Do MBA Programs Face “The Innovator’s Dilemma”?

by James Heskett

Summing Up

The verdict of those responding to the column on the threat of the "disruptive technology" represented by online distance learning for in-class, onsite MBA programs is in. In your opinion, the trend represents an opportunity, not a threat. The greatest opportunity is for those to whom the traditional in-residence MBA might not otherwise be accessible. But it extends also, in the eyes of respondents, to those onsite programs with the foresight to take advantage of the unique capabilities inherent in their online counterparts.

First, a number of you argued that the two are not directly competitive. They offer different products that provide different results for different markets. Alan Carswell points out that online programs are ideal for adult learners with "less need for the social role of college," but that "there will always be a place for in-situ MBA education that has socialization as a pedagogical function." His view is seconded by a respondent who currently is in the last semester of an online graduate program and says that "virtual education is one more way to eliminate the great divide between those who have and those who do not." As Joshua Doherty puts it, online programs "offer convenience, but not unique knowledge or opportunities to network." Isn't 'adapting to change' almost a synonym for learning? —Jed Bullard

Second, distance learning offers a great opportunity to purveyors of more traditional forms of education. This is particularly true of those with "strong brands." Describing the new virtual schools as "intermediaries," Ilyas Naibov-Aylisli suggests that schools with highly regarded and recognized names (or "trustmarks") "create a wealth of their own content ... [with] aggregation and interpretation of knowledge [as] ... their core competency," all of which gives them significant competitive advantages in the educational market.

However, this doesn't mean that onsite programs can ignore their online counterparts. In fact, several of you argued that the emergence of the latter offers a great learning opportunity. For example, Jed Bullard maintains that "[onsite] MBA programs MUST study, embrace, and implement their own versions of e-learning programs, if only to remain current in their curriculum offerings to their 'traditional' students." In his words, this behavior should characterize well-respected programs. He asks, "Isn't 'adapting to change' almost a synonym for learning?"

Little attention was given to the influence of alumni in shaping current educational strategies. Alone in his concern about the brand "dilution" resulting from the introduction of an online MBA by a highly regarded onsite program, Joshua Doherty questioned the futures of top-tier schools that may lose their ability "to exploit the market power of exclusivity." How would alumni react? What effect would it have on sources of support, both financial and nonfinancial, for such institutions? And aren't these some of the very dilemmas faced by organizations encountering the "innovator's dilemma"? What do you think?

Original Article

There are few thought leaders in business today who are unfamiliar with colleague Clay Christensen's research of what he calls "the innovator's dilemma." At the risk of doing great damage to a carefully executed piece of research, I'll paraphrase it this way: Christensen maintains that large, complex, successful organizations that succeeded by responding to what important groups of customers say they need in the way of products and services of increasing capability (as well as prices and margins) expose themselves to competition from innovators who create alternatives with limited capability at very low cost. Such alternatives are more attractive to the mass of customers who are not "leading edge" users, and thus preempt large shares of the existing market. Further, Christensen maintains that precisely because of their size and success, organizations with "household names" are uniquely incapable of responding to competition from "disruptive technologies," thus becoming sitting ducks for smaller, more innovative competitors. One potential antidote that he recommends is for larger firms to create or partner with organizations that can literally put certain of their product- or service-producing subsidiaries out of business.

Christensen cites IBM and Merrill Lynch as examples of companies exposed to disruptive technologies. The disruptive technology for IBM is Dell's use of direct marketing and distribution, particularly over the Internet. For broker Merrill Lynch, it is online trading fostered by organizations like Ameritrade and Charles Schwab. Although not mentioned in his book, The Innovator's Dilemma, one has to ask the question of whether leading business schools, including the Harvard Business School, fall into the category of organizations ripe for plucking by an organization with a disruptive technology such as online learning.

The fastest-growing segment of education, of course starting from a small base, is that delivered online. Increasingly, anything, anywhere, anytime is becoming possible for those desiring education of all kinds. It is particularly attractive to those for whom time demands preclude a commitment to learning and teaching performed at the convenience of an instructor. Increasingly, employers are competing with educational institutions for students' time, and in many cases employers appear to be winning. Increasingly, the disruptive technologies are being implemented by a new breed of educator, one that has had little to do with the traditional halls of ivy or institutions such as academic tenure.

The Christensen defense to this educational competitive threat might be for traditional purveyors of management education to create new organizations staffed predominantly by nontraditional academics and administrators and given the latitude to put traditional programs "out of business" if they can. The model appears particularly fruitful for non-degree, executive education. But inevitably, it will increasingly be applied to degree programs as well, including the MBA.

