Are subscription models the solution for Business Schools?

Building on his notion of ‘degrees for rent’, AMBA & BGA Chair, Bodo Schlegelmilch, outlines why a subscription model could be the game changer traditional Business Schools need, before considering the significance of alliances in an increasingly heterogeneous landscape

There is no ‘typical’ Business School. Consequently, general predictions and critiques of Business Schools may apply to some types of Schools, but not to others. 

There is a myriad of different types of Business Schools: private and public; self-standing and embedded in larger universities; theoretically oriented and managerially oriented; religious and secular; small and large; degree awarding and non-degree awarding; those that offer executive education and those that don’t. It is therefore important to define carefully the type of institution for which one attempts to make predictions.

However, if we focus on Business Schools that hold at least one of the three major accreditations (AMBA, AACSB or EQUIS), how to adapt to new market realities is a central question. I believe that these Business Schools are increasingly facing business model competition.

Business model competition requires thinking outside the box, and so, as an example, why not consider a radical idea? Future Business Schools could follow the trends in many parts of the digital economy and move from offering ‘degree ownership’ to offering a subscription model in which qualifications would expire unless graduates demonstrate a commitment to continuous professional development.

For degrees with a leaning toward practical knowledge, such as marketing, the argument for granting a degree with an expiry date is particularly strong. Rapid environmental changes, primarily driven by technological advances, call for a continuous updating of knowledge. To this end, a subscription model for degrees would just be a logical extension of the continuous professional development already required in some other professions, such as medical practitioners.

Potential financial benefits of a subscription model

For Business Schools, a subscription model could offer an interesting financial perspective. For one, regular moderate subscription rates could add up to substantial lifetime customer values for Business Schools. From a student perspective, the model could also arguably be more attractive than ‘buying’ a degree and paying that degree’s tuition fees in one lump sum. Spreading the financial burden of a Business School education more evenly over one’s entire career would make tuition fees more palatable, especially when taking into account that yearly earnings are likely to increase as one’s career progresses.

These financial considerations lead to the troubling issue of Business School economics. Traditional Schools have an inherent problem – with research and administrative obligations, it’s possible that full-time professors – albeit, depending on institution, seniority, and country – may only spend a small proportion of their time teaching. Assuming a 40-hour week and calculating a generous seven weeks of vacation, a university professor might spend at best 300 hours, or as little as 120 hours, of their 1,800 hours of annual work time in class.

This model makes teaching rather expensive. Nonetheless, top Schools are able to pass these high costs on to their students by charging tuition fees. It is well documented that MBA programmes can run well in excess of $100,000 USD, or even $200,000 USD when factoring in living costs. 

However, for all but the very top institutions offering business degrees, this is rapidly becoming unsustainable. Moreover, the spiralling tuition fees lock out talented candidates for whom such costs are out of reach. A more even distribution of costs during an individual’s working life may be an alternative that also has merit from a perspective of social equity and fairness.

Building customer relationships

The potential advantages of a subscription model go beyond financial aspects. It could also open a path for Business Schools to establish deeper and longer-term relationships with their customers. Such relationships offer an inherently more intensive mechanism for knowledge exchange between practitioners and academia than a traditional exchange between students and professors.

In this scenario, professors could tailor their teaching to the specific needs faced by managers at different stages of their careers and, thus, increase the relevance of the knowledge provided. Senior managers could, in return, share more insightful practical knowledge with professors than young, and often inexperienced, degree students are able to. Such exchanges could also inspire more attention to practical relevance in academic research. This would constitute a win–win situation for both Business Schools and their customers.

While a change to a subscription model would constitute a radical shift, most Business Schools currently seek to optimise potential by less far-reaching options. In their quest to reduce teaching costs, there is often an attempt to optimise delivery. This typically includes the use of clinical or practice-based faculty – essentially lecturers that are freed of research obligations. Blended learning or flipped classrooms can further improve the bottom line if less costly tutors can, at least partly, replace expensive full-time faculty.

In such models, individual students, or groups of students, work through a variety of tasks and teaching material outside class and only need attend the campus for a substantially reduced number of face-to-face teaching hours. While these cost reductions seek efficiencies within the existing Business School model, they fail to question the rationale of the model itself. 

