Harvard Business School and the Online Threat

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The title of this post reads like the title of a typical Harvard Business School (HBS) case. Actually, if I wrote “Harvard Business School and the Online Threat (A)” that would be more appropriate. But while I toyed with the idea of writing this in that style, for example:

Professor Clay Christensen read his email announcing the new HBX initiative to bring online education to his own institution, not in disbelief, but in resignation. He had devoted the last two decades to telling the world about the perils of market leadership. Now, he was part of the marketing leading organization in his own space and seemingly could do nothing to prepare them for the disruption he saw only too plainly. He thought to himself, “Perhaps the only thing for me to do is ensure that I can ride out the storm.”

or perhaps,

Professor Michael Porter read his email announcing the new HBX initiative to bring online education to his own institution, not in disbelief, but in resignation. He had been there before. For the last four decades he had been telling the world about the importance of having a tightly integrated strategy and carefully evaluating threats to best see how they fit into an organization going forward. Now, as it had happened so many times before, his organization had named a threat and responded by what might turn out to be a piecemeal effort, wasting resources, but not actually evaluating the opportunities going forward. He thought to himself, “I can only say what I have said before and hope that the current frenzy rides itself out soon.”

I decided not to go that way.

I had these thoughts while reading last weekend’s New York Times treatment of HBS’s moves into online education. While the style was different, it had all the elements of an HBS case. There was an external threat. There was an internal debate. And there were managers in the middle trying to work out what to do and trying something no one knew what the outcome of it would be. Add to that the irony that the positions taken in the internal debate reflected the positions the proponents teach to students and the fact that students who were supposed to be given approaches as to what to do were hearing at least two different ones, and it is a fascinating read.

Now I have had my differences with HBS recently but, as I read the article, I felt some big parts of the picture were being left out. So I thought I’d take the opportunity to spell those out here and see if I can help. It won’t surprise anyone that fundamentally I think neither Professor Porter or Professor Christensen are wholly right in their concerns but each raises valid issues. The question is: how does HBS formulate an appropriate response?

The first thing is to deal with a ‘red herring’ that is in the title of this post. Is online education a threat? What it is, is a change in the capacity of educational institutions to deliver media-rich education ‘thingys’ globally. In 2000, we had the media-rich but didn’t have the infrastructure, etc, for scale. That has changed now. Anyone can put up a YouTube video, explain something and reach the world. Even cutting a half-decent video isn’t that hard to do any more.

Let’s now evaluate this with respect to HBS’s current response. Their online unit, HBX, operates seemingly independent of HBS’s other core programs. It is developing online courses and will be accredited — although not as a University degree. The courses will target the pre-MBA student.

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.

Notice that, in doing this, HBS are ignoring both Porter and Christensen. Porter because this lies outside of HBS’s other activities. And Christensen because it is not aimed at cannibalising HBS’s current activities. Moreover, they are being selective and small scale which means that HBS is responding to the 2000 technological shift online not the 2014 one involving scale. Finally, the courses are in the most highly commodified end of the education spectrum — basic tools. In other words, this is just ‘brand extension.’ There is little leverage of academic research or the case-teaching method. On the latter, of course, they will tie into real world cases but the case-teaching method involves much more.  To be sure, having not seen what HBX is doing, there may be other innovations at the heart of it. Even so, it is not obvious “why HBS?” and “why now?”

My belief is that HBS could have easily got away with doing nothing in response to the current online technological changes. To see why, one needs to understand how “staying small and selective” is HBS’s biggest strategic commitment. HBS is at the top of the heap because of a virtuous circle between attracting the best students and attracting the attention of the best recruiters. Even if their students flocked to Stanford next year, the recruiters would still be there because the next 1000 students are also excellent. This is even more true if some upstart online offering started attracting HBS students; even if slowly from the low-end of the spectrum. The recruiters aren’t going anywhere.

