The online MBA comes of age by John A. Byrne @FortuneMagazine May 29, 2013, 1:09 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons UNC Kenan-Flagler’s Chapel Hill campus (Poets&Quants) — Douglas A. Shackelford is a professor’s professor. He’s a widely published scholar whose CV overflows with six densely packed pages of published papers, Congressional testimonies, and academic honors. A highly regarded authority on taxation, he’s been a visiting professor at two of the world’s best universities, Stanford and Oxford, and he’s been teaching at the University of North Carolina’s Kenan-Flagler Business School for nearly a quarter of a century. So when Kenan-Flagler Dean James W. Dean Jr. began to seriously consider going into the online MBA market three years ago, Shackelford was understandably aghast. “Oh my God,” I thought, “the budget situation must be desperate. I told the dean that this is such a big bet that either he will be a hero for doing it or burned in effigy on campus if it fails.” Undaunted, Dean plowed ahead, appointing his initially skeptical colleague as the associate dean of the online program, MBA@UNC. In due time, Shackelford shed his reservations and has since become a true convert. Now, as the school prepares to graduate its first class of online MBAs this July, the professor believes that Kenan-Flagler’s move into the online space was not only prescient. “It was brilliant,” concedes the 55-year-old professor. After all, some of the best business schools in the world now offer MBA degrees online. Carnegie Mellon’s Tepper School of Business will enroll its first online class this August. Online MBA programs are flourishing at Indiana University’s Kelley School of Business, IE Business School in Spain, Babson College’s Olin School, and Arizona State University’s Carey School. Every other week, a new business school seems to be announcing the launch of yet another cyber-MBA program. At several schools, including Indiana and Arizona State, incoming online MBA classes outnumber the new full-time students enrolled on-campus. As Robert Dammon, dean of Carnegie Mellon’s Tepper School of Business, puts it, “The wave of the future is the use of technology to deliver education more broadly to people. There [is] a large group of people who don’t want to leave their jobs and still want an MBA from a top-tier school.” From Shackelford’s perspective, Kenan-Flagler’s move into the market two years ago has gained the school plaudits as an educational innovator and has challenged the faculty to think differently about teaching. The program has drawn an exceptional group of working professionals — some of them already earning more than $250,000 — and their satisfaction with the experience has been high. Nearly every quarter, when Kenan-Flagler opens its Internet doors to a new cohort, the size of its incoming classes grows larger. If you’re interested in an online MBA degree these days, you’ll find several quality programs and much wider acceptance of online study from employers than ever before. In fact, so many not-for-profit universities have entered the market that they are now taking significant market share away from the for-profit players who pioneered online education years ago. And while McKinsey & Co. and Goldman Sachs GS aren’t yet recruiting graduates of online MBA programs, that day may not be that far off. Gaining credibility “The acceptance … of online degrees as a legitimate replacement for on-campus degrees is going up,” says Haven Ladd, a partner with The Parthenon Group’s education practice. “Most HR [human resources] departments really don’t care about the differences.” Adds his partner, Robert Lytle, “It’s only a matter of time before professional service firms get comfortable hiring online graduates.” Online education in general is gaining credibility. The decision by the likes of Harvard, Stanford, and MIT to offer MOOC (massive open online courses) has certainly helped. But online MBA programs can still rouse controversy, of course. Many educators continue to pooh-pooh the quality of an Internet degree. They bemoan the lack of community and the limited networking of online education. Duke University’s Fuqua School, which offers a global executive MBA where 40% of the work is done via Internet, refuses to even acknowledge that it is selling an “online MBA degree.” Insists John Gallagher, director of executive MBA programs at Fuqua, “The last thing we want to do is dilute the brand, and so we would never use the word ‘online’ or call it a distance learning program.” Yet as schools with global brands and reputations continue to move into the online market, the quality of the students who are opting to earn degrees on the web is increasing as well. “It’s finally come of age,” believes Phil Powell, the faculty chair of Indiana University’s Kelley Direct online MBA program. “Students who wouldn’t have done it 10 years ago are willing to do it now. Students who are most sensitive to pedigree and quality have finally embraced the idea.” Susan Cates, executive director of Kenan-Flagler’s MBA@UNC, says she just admitted into the online MBA program an applicant who had been fourth in her