Quality Of UNC Kenan-Flagler Lures MBAs From On-Site To Online

First published forbes.com 4/2016. The University of North Carolina, Chapel Hill, says its online MBA is like its regular MBA “without cheapening quality or compromising rigor.” To test this claim and see where state-of-the-art online business education is up to, I rendezvous with 11 students logged into a Finance Statement Analysis class Saturday morning 10 a.m. EDT with professor Ashraf Jaffer.

The multi-party video-live online forum is by now almost old-hat for business education, as it is for company meetings and job interviews, but the usual webinar experience is mired in clunk—we seem to spend more time figuring out the hand-raise button or un-muting the mic or how to flip to the slide deck than doing what we’re actually there to do.

Jaffer has logged in from Tsinghau University, China, and the students are of course similarly dispersed, and the first thing I find in this class is if you have a question you don’t click the portal’s “raise-hand” icon. You just get your mit in front of your camera in such a way as Jaffer notices, and thus with a delightful minimum of ceremony we rollick into the thickets of operating cost inputs.

In class with MBA@UNC students and Professor Ashraf Jaffer, top left. Picture: the author.

In class with MBA@UNC students and Professor Ashraf Jaffer, top left. Picture: the author.

My own MBA finance is too long-ago forgotten for me to have any inkling of what’s really going down, but it does appear that the students are getting what they need.

To date, the business school and wider university industry has mostly approached online learning as a scale opportunity—a way to reach a greater audience with a limited product at a lower price. Elearning means 1000x students may be served the same product at the same time with a lower-cost, lower-service offering in what is, ironically, the ultimate industrial model.

The main debates have been about choosing which programs “work” online, where to set (global) price points, and how to capture tuition fees—whether at point of registration or point of qualification.

Significantly, the Kenan-Flagler Business School online MBA (MBA@UNC) goes in the other direction. It makes no bid for scale, setting virtual class size at 15 max, and equally makes no concession on price. At $99,500 the MBA@UNC very close to the price point of its regular MBA.

MBA@UNC Director Dan Bursch says the program is guided by a single idea: “We want to match the campus experience in virtual environment, replicating the quality and intensity of the MBA experience.”

He is also not cherry-picking for online scale. The aim is everything in the residential program is reproduced in the online offering, particularly building out the elective portfolio at the rate of four to six new courses a year so that online students are similarly served in terms of choice of concentration.

“We’re trying to build a full set of courses and electives, as a normal MBA would have,” says Bursch.

The path Kenan-Flagler took in 2010 towards achieving this was to outsource all non-academic functions to a Maryland-based Nasdaq-listed firm, 2U (TWOU).

2U built the Learning Management System–the course portal–and runs the Adobe (ADBE) Connect classroom as part of its turn-key solution that includes marketing, student placements, faculty development, and administrative services.

Describing the relationship between UNC and 2U, Bursch says, “We are the Cadillac; they are the Michelin tires we run on.”

2U CEO Chip Paucek describes his company mission as “redeeming the lack of equality to the campus” that online students have always felt, and making the online student a full member of the university community.

As the 2U site says, the prospective online student may think: “I’ll be on my own, I won’t get to know or bond with my classmates, my degree won’t be legitimate, the professors are not the core faculty, the instructors don’t care, there’s no one there to help me…”

To the success of overturning these preconceptions, at least at UNC, Paucek claims the MBA@UNC students reliably refer to themselves as “Tar Heels.”

He should know. He is himself a currently a student there. As a CEO of a listed company, Paucek had many top-tier options in the MBA admissions world—but chose his own product. “Eating your own dog food” is indeed persuasive.

Like all MBA@UNC students, the classes he takes are of two types: asynchronous pre-recorded lectures to watch in your own time, and synchronous real-time class meetings. This is the so-called “flipped classroom”—the lecture is experienced solo and in-class time with the professor is spent interactively.

UNC faculty create the content, and lectures are recorded directly for camera (not recording a live class) and edited by the 2U production team. These online lectures are much as one might experience on Coursera, or Harvard’s HBX, or similar.

The distinction comes in the interactive event, where learners in small virtual groups get the attention and input time that online options don’t usually provide.

Paucek, CEO-turned-student, is quick to point out the pain factor of small classes: “You have to come prepared! It’s plain if you’re absent, plain if you haven’t done the reading or watched the lecture, and plain if you don’t participate. There is no back seat, nowhere to hide in a class of 15,” he says.

But there is benefit accordingly. Kenan-Flagler and 2U have collated data to show student graduation rates and job-placement rates are at comparable levels to the real-world program.

