software Development Process" (4 days, $1,320) and "Short-Cycle Manufacturing" (1 day, $215) to an entire line of books, such as one on how to do business in sixty countries, titled "Kiss, Bow or Shake Hands" ($19.95).

Motorola University is also becoming adept at putting its in-house skills to use in innovative ways that represent profit-making opportunities, by offering business-consulting services, translation services (as a worldwide company, Motorola operates in 13 different countries and so MU has had to become proficient in translating), even seminars to teach other companies how to start their own corporate universities, and an Evaluation Services Team that can measure how effectively a company's training and educational programs are working.

Ensconced as they are in a culture where the bottom line is on everyone's mind, corporate universities have paid particular attention to measuring outcomes. This is especially the case for corporate universities such as Motorola's, which are expected to perform as business operations: they need to be able to demonstrate to managers that an investment in education results in a tangible return. By the same token, effective corporations are well versed in the techniques and approaches required to evaluate and monitor any activity to make sure it is meeting the criteria that have been established for it—something that is not at all a traditional part of the academic culture. The Accreditation Board for Engineering and Technology's Engineering Criteria 2000, which will be required for all university engineering programs beginning in 2001, explicitly requires universities to establish educational objectives based on the needs of the program's various constituencies, and to put in place a process for evaluating and documenting whether those objectives are being met. Of course traditional universities enjoy significant advantages over corporate universities in meeting many of the accreditation criteria, especially the ones relating to academic standards, but when it comes to program evaluation the corporate world arguably already has an edge.

University of Phoenix 

University of Phoenix 

Embracing Change

All of this is clearly starting to make traditional universities worried. "What we're seeing right now is corporate universities training their own people," says Georgia Tech's DiGregorio. "It won't be very long before they are in direct competition with us, not only in professional development but even in granting degrees." One huge factor that has made this assault on the academic monopoly possible is the new technologies of the Internet. "In the old days if you wanted to deliver a course you needed a campus; but now you and I and your 10-year-old son can put courses over the Internet," says DiGregorio.

Motorola University has already placed a large selection of courses and training materials on its intranet, available around the world at any time to its 135,000 employees. These include interactive courses that can be downloaded directly to an employee's laptop computer; lectures "broadcast" by experts; and an online library of reference materials.

Overall, online learning "is currently generating $600 million in annual revenues and is expected to exceed $10 billion by 2002," notes Jeanne Meister of Corporate University Xchange. That has even spawned some completely for-profit ventures such as the "University of Phoenix," a public corporation whose shares trade on the New York Stock Exchange. Companies, after all, are experts in responding to the needs of customers, in marketing, and in delivering a product, says DiGregorio: "I shudder to think what will happen if Microsoft decides to get into the education market," he says.

DiGregorio believes that traditional universities will have no choice but to become more business-minded, responsive, and competitive and that, for the most part, is all to the good. Many universities are already moving into the "distance learning" market. New York University recently launched a for-profit online subsidiary. Georgia Tech, which offers a number of distance learning programs, expects to offer five engineering master's degree programs over the Internet within the next few years. And many corporate universities, rather than offering their own courses with their own instructors, are finding that the most effective solution is "outsourcing"—teaming up with a university to take advantage of the undeniable expertise that academia can offer.

That model could mean a huge boost in business for traditional universities, but there is no doubt that the rules are being rewritten even in these arrangements. Corporations are no longer content to just pay tuition reimbursement and accept whatever the universities have to offer; and they are no longer tied by geography to making a deal only with a local university. They are thus treating universities as they would any other vendor. And that's where universities can't afford to stumble.

"Really, the competition to universities is not corporate universities," says Eisenstat, "but these other for-profit education firms vying for corporate education dollars. For the universities themselves, their own potential complacency or failure to see the opportunity in front of them is a much bigger threat."

Stephen Budiansky is a correspondent with The Atlantic Monthly