Ultimately, the question may be raised about whether business schools such as Wharton, Kellogg, Harvard, or Stanford should offer MBAs online as a response to the innovator's dilemma. What do you think?

    • Ilyas Naibov-Aylisli
    • Assistant Brand Manager, Procter & Gamble

    The most successful Internet companies to date, like Yahoo!, Amazon, and eBay, are all intermediaries. Likewise, the new virtual schools are also intermediaries, delivering the knowledge accumulated by the academic and business communities to students. The question is: can virtual pure-plays compete with the best traditional universities should the latter go online? There are some factors that create a huge advantage for the top schools. First, they are very strong brands. The importance of the brand as a "trustmark" is just as high in online education as it is in traditional education. One can argue that it is even higher online, since a virtual school has fewer means to communicate its trustworthiness. Second, traditional universities create a wealth of their own content. They foster academic communities of unmatched knowledge power, like the MIT's Media Lab. Third, they are in a better position to add value in an intermediary role, since aggregation and interpretation of knowledge and its delivery to students is their core competency.

    It may take some time for the top schools to establish online degree programs, as they need to evaluate the impact of the online model on the quality of education, especially versus their own traditional programs, and the larger social and economic consequences of such a transition. Once the top schools decide to launch their online programs, they will capture leadership fast. By that time the top schools will have honed the online model in nondegree programs, as well as learned from virtual universities' mistakes.

    • Alan Carswell (HBS '82)
    • Director, MIS program, University of Maryland, University College

    There will always be a place for in-situ MBA education that has socialization as a pedagogical function. There are things one can accomplish in an immersion program that seem impossible at a distance (at least with today's technology). Still, there is a population of adult learners seeking MBAs who already have their own social and professional networks in place, and who thus have less need for the social role of college. They can't (or choose not to) withdraw from their professional, family, and personal commitments to pursue a degree. For them, the convenience of online education makes up for the lack of serendipitous, unplanned social contact and network building that occurs when they interact in person with classmates and faculty. These are the customers for online education.

    Traditional academia has a formidable infrastructure controlling how knowledge is created, accepted, and transmitted. Accreditation, scholarly journals, the tenure system, and generations of culture have solidified the place of traditional schools. Anyone who wants to offer alternative education has to justify themselves in terms of this existing infrastructure. No matter how innovative their curriculum or cutting-edge their technology, a company offering an online MBA has to address the issue of accreditation.

    • Jed Bullard
    • Chairman, E. D. Bullard Company

    I agree with Ilyas Naibov-Aylisli's comment, but would also suggest that MBA programs MUST study, embrace, and implement their own versions of e-learning programs, if only to remain current in their curriculum offerings to their "traditional" students.

    As we have seen in e-commerce, traditional bricks and mortar organizations are rapidly adapting to the new opportunities and challenges. "Bricks and clicks" seems to be the mantra of both traditional and, as recently reported, e-commerce firms. To ignore the possibilities of distance learning over the Internet might spell doom for an educational institution's capabilities, applicant pool and, ultimately, its reputation. Worse, playing ostrich in this arena might cause an educational institution to be questioned as to its ability to adapt to changing trends. Isn't "adapting to change" almost a synonym for learning?

    E-learning is another form of learning, not a replacement for classroom learning. Successful and forward-thinking educational institutions will, I believe, find innovative and creative ways to integrate this new technology in ways that won't threaten their foundations at the same time.

    • Anonymous

    I think there is a place for traditional schools to bring their expertise to online education and degree programs. I am in the last semester of an online Masters program through the University of Utah. Their program has matured over the past two years and is becoming very strong. The level of learning, coupled with the ease of learning, is impressive. It will be schools like Harvard that can take advantage of the lessons learned by other universities who pioneered online education programs. I look forward to seeing top schools enter the twenty-first century of education by opening their virtual doors.

    Virtual education is one more way to eliminate the great divide between those who have and those who do not. Education must be accessible to everyone, even those who work full time and need to study at 11 p.m. Virtual classes allow for this learning process. Nothing is lost in the education process if professors combine projects, topic discussion threads, and a strong research-and-project application with their classes.

    • Joshua Doherty
    • Senior Consultant, Luminant Worldwide

    In recent years, many online MBA programs have been developed by non-schools, unknown schools, and very reputable schools. Duke and Columbia have operated online MBA programs for more than a year.

