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In academic circles, the idea of educating students for a profit is a touchy subject. After all, schools are supposed to focus on the welfare of their pupils, not on revenues. But recently, top-flight universities have begun to reconsider their "business models."
That's why Blair H. Sheppard, a senior associate dean at Duke University's business school, sounds just a little defensive. "I completely avoided selling my soul," he says of Duke's decision to create a for-profit company alongside its J.B. Fuqua School of Business. On July 1, the school will make Sheppard, an academic by training, a CEO, and he'll leave the B-school.
The university's startup, called Duke Corporate Education Inc., will run the B-school's custom executive education program -- nondegree courses that get execs up to speed on the latest business trends. The company already has clients, products, and professors who are being transferred from Fuqua to the startup's payroll. Ultimately, Duke will repackage the materials it creates for executives into online courses for the general workforce.And if things go smoothly, the company could go public, driving revenues to a B-school -- Duke retains a 60% share -- with an otherwise small endowment of less than $100 million.
ON THEIR OWN.
Duke is the first Top 10 B-school to spin off a for-profit company in the U.S. And it's doing so at a key time for management education. B-schools are warming to the idea that they shouldn't be limited to offering an MBA degree but should also appeal to students who want to learn about many subjects -- on their own schedule. Schools are even considering teaching business skills to entire workforces -- from secretaries to salespeople to execs.
One measure of the demand for such education, Duke officials say, is that the number of in-house corporate universities has quadrupled since 1995, to 1,600. "That indicated to me that there's something we needed to," says Rex D. Adams, Fuqua's dean and the new company's chairman (he won't be leaving the B-school).
Duke is aiming to grab a chunk of an online corporate education market that may total $11.4 billion by 2003, up from $234 million this year, according to International Data Corp. Analysts say spin-offs are the way to attack it. "Schools are too imbedded in politics," says Clark Aldrich, director of research on e-learning for Gartner Group. Cornell University created its own for-profit company, eCornell, last March. eCornell doesn't focus solely on Cornell's Johnson Graduate School of Management, but B-school dean Robert J. Swieringa says "it's a central part of our core strategy." Indeed, the B-school plans to use the Net to sell its executive education programs.
FACULTY RAID.
Meantime, Babson College's B-school in Wellesly, Mass., is looking for a CEO to run the company it will launch this summer. That school's goal is to put content on the Web that will support part-time MBA students and corporate clients. Babson officials haven't decided whether the company will be for-profit.
One of Duke's objectives is to recruit more faculty from its competitors. The company will offer equity, albeit a small piece, in Duke Corporate Education, plus market-level salaries. "There are probably 10 conversations [with faculty recruits] going on that are [almost closed]," Sheppard says. "Some are at competing schools, others are people who've left recently to do consulting work."
The bigger its faculty, the faster the company can expand its business, or so the theory goes. "There's nothing more painful than having a customer get frustrated with you because of your incapability to serve them," says Fuqua Dean Adams. He says the company was created because of increased demand from clients.
REPACKING.
The business model for Duke Corporate Education is two-pronged. One objective is to advise companies on their corporate university strategy, something Fuqua never did before. Sheppard is adamant that the faculty won't consult for corporations but rather create propositions for companies to pursue. He says the company will hire outside consulting firms to work with clients. The other goal is teaching -- mainly top executives -- on subjects such as how to develop a single corporate culture after a merger.
The company will then repackage the lessons, add content from outside suppliers, and put it all on the Net for a larger audience among the client company's workforce. That way, an employee who needs more information on, say, financial derivatives can log onto his or her employer's intranet to see what Duke has to say on the subject.
Before spreading its wings, Duke is wrapping up an initial round of financing of $24 million. The school won't say which venture-capital firms are providing funding. But Duke will keep a 60% share in the company, with capital partners sharing 20%, and employees splitting the final 20%. "This is the easiest money I've ever raised in my life," says Adams.
OUTSIDE HELP.
Still, simply having academics at the helm of a new company doesn't make Duke Corporate Education a sure-shot success. That will depend on the speed at which Fuqua can transfer its existing business in custom-made executive-education programs to the company.
To help with that effort, Duke is also recruiting from outside academia. Judith Rosenblum, formerly a vice-president and chief learning officer at Coca-Cola, will manage the part of the company that advises corporate universities. "Traditional industries have to get over the hurdle of thinking that everything has to be done in a classroom," she says. She's banking on the idea that younger employees who are comfortable using computers will take well to online learning.
Some corporate universities are already a step ahead of her. Sun Microsystems' SunU and Cable & Wireless' training group have each created their own online courses for employees. "E-learning is a major part of our strategy and needs to be for anyone's company," says James Moore, director of workforce development at Sun. He says SunU costs $30 million a yearto run, nearly a third of which is channeled into e-learning projects the company creates in house, or purchases from suppliers. By 2002, he hopes employees will look "first to their desktops, and not to a catalog, for learning."
SLOW LEARNERS.
Fuqua has made some e-learning misteps in its past. Last November, it announced a new part-time, online MBA program for corporate clients, the Cross Continent. While 100 students have signed on, Sheppard concedes that executive-level students have been slow to accept online learning, especially since the programs haven't been integrated into many corporate technology infrastructures. But that should change, he says: "This is a Trojan Horse for making people think differently about how they work [and learn]."
Duke could be out on a limb again, though. Kevin Wilde, corporate director for management and organizational development at General Mills, says he isn't convinced that online learning will prosper. "The business case is compelling," he says. "You can save money. But normal adults don't learn by looking at a screen all day." Sheppard, however, isn't dissuaded: "Duke can't go back," he says. "We have no choice."
Copyright 2000 , by The McGraw-Hill Companies Inc. All rights reserved.
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