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Executive Education Growth Powered By Disruptive Technology

As the global economy returns to health demand for executive education is growing. But business schools face fierce competition in the $70bn corporate training market.

Tue Jun 2 2015

The global financial crisis ensured companies tightened their budgets and cut costs. First to go were training schemes to develop promising executive talent.

But as the global economy returned to health demand for executive education on everything from big data to wealth management began to match supply. Yet fierce competition in the $70 billion corporate training market threatens to burst the bubble.

Consultancy firms PwC, Boston Consulting Group and Bain are joined by newer rival providers including tech companies like Oracle, education publishers such as Pearson and recruiters, which are all vying for chunks of the sector. So-called corporate universities compete, too, with their in-house courses.

Surging demand from companies who see investing in education as a way to gain competitive edge has added fuel to the fire. US spend on corporate training has grown in excess of 10% over three years and in 2013, reached 15%, according to research by Deloitte’s Bersin.

General Electric, Motorola and Philips have increased training budgets to expand their audiences by double and in some cases triple the sizes previously.

Demand from emerging economies in Latin America and the Middle East has been buoyant but no driver has increased take up of executive training like technology. Thomas Jeanjean, dean for executive education at ESSEC Business School, a leading provider, says: “Distance learning, social learning and web platforms are now standard tools…Technology paves the way to a more efficient learning experience.”

The effects of rapid technological advancement are only now being felt by the world’s primer business schools.

Digital has unlocked vast new global audiences in regions including sub-Saharan Africa and has opened a new channel for companies to update the knowledge of their employees. Daphné Schalbetter, director of executive education at Germany’s Mannheim Business School, says participants receive assignments electronically weeks before courses begin.

“Online education is helpful in transporting knowledge and insights,” she says.

At Columbia Business School this year 50% of executive education students will be distance learners.

But tech has also paved a path for nimble upstarts to steal market share from traditional training institutions.

Julia Stiglitz, head of business development at Coursera, the biggest, free online learning platform with more than 13 million users, says several companies including Instagram, Shazam and Snapdeal have joined up with its partner universities, which include IE Business School, Copenhagen Business School and Yale School of Management.

“People are looking for effective ways to say current, get promoted, or switch careers. Online courses can play a big role here,” she says.

Online providers have landed big corporate clients. Udacity works with Google, Facebook and financial services group Capital One, and AT&T recently paid it $3 million to develop programs. Social network LinkedIn is poised to host business courses on the network after its $1.5 billion acquisition of training company

These big-ticket deals highlight the preference for customized courses as opposed to open-enrolment programs. “Organizations have shifted away from open-enrolment to customized programs, where they can see a better return on their investment,” says Susan Cates, president of executive development at UNC Kenan-Flagler Business School, one of the top US providers.

She says custom courses provide a solution to real business challenges —globalization, talent shortages, sustainability and digital disruption are hot topics. Leadership development is another key focus. “Organizations recognize that leadership development should be tied directly to the business,” says Susan.

More robust economic growth has driven a return to executive training and growth markets are the Middle East, China and southeast Asia. Kai Peters, chief executive officer at Ashridge Business School, a UK executive education specialist, says: “Demand has recovered from the low period during the recession.”

Not only are private clients providing a boost to business schools’ income but the public sector too, with government contracts being netted in western Europe and across Asia. Ashridge has provided leadership development to the UK Civil Service, for example, and to various public sector bodies in the Middle East, says Kai.

Custom courses are naturally employer-sponsored but there has been a notable drop in company funding for students obtaining certificates, diplomas and master’s degrees. In 2005, a survey of Executive MBA students by the Economist magazine found that 69% were sponsored by their employers; today, less than one in four is.

Spend on corporate training has rebounded from crisis lows but companies still want to see a return on investment. Participant satisfaction is important to determine value, as are assessment tools and interactions with clients. But there are challenges that business schools face in proving returns, says ESSEC’s Thomas, and methods to assess program success differs vastly from one client to another.

There is a growing need for programs to provide certificates or diplomas which can be credited towards traditional degrees — both for individuals and businesses.

Another problem business schools face is finding enough specialist academics to teach executive education programs. Most participants are highly experienced — they are looking more for practical tools and frameworks they can apply directly into the workplace. “Most business schools lack the resources and the experience to deliver truly customized programs,” says Kenan-Flagler’s Susan.

She says that huge expectations are placed on executive education faculty, and not all academics are comfortable in that setting, although she did not say Kenan-Flagler suffered a shortage of such talent.

The real test for executive education, however, is maintaining relevance in an era of immense competition. Dr David Butcher, director of executive development programs at Cranfield School of Management, says: “The challenge for business schools, particularly university schools like Cranfield, is to have a distinctive offer that cannot be replicated by non-business school providers.”

Business schools rely on executive education — known as a “cash-cow” for its revenue generation — for the bulk of their income. Harvard, for example, reported this year $165 million in revenue from custom programs; London Business School posted revenue of $73 million.

Technology is heralded as a potential growth area, but cyberspace already looks increasingly saturated. Experts are sceptical about its application in executive education. “Needless to say, one of the key benefits of executive education lies with the power of team building and networking — which still works much better in-person than virtually,” says Mannheim’s Daphné.

We are six years on from the cost cutting of the global financial crisis, but business schools will not yet be able to rest on their laurels.