Sunday, June 01, 2014

The Demand for "Face to Face" MBA Programs

The NY Times reports that Harvard Business School has had a long internal debate about how to enter the "MOOC" open source education market.  Unlike Wharton, HBS is offering a differentiated product that it seeks to make money on targeted as a "pre-MBA".   For a more insightful blog post than what I will now say, read what John Cochrane has to say about his experience teaching a MOOC and his predictions about their future.

To keep this blog post focused and sexy, let's only consider the case of Harvard Business School.  This is a rich school with a beautiful campus.  To outside faculty, the great surprise about this school is its focus on the case study method.   As a person who has taught cases to MBAs and sat through case discussions by other professors , I view such cases to be a lousy form of education.  To put it bluntly, it is "cocktail hour chit chat".    The students don't have sound enough fundamentals to really gain from such "bull-sessions". If these students had taken a full year of rigorous course work in micro-economics and data analysis, then I could see the case (no pun intended) for a couple of case study courses.

Think of the examples the NY Times article provides;

"The challenge was to invent a digital architecture that simulated the Harvard Business School classroom dynamic without looking like a classroom. In a demonstration of a course called economics for managers, the first thing the student sees is the name, background and location — represented by glowing dots on a map — of other students in the course.
A video clip begins. It’s Jim Holzman, chief executive of the ticket reseller Ace Ticket, estimating the supply of tickets for a New England Patriots playoff game: “Where I have a really hard time is trying to figure out what the demand is. We just don’t know how many people are on the sidelines saying, ‘Hey, I’m thinking about going.’ ”
It’s a complex situation meant to get students thinking about a key concept — “the distinction between willingness to pay and price,” Professor Anand said. “Just because something costs zero doesn’t mean people aren’t willing to pay something.” A second case study, on the pay model of The New York Times, drives the point home."

So, you don't have to be John List to see that the key to the demand example for NFL tickets is to design a randomized price field experiment to elicit different people's demand for this product and then to estimate aggregate demand for different demographic groups.   The same issue would arise for the New York Times.
Right now, I pay roughly $20 per week for the NY Times home delivery.  If the Times raises the price to $25, will its revenue go up or down? Which market segments would it lose? Will my son ever subscribe to it or will its readers just be people like my parents who live in Manhattan?   These are key economics questions but they require serious economic training to know how to answer them with convincing empirical designs. If millions of dollars are at stake for getting these things right, I would hope that our "captains of industry" are well enough trained to know what they do and don't know!

I have trouble believing that "chatting" about business strategy has high value added for the select set of students who attend HBS. Instead, the value of HBS comes from the face to face interactions between the students as they build up networks among this select set.  

Here is a piece published in Harvard Business Review showing how the network access raises an analyst's investment returns.  For the technical paper click here.  

Since face to face interaction facilitates trust, HBS may justify their case method as increasing the number of student hours in which they actually interact. Ph.Ds may not be needed as Professors in such a setting because we are just friendly observers who facilitate the interaction among the students.