    According to Christensen, disruptive technologies initially serve undefined markets or micromarkets. As the technology improves, these offerings migrate upmarket until they cross into the traditional markets of established players. For MBA programs, the question is whether these online programs can actually migrate upmarket, or offer only incremental improvements to current markets. In my opinion, it is unlikely that upstart programs will displace the current leaders. They offer convenience, but not unique knowledge or opportunities to network.

    There is also a risk associated with online programs: brand dilution. The current capacity of bricks-and-mortar programs causes traditional schools to accept a limited number of students. Top-tier programs are able to exploit the market power of exclusivity. As that exclusivity is diluted, the brand becomes less appealing. As this market evolves, it is likely that segmentation will prevail. The traditional school-based programs will be the elite versions of the brand, while the online programs will be targeted at executives and lower-tier students. It is also conceivable that these programs will not confer degrees, thereby meeting demand for access while avoiding brand dilution.

    While this lays out one scenario, Christensen does show us that the traditional players are remiss if they feel they can rest on their laurels.

    • Devdip Ganguli
    • Student, Sri Aurobindo International Centre of Education

    Educational institutions exist for one basic purpose: to impart knowledge. Considering the flexibility offered in online programs, we can very hastily conclude that they may indeed be very effective.

    There are, however, some things electronic signals alone cannot teach. When students come out of an institution like HBS, they have more than business theories and knowledge in their heads — they have nourished friendships, drawn inspiration from peers, and spent two years that will allow them to chart a course most of their generation will fail to do. Business is more than just knowledge in the form of theories. Exposure to this aspect of education is difficult in online education, if not impossible.

    In time, online learning could be offered a la mode, with traditional universities offering their own fine-tuned programs. But it will be some time before the modem can replace the professor.

    • Suresh Annappindi (MBA '99)
    • AVP, Marketing Analysis, First USA Bank

    In my opinion, not every institution or industry faces a serious challenge from disruptive technologies. Dell and E*TRADE, for example, adopted Internet-enabled or Internet-supported disruptive technologies to deliver their same products faster and more cheaply to consumers, without fundamentally changing the end products themselves.

    The assumption that online education is a threat to traditional classroom-based education may be a little overhyped. The main learning in the traditional MBA program comes from the interaction between students and faculty, and among students themselves in an atmosphere that fosters entrepreneurship, critical relationships, innovation, and creativity. Although elite MBA institutions such as Harvard and Stanford are adopting cutting-edge Internet technologies to enhance the learning experience, online MBAs will never deliver the same promise as that of quality traditional MBAs. At best, the online version will be a convenient alternative, as are distance-learning MBA programs.

    • Anonymous

    1) International, computer-based testing of all students will replace the trusted name recognition of Wharton, Harvard, Stanford, etc. Today, the NBA and NCAA Division 1 schools search for 18-year-old talent worldwide. Tomorrow, the same search will be made for brainpower/talent. Employers will want to know your international rank: top 1%, worldwide, etc.

    2) Most likely, as distance education moves from video-on-demand to deep-linked programming, really cheap disruptive distance education will launch in India, following the economic principles of The Innovator's Dilemma. India could be what Arkansas was to Wal-Mart. India has vast populations needing cheap education, the needed software programmers, and it speaks English, allowing for rapid upgrading for U.S. markets.

    3) If the distance education providers reinvest in higher salaries and research support for a few superstar teachers, as Hamel argues they will, they will achieve lock-in as the results of research feed back to instruction.

    • Pierre Lorenceau
    • HBS 2001

    HBS and e-learning are NOT competing, for two reasons. They serve different markets, and they provide different value propositions.

    People who want to learn leadership will come to HBS and other Ivy League schools. People who are not career changers, who can learn on the fly, or who need to learn technical disciplines will be better served by e-learning.

    E-learning is better at teaching scientific material in which there is one answer, and where the computer verifies that you "got it right." Math, finance, and other technical material could be the success zones of e-learning.

    The traditional method, by being a fully involving experience, has an absolute competitive advantage for career changers. HBS is very good at teaching how to behave with smart people in the same class every day. We have to remember that the brand of HBS and Stanford, for instance, is mainly based on the number of CEO and success stories. In opposition with high tech disruption, e-learning cannot win in a quick battle.

    If HBS and other schools concede that e-learning is better for some functions, but make sure that the scope of those functions is clearly narrowed to its true territory, there will be no disruption.