As more firms have set up their own “corporate universities”, they have become less willing to pay for their managers to go to business school
“DON’T ask the barber if you need a haircut—and don’t ask an academic if what he does is relevant.” So wrote Nassim Nicholas Taleb in his 2007 book, “The Black Swan”. The trouble for academics, particularly those who teach business, is that companies seem to be posing that awkward question more and more; and then coming up with an even more discomfiting answer.
Firms looking to put their managers through development programmes are increasingly creating their own, rather than relying on business schools, consulting firms and the like. Companies are not only spending more of their training budgets in-house but are setting up their own “corporate universities”.
The idea is not new. General Electric is considered to have opened the first corporate university, in 1956. Perhaps the most famous is McDonald’s “Hamburger University”. Since 1961 around 275,000 people have passed through one of its seven campuses worldwide. However, such in-house academies have become a lot more common in recent years. A survey by the Boston Consulting Group (BCG) found that the number of formal corporate universities in America doubled between 1997 and 2007, to around 2,000. Since then, it reckons, they have continued to spread, and now more than 4,000 companies around the world have them.
The numbers are vague because the definition of what qualifies as a corporate university is slippery. Unlike conventional universities, they tend to focus more on practice than theory, and they rarely hand out degrees. But they are about more than just slapping a grand title on companies’ hotch-potch of ad hoc training courses. Corporate universities have two distinguishing features: the first is a dedicated facility, whether built of bricks or housed online; the second is a curriculum tailored to the company’s overarching strategy.
This latter trait gives the best clue as to why they have become so popular. “The world is changing quickly,” says Rainer Strack of BCG. “Each firm has specific challenges, be it financial crises, the rise of digital or artificial intelligence, or increasing globalisation.” Having training and development under the auspice of a central, in-house facility makes it easier to focus on its distinct needs. Business schools, he says, can be too standardised.
Corporate universities can be particularly useful when a firm is attempting to overhaul its culture. Unilever, a consumer-goods firm, opened its first campus in London more than half a century ago. In 2013 it spent €50m ($65m) opening another in Singapore. When it wanted to change the company’s ethos to focus more on “sustainable” business, its university played a central role. Jonathan Donner, an executive who oversees it, says that programmes espousing the management style the firm was after—“purpose-driven leaders who can deal with a volatile and ambiguous world”, no less—were not available on the open market. So it cherry-picked a bunch of professors, from business schools such as Cambridge and INSEAD, to tailor and teach programmes to be delivered on Unilever’s campus. Apple has gone further, poaching Yale business school’s dean, Joel Podolny, to run its corporate university.
Unilever’s university focuses mainly on its top tranche of management. Other companies take a broader approach. One such is ArcelorMittal, a steelmaker, which has six corporate university campuses, including sites in Ukraine and South Africa. It will soon open three more, two of them in Kazakhstan and Brazil. In 2012 more than 27,000 employees spent around 200,000 hours in its classes. Such a geographic spread is important. Since only around 15% of the firm’s employees have English as a first language, says Christian Standaert, the head of ArcelorMittal University, the firm needs to provide lots of training in local tongues. This helps it develop managers locally, rather than having to send in expatriates to run its operations.
Lecture theatre, or echo chamber?
Although there are many good reasons for firms to invest in corporate universities, they have their limitations. One is the danger of building an echo chamber. Managers who go to a university business school are exposed to ideas from peers in other companies, notes Sim Sitkin of Duke University. And students can safely ask awkward questions without the risk of this affecting their careers.
Even more troubling is that, for all the millions spent on them, it seems all but impossible to measure the effect a corporate university has on the bottom line. Too often, companies do little more than ask those completing a course to fill out a survey on how useful they felt it was. A few try to track employees’ effectiveness for perhaps two years after attending a programme. Corporate universities usually come under the auspices of firms’ human-resources departments, which are usually not geared up to do a more rigorous analysis of what they achieve.
Privately, some firms confide another benefit of shifting management development in-house. Companies have been known to use the offer of education at a prestigious business school, whether an “Executive MBA” (EMBA) degree or a shorter leadership course, as a way to keep their rising stars happy. Even if the business need was not always apparent, splashing out on an EMBA from an Ivy League school made such managers feel treasured and, it was hoped, loyal. Unfortunately, it often had the opposite effect, providing a firm’s brightest and best with a highly marketable qualification that made them more prone to being poached by rivals. Certificates from corporate universities, being more focused on the sponsoring firm’s needs, are less attractive to competitors.
Many firms have now stopped paying to send managers to external business schools altogether. After the financial crisis a lot of companies concluded that they were an extravagance. As better times returned, few have reverted to their old ways. A long-running survey of EMBA students by The Economist suggests that the number who have their tuition fees paid for by their employers has fallen precipitously. In 2005, 69% of students were sponsored; this year 39% were.
Yet the overall demand for EMBAs does not seem to have fallen, according to Michael Desiderio of the Executive MBA Council. That is because despite steep tuition fees, many managers think it is worth paying for themselves. They may be right. Students on the EMBA programme offered by IE in Spain, which has come top in our latest ranking of such programmes (see table), enter the course earning an average of around $144,000. A year after they graduate, this has risen to $260,000, more than covering the $81,000 cost of the programme. Some 82% say they were promoted soon after graduation. Of course, they may have been destined for higher things regardless of their sojourn in academia, but most who took our survey believe that their EMBAs played a part in their rise. For those managers willing to pay, there now seem to be two types of business education: the one they want, and the one their firm wants to give them.
The Economist From the print edition: May 16th 2015