But why will the recruiters stick? That is because HBS has a rather unique offering in the Business School space. It is really the only top business school where academics devote incredible time to teaching. That is the HBS deal. Academics come to HBS because it gives resources to get in touch with real businesses, study them and write cases about them. It also is great for explaining what you are doing to your family. But while most other business schools emphasise teaching, only HBS demands so much time for it — and so attracts a certain type of academic to rise to those demands.

That system of academic personnel management cannot be easily replicated if at all. The consequence of it was to effectively build one of the perfect ‘flipped’ classroom models decades before the Kahn Academy went that route. Put simply, students study the tools before class and come to class to discuss cases using those tools. And to many recruiters, this method of teaching is what they are after. As case teaching does not translate well to online modes and also works at a smaller scale with equally qualified peer students, HBS really didn’t have to worry about an online threat.

That said, this does not mean that, taking a long view, HBS shouldn’t develop online practices. In that regard, as there is no immediate threat, we are talking about opportunity. And so perhaps I should switch back to HBS case mode again:

Professor Rebecca Henderson read her email announcing the new HBX initiative to bring online education to her own institution, not in disbelief, but in resignation. She had seen it all before. For the last three decades, she had been describing what firms did that developed sustained competitive success over time: it was to establish an architecture and exploit it by building off it in a modular way. These insights had made her the first woman to be a Harvard University Professor in HBS although unlike some of her colleagues her contribution was found in academic journals rather than practitioner media. Now, her own organization was ignoring the very architecture it had created in developing a new program where its success would only doom it to conflict with HBS’s core activities. She thought to herself: “I can only stand by and watch as this plays out and perhaps hope to manage the tension when it inevitably arrives.”

Rebecca Henderson is HBS’s most celebrated academic in terms of understanding how established organisations can organise themselves to ride the many waves of technological changes, threats and opportunities that emerge. She actually doesn’t write in popular spaces much but if you want to get a sense of her work look no further than this recent paper with Tim Bresnahan and Shane Greenstein. It will make you wonder why HBS didn’t come knocking on her door first or, for that matter, the NYTs. (I know, some of you are, cynically, thinking that it was because of her gender. But as they say in House of Cards, I could not possibly comment on that).

Henderson’s approach offers the answer to this case. HBS already have an important architecture. Through the work of their academics — including Porter and Christensen — and the cases they have written — HBS already architected the “language of business.” Why is that important? Because when students at HBS learn from the “creator’s mouths” they are able to emerge into a world that already speaks that language. The more people that understand the frameworks and historical examples, HBS students do, the more valuable is their knowledge. To be sure, by being close to the action, HBS students learn it in a slightly deeper and also more timely manner. But fundamentally, it is because they can use that to communicate ideas to others who are receptive that HBS MBA degrees have such value.

In that regard, the rationale for the HBS online effort is obvious: they should do high scale things that will enhance the value of their current students have in the marketplace. This is so important let me emphasise it:

HBS’s high scale online activities should do things that enhance the value of their current students in the marketplace.

The pre-MBA teaching does not do that. It is teaching a commodity which lies outside of HBS’s architecture. That is why economics and co do not really exist in the HBS MBA core.

Instead, HBS needs to think back to the cases. Years ago HBS could have written cases and only used them internally. They could have also just published them. Instead, they sold them and used the profits to fund further case development to virtually hold a monopoly on the core case material. In so doing, they got other business schools to help fund case development and took those common cases out to management students everywhere. So when an HBS MBA encountered others, they had a common ground and language. To the HBS MBA student this made them more valuable as leaders.

If online materials are to be produced, they need to have the same outcome. One could imagine they are sold alongside cases and might be part of that model. But if the notion is to provide an HBS online platform for education, it must be to spread HBS grounded frameworks further. Not tools. But much more. The developments must be modular to the HBS core architecture of business language development. And that must mean that they must be led by academics throughout HBS and not a separate group.

Of course, they might not see it that way. So I think to myself: you know the notion of trying to capture the architecture that is the language of business is not a bad idea. I wonder if there are others who might do it?

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