undergraduate class at an Ivy League university and first in her medical school class. “She just finished up her residency and thinks an MBA will help her go where she wants to go faster,” adds Cates. “With her background, she is not going to do an MBA degree anywhere except a top-tier school.” Unlike traditional full-time MBA programs, which have been shrinking at many schools in recent years, the online MBA market is booming. Last year, for the first time since 1999, when Indiana launched its online version of the MBA, the school enrolled a larger number of online MBA students than full-time, on-campus students. Indiana enrolled 245 students in the past 12 months, 135 in its fall cohort and 110 in this spring’s newest cohort, up 20% from a year ago. That exceeds the 180 students who entered the school’s traditional MBA program in the fall. Babson College, which opened its Fast Track MBA program to the public in 2007 with 26 students, recently graduated a class of close to 140 online students. At any given time, the school has an online enrollment of up to 350 MBA candidates. This July, when the Kenan-Flagler Business School graduates its first online MBA class of 18 students, the school also expects to enroll its largest MBA@UNC online class ever, with more than 80 people. For students who intend to stay in their organizations and use the MBA to enhance their careers, an online MBA is an attractive option. Not only is it more convenient than an evening or weekend program, it’s vastly less expensive than the full-time MBA because students can forego the opportunity costs of being unemployed for nearly two years. If a student is either a road warrior or transferred to a new location, there’s also no problem in continuing their studies. And most online programs enroll students at least twice, if not more often, a year. Kenan-Flagler, for example, has start dates in January, April, July, and October. Online education gets a face-lift Just as crucial, online learning is no longer a clunky and ill-defined stepchild of the educational world. Many business schools are employing high production values, high-end video conferencing technology, and Internet simulations that keep students on their toes. They go far beyond the early Internet courses first available on dial-up connections. In the vast majority of earlier courses, professors put a camera in a classroom to do lecture capture. “The message is, ‘There was a real class and I wasn’t there. So this is second best,’” adds Cates. “We’re using the technology to help us do the same things that we do in the face-to-face program: challenging class discussions, group projects, team consulting assignments, and simulations.” An MBA@UNC course In class sessions online, students often peer at computer screens with a Hollywood Squares-look, seeing fellow students in tiny boxes with a professor orchestrating a discussion via an audio feed. Students can tap on a button to “raise their hands,” generally by typing in a question or a response into a window on the screen. But there’s much more to it than that. In the past six months, for example, Kenan-Flagler piloted its first live consulting project with a team of online students and a faculty advisor, a retired McKinsey & Co. partner. “They will be delivering the same kind of consulting project that our full-time MBAs would do,” says Cates. At Carnegie Mellon, which will enroll its first online MBA class in August, online students will partake in the same intensive leadership experiences — with workshops, seminars, and one-on-one coaching — that were recently part of an update of the school’s full-time, on-campus MBA curriculum. Tangible results: Salary bumps and promotions Increasingly, schools that have been in the online space for several years are now reporting positive outcomes for their graduates. At Kelley, which allows online MBA students to sign up for the on-campus recruiter interview schedules available to its full-time students, the rewards have come in higher pay and upward mobility. Powell says Kelley Direct students who graduated in June 2012 began the program with average salaries of $76,750. When they graduated, their pay was $104,160, an increase of 36%. Moreover, 66% of the students also earned a promotion by commencement. Babson College says students who graduated in 2010 from its Fast Track MBA program averaged a 30% increase in pay by the time they left with their online degrees. “They certainly didn’t graduate during the flush years of the economy, yet they were getting substantial increases in pay,” says Michael Cummings, faculty director of Fast Track. At Kenan-Flagler, 30% of students in the online program for more than a year have gotten a promotion or had a job change internally or externally. A recent study of the online educational market by Parthenon showed that potential applicants prefer hybrid programs that combine Internet-based classes with on-campus study sessions and projects. Pure online programs were favored in the study over on-campus degrees. Giving it the (somewhat) personal touch So far, the scant data available on online degree learning is limited. Cates says UNC’s twice-a-quarter surveys of