The Kenan-Flagler MBA is ranked in the top-20 in the U.S. (top-40 globally). The online MBA@UNC ranks in top 3 among online competitors, and is currently 1 in the Forbes list.

The proof is in the student-subscription pudding: in 2011 MBA@UNC student enrollment stood at 19; now it is 729.

Exponential enrollment is a particular operational headache for MBA@UNC because, to hit its quality metric, it has to provide for these students via classes strictly capped at 15. In January this year 112 new students all needed to go through Analytical Tools. The 15-person cap meant setting up nine different sections (each meeting at different times so students can choose which best suits them) says Bursch.

Professor Time

This means nine times the amount of professor time. And is also creates a quality management challenge, requiring a coordinating professor to ensure consistency across delivery iterations. Kenan-Flagler has had to get good at a coordinated team-teaching model.

It is this extra cost of faculty time and coordination, across a full set of classes and growing number of electives, that pushes the MBA@UNC tuition up to a level similar to the regular MBA, says Bursch.

The other factor pushing price is of course the 2U profit factor. 2U claims a portion of tuition revenue that Paucek says “is more than 50%” but he’s quick to point out that his company provides everything in the offering other than strictly academic services.

In a typical relationship, “the university provides the academic content and handles admissions choices, we do the rest,” says Paucek.

This means, beyond the technology platform, 2U does regulatory compliance, and handles program marketing, particularly to global audience. It also provides a faculty training and engagement team that prepares its university partner faculty make the adaptations necessary to teach in the online environment.

Critically, 2U provides these services as an at-risk investment—effectively putting in the venture capital required to launch a university online, which the university may be too risk-averse or too bound by budget or bureaucracy to provide itself.

Net Negative Cash

According to Paucek, 2U spends $5-10m true net negative cash in setting up a program, which it only recoups by year-4 on average. Which is why 2U demands both a high clawback rate and long (10+ year) exclusive contracts. The contract with University of North Carolina was just recently extended to 2030.

Based in Landover, MD, the company has about 1,000 employees, and just passed $1bn revenue earned for university partners. Financial results reported on February 25, 2016 put the company’s 2015 revenue at $150.2m, up from $110.2m in 2014, a year-on-year increase of 36%.

As of year-end 2015, 2U had contracts with 14 universities including Berkeley, Georgetown, Yale, Northwestern, running a total of 29 programs for them. It recently announced a partnership with Syracuse Maxwell to create an online version of its Executive MPA. 2U also set up the MBA@Syracuse which opened January 2015.

Says Paucek: “Over time, particularly in executive education, this is going to become the model. It’s simply way too convenient, and you can have as high quality of experience as on campus. So you’re not giving up quality but radically your improving convenience factor.”

For 2U the business model relies on making graduate and executive learning of high-enough quality to lure students from on-site to online, and in the process circumnavigate issues of geography, visa status, family or workplace restrictions, all of which keep would-be students out of the pool.

Millennials

Factor in that Millennials already expect to learn this way, and a vast market of national and international student reluctantly choosing lower- or non-ranked MBAs (AACSB accredits 764 institutions in 52 countries, and many more are not accredited) and the size of the opportunity comes into focus.

Perhaps this explains in part why Susan Cates, until recently Kenan-Flagler’s President of Executive Development (Director of Executive Education) and Executive Director of the MBA@UNC program in March made the move to become the COO of 2U

Meanwhile, as I sit in Jaffer’s class and ponder the experience, it’s clear to me this is not the fabled “MBA experience” in total, but it is a significant revision of the learning benefit equation nonetheless.

What I vividly recall in my own MBA experience from almost a generation ago, across both INSEAD and Wharton campuses, is the absolute intensity—the 16-hour days between classes, workgroups, the library, and, yes, parties—days bookended with too many double-espressos at one end and too much cheap bordeaux at the other.

The MBA@UNC is upending the low-cost, low service reputation that online MBAs have had, but I don’t see it fostering quite the same stories, memories, friendships, at least not yet.

Hybrid

That said, things move fast and the straw in the wind is the hybridization of on-site and online that Kenan-Flagler is starting to see among student choice patterns.

MBA@UNC students are currently required at a three-day real-world event twice during their degree, choosing their date and location from a schedule of quarterly gathering in the U.S. and around the world. Recent locations were San Francisco, London, Shanghai, Detroit, and Budapest.

But beyond this they can and do join residential students for part of their program, for example taking a traditional study-abroad option. And, as the online program garners quality recognition, residential students are asking to take classes on it.

Through this, what is coming into focus is a user-oriented “hybrid” education offering where students choose from a portfolio of real-world and online options, making the best tradeoffs they can according to the kind of graduate or executive education experience they seek, or that their situation will allow.