How do B-schools respond to the MOOC challenge?

B-schools have yet to figure  out how to address the MOOC challenge. It is easy to shrug it off, saying that online is no substitute for class-room interaction. That may be well the case but we need to ask: what price level are we talking about? B-schools are investing hugely in expensive infrastructure and charging higher and higher fees. It's not clear that the pay-offs to a B-school degree are rising commensurately. Perhaps, for the top schools, yest. Not for the rest. That's why GMAT- and CAT- applications are falling.

How do b-schools respond? Schumpeter harks back to the Porter model: you compete on cost or quality. For the top schools, the answer may be the latter- offer such a high quality program that it pays off. For the rest, however, costs cannot be ignored. Schumpeter points out how some B-schools are responding;

Though the average fee for an American MBA course has risen by a third over the past four years some schools, such as Cornell and Rochester, are offering shorter courses and others, including Maryland and UCLA, are forgoing the annual fee increase. Ashridge, near London, focuses on short courses for executives. But too many continue to stick their heads in the sand. Meanwhile, they face competition from companies with a monetary incentive to control costs and expand enrolment. The Career Education Corporation, an American firm, is assembling a portfolio of business-oriented institutions. Laureate Education has over 800,000 business students in 30 countries. Private schools such as these are directly challenging the faculty-dominated not-for-profit model, employing staff to teach rather than research and making it easier to combine study with work. And some consultancies and investment banks are running in-house mini-MBAs.

As Schumpeter points out, pruning costs and offer a low-cost model is not easy for B-school administrators because they are run by academics, for academics. Most of the costs are on account of salaries and salaries are inflated to attract research talent. Who will bell the cat is a big issue for B-schools.