its online MBA candidates show that student satisfaction is extremely high. “Students feel they know each other well, that they have great access to the faculty, and that they are being intellectually challenged,” adds Cates. For the professors who teach in online settings, it can be a little disconcerting at first. “In a classroom, I can look at a student’s body language and facial expressions,” says Cummings of Babson. “I can tell when they’re not getting it. Now I am deprived of that.” On the other hand, bulletin board discussions can often seem more substantive than the real dialogue in a classroom. “As a professor,” adds Cummings, “You can skate around things in a regular classroom. Your voice evaporates into thin air, but your written comments are there for a long time.” Many of the best schools offering online education require face-to-face meetings between fellow students and faculty. Week-long orientation immersions, weekend retreats, and multi-day consulting projects onsite are all part of the more sophisticated blended programs. After a kickoff week on-campus, Babson’s Fast Track program has students studying two courses over each seven-week module in a 21-month program. In each module, there are four weeks online, then two and one-half days of on-campus class, and finally three weeks of online study. All told, 60% of the contact hours are via the Internet, with the remaining 40% in person. “You are seeing a blurring of the definitions of online education,” says Lytle of The Parthenon Group. While videos, podcasts, animations, bulletin board discussions, and chat features are largely a given in online programs, each school has come up with a different approach to its on-campus segments. The University of Florida requires online MBA students to come to its Gainesville, Fla., campus for weekend classes and projects every four months during the 27-month-long program. A weekend orientation program at the beginning includes a ropes and challenge course. In Carnegie Mellon’s 32-month program, there will be 15 “Access Weekends” where students get together with faculty from Friday through Sunday in one of three locations in Pittsburgh, New York, or Silicon Valley. Aside from the week-long “connect week” on Indiana’s Bloomington campus at the start of the Kelley Direct program, there is a second “connect week” at the start of the second year. And, for the first time this summer, Kelly Direct is bringing 20 of its students to Botswana, Africa for a global consulting project with one of five small businesses. Teams of four students each will first fly to meet their clients, which range from a garment business to an auto body shop, in Washington, D.C., for a weekend. They will then fly back home and for the next seven weeks to work closely with their clients virtually. Finally, in August, they will spend a week on site with the business in Africa before making final presentations to the client. The most common hurdle in an online business program is how to recreate the kind of dynamic class interaction that occurs when a business school professor leads a case study discussion. UNC believes it has discovered a very good solution from its online partner, 2U, an educational startup backed by venture funding. 2U has brought to Kenan-Flagler a way to do case studies from its partnership with the law school at Washington University, which now offers an online master’s degree in United States law for attorneys practicing overseas. “They had to figure out how to teach the Socratic method with their law program, and it became evident to us that this would be a good way to do case study classes,” explains Shackelford. The school records a professor engaged in a rapid-fire exchange with two scripted students who have already taken the course. “At a certain point, the professor looks straight into the camera and asks the live students a question,” adds Shackelford. “Then, the student has to type in an answer. The decision might be, ‘Do you buy a company or not?’ Once you make your choice, and it could require further work, the discussion resumes. It may sound kind of corny but when you watch the video, you feel you are involved in an intellectual exchange.” A lot of the prep work required of teachers in an online MBA program is also finding its way into traditional MBA teaching. Many schools are using their recorded lectures, the so-called asynchronous course sessions, to “flip the classroom,” adopting a model in which professors do the basic lecture on video and use the classroom time for more interactive learning. “It has changed the culture of the school,” insists Shackelford. “I don’t believe we could think about doing education in this building without thinking about doing online now.” If the once-skeptical professor now sounds like an online evangelist, he is. What’s going on is a revolution in learning, says Shackelford. “There are some who are in denial that the world is changing in a big way. But the train has left the station, and I think it’s really exciting.” More from Poets&Quants: America’s Top Online MBA Programs Ten Essential Questions Every Online MBA Applicant Should Ask Are You A Candidate For An Online MBA?