The importance and complexity of alliances

A less radical, but still substantial, change in the business model of Business Schools is the increasing importance of alliances, both between and among different Business Schools and between Business Schools and technology partners. Many alliances are technologically motivated and simply reflect that Business Schools cannot manage the substantial development costs of technology platforms themselves. Others, such as the Global Alliance in Management Education (CEMS) network, are motivated by the desire to offer students more international choices and a superior learning experience. 

A relatively recent example of a primarily technology-motivated platform is the Future of Management Education (FOME) Alliance which aims to provide a common standard that enables the sharing of new technologies and pedagogies across its member institutions. A major objective of the collaboration is to challenge the perception of digital education as a lesser alternative to classroom teaching.

Although there are a growing number of Business School collaborations of varying intensity, most Schools find partnering with the heterogeneous group of technology providers from outside the traditional industry something of a scramble. University College London, for example, launched an online MBA in partnership with 2U. There are also hybrid collaborations between Business Schools and technology platforms. Arizona State University, edX, and MIT, for example, offer a master’s degree in supply chain management and claim to offer the world’s first stackable, hybrid graduate degree programme. 

The danger of tech-platform takeovers

With the advent of MOOCs, the competitive dynamics start to shift from competition between individual Business Schools to competition between networks. These networks include web giants such as Google, publishers such as Pearson, and a whole range of companies that team up to design and distribute educational content. From a Business School perspective, the danger may well be that its brand power erodes when they offer courses through a platform. Large and increasingly dominant technology platforms may become better known than individual Business Schools. For example, students may focus on Coursera when they buy a course and not on the School providing the course. This would parallel consumers who say they buy something from Amazon rather than from the vendor supplying Amazon. Student affiliation may switch from Business School to platform, a threat that appears particularly relevant for Schools with weaker brands.

Business Schools may also forge alliances with consulting companies expanding their digital learning offers, such as the McKinsey Academy or Deloitte University. These companies do not (yet) have the right to grant degrees and typically only offer a certificate on completion of their courses. Ultimately, however, it is debatable whether a certificate from a prestigious consulting company, such as McKinsey, or a degree from a relatively unknown middle-of-the-road university bears more currency. 

In short, Business School education is becoming more heterogeneous as traditional Schools become increasingly entwined with other institutions.

The growing importance and complexity of alliances in business education is further evidenced by collaborations between corporate universities and traditional Business Schools. Take, for example, Sberbank Corporate University in Russia. Sberbank has built a large and impressive campus where they not only train their own employees but also those of selected partner companies.

In this process, Sberbank Corporate University teams up with INSEAD and London Business School – strong brands obviously still count – and makes use of learning material from the Khan Academy. Sberbank and other nonconventional Business Schools use a fly-in faculty model, which saves them the expense of full-time professors. In this way, while students at such institutions may well benefit from excellent professors with up-to-date research records, other Business Schools pay for the research time of these professors.

Cosmetic change is insufficient

The myriad of competitive challenges facing traditional Business Schools demand business model innovations. Some innovations may be radical, such as moving to a subscription model, while others will centre on forging networks, primarily to cope with increasing technological requirements. There is now increasing competition from outside the industry by consultants, publishers, and IT companies, and there are increasingly competitive corporate universities. In addition, there are Business Schools that are system integrators with minimal overheads and no research expenditures that rely primarily on a fly-in external faculty model. 

All this suggests that, for traditional Business Schools, the time for ‘business as usual’ is over. A few cosmetic changes to an existing business model will be insufficient for survival. In particular, those Business Schools that are not among the top aspirational brands will need to adopt alternative business models or risk falling foul of the paradigmatic changes in the business environment.

This article is taken from Business Impact’s sixth edition in print and has been adapted from a wider discussion – entitled ‘Why Business Schools Need Radical Innovations: Drivers and Development Trajectories’ – in the Journal of Marketing Education (2020)

Bodo Schlegelmilch is Chair of the Association of MBAs and Business Graduates Association (AMBA & BGA) and heads the Institute for International Marketing Management at WU Vienna. For more than 10 years, he served as founding Dean of the WU Executive Academy.