How to Choose an Online MBA School, 2010 edition

In my prior articles, I noted that online MBAs have grown rapidly in credibility and value in the past decade, while at the same time the student must chose carefully which path to take to earning an MBA. A Masters of Business Administration is the capstone for many business professionals; there are few reasons to seek a Doctorate, and while there are a number of licenses one may pursue, such as the CPA license for accountants, which enhance the MBA degree, the MBA is a fundamental identity statement for a professional, and so the school where the degree is earned should be a very careful decision. There is no guarantee that earning an MBA from a certain school will guarantee you a job at all, let alone the position you desire in the company you wish to join. But it is true that a good choice of schools can improve your professional profile, and in combination with well-presented experience and career accomplishments can make your resume compelling to the decision-makers who review your application.

In earlier articles I mentioned the sort of student who would, I think, thrive in the different environments of the varying MBA programs. So far as online programs go, there are essentially three types of ‘online’ programs:

[] Minimal online participation - a growing number of schools offer at least some courses online. This makes the curriculum a bit more convenient, but it’s not a true online degree, since the barriers of time and travel would still apply. As a rule, for my purposes a school is not an online school in terms of earning an MBA unless no more than six hours of coursework must be completed on site or at specific sites. In the same way, satellite locations do not count as online schools.

[] Periodic Campus Residence Requirement – a number of programs offer online degrees, but include a requirement of three-to-six weeks of residence a year on campus. This is usually tied to a project or special event, ostensibly in support of the program but too often used to promote the university as a future fundraising beneficiary. I do not consider such programs to be a true online MBA, since the time and logistics required make the program untenable for many students who seek an online MBA.

[] Pure online curriculum – this used to be very rare, but is gaining popularity, due to the fact that so many experienced managers returning to school for their MBA can only commit to an online regimen. The ability to supervise work and examinations (especially with the use of proctors at satellite sites and virtual proctors online) and the ability to use online tools to improve the quality of discussions, group projects and virtual teams all have direct real-world applications value for businesses, and so the online student can offer an advantage to employers as a result of his curriculum. This makes online study an asset rather than a liability.

My review of online MBA schools, therefore, will be limited to discussion of schools which allow the majority of work to be performed online, and are accredited by the AACSB, the Association for the Advancement of Collegiate Schools of Business. Before I go on about the rest of my criteria, let me explain why the AACSB is so important.

The AACSB was founded in 1916, so it’s one of the oldest accrediting groups for business schools in existence, and it’s also the largest, a worldwide organization with 579 accredited member schools (46 for undergraduate only programs, 51 for graduate only programs, 482 for both undergraduate and graduate programs).

The original founding schools include Columbia, Dartmouth, Harvard, New York U, Northwestern, Ohio State, Tulane, Cal-Berkeley, the University of Chicago, Purdue, Illinois Nebraska, Penn, Pittsburgh, the University of Texas, Wisconsin-Madison, and Yale University.

Essentially, every significant school of business has been accredited by the AACSB. Also, the accreditation process is ongoing, so that accredited schools are required to show continual improvement, and includes both self-evaluation and peer review. Most AACSB schools also have regional accreditation and according to the affiliation of the school. The AACSB accreditation therefore is the single most consistent designation that establishes the school meets reasonable expectations of academic quality and ethical standards. The AACSB, in turn, is recognized by the Council for Higher Education Accreditation (CHEA). Specific standards used by the AACSB for accreditation may be found at its website.


So, I have established that my MBA candidate schools must offer a mainly-online (no more than six hours of face-to-face coursework required) curriculum, at a business school accredited by the AACSB. Tuition cost for out-of-state residents (including fees and service charges), availability of specialized concentrations and dual degrees (such as MBA-JD or MBA-MD programs), average GMAT score and Student/Faculty ratio are all major factors in consideration. Ranking of the full-time program by major periodicals is a minor factor, as is the availability. The 2008-9 profile for each school published on the AACSB website is used for initial consideration. Web information provided directly by the school’s site builds the rest of the report for a school.

This is the foundation for my continuing rankings of Online MBA programs. Further detail as to qualities considered and their weighting will be discussed when I release the results. But I also want to emphasize the chief value of online programs, that in today’s knowledge-based professional world, there is no such thing as one-size-fits-all, nor is any one program the best for everyone seeking an MBA. To my mind, there are generally five categories of people seeking MBAs, though again I caution everyone to think long and hard about their personal needs and goals before considering how they want to build their future. Generally though, there are students who proceed to Graduate school directly from their Bachelors’ degree; there are people seeking to add the MBA to another professional appellation, such as a J.D. or an Engineering degree, because they want to add business value to a vocational specialty; there are people who have work experience but who want to move into Management; there are Managers who have business experience and want a degree that quantifies their ability and skills; and there are managers or business students who intend to become Chief officers at the top private and public firms, and who believe that the most prestigious school is necessary to achieve that end (a fiction, when history is considered, but a popular myth all the same).

A traditional face-to-face full-time program at a prestigious business school ranked by major periodicals is the closest thing to a sure winner, since the programs will teach all of the expected skills, the name recognition at the school will give good opportunities at major firms and may well provide an advantage for six-figure positions. However, such programs often are prohibitively expensive, are resistant to changing business realities (as an example, most prominent business schools downplayed the importance of Risk Management until after the financial crisis of 2008 became apparent), and while rich in theoretical knowledge, are often siloed apart from grassroots business experience. Also, the cost-effectiveness of such programs for anyone not able to find a position paying more than $200,000 a year is, at best, dubious. It is my recommendation to anyone considering a Masters in Business Administration to get the best degree they can afford, but not to be fooled into believing that a big price tag means a better education or opportunity. In the first group, students just finishing a Bachelors’ degree, the school you went to, the amount of debt you carry and can afford to take on, your GMAT scores and GPA all combine to indicate the level you should consider. Generally, young students can best handle the regimented structure of the on-campus cohort, but the debt load should be carefully considered and I would strongly recommend discussions with companies you would like to work for, to find out what sort of degree they want to see.

For students seeking to combine an MBA with another professional license or degree, keep in mind whether your program can offer everything you need, and again what pedigree will impress your desired employer – law firms and medical associations, for example, may well care most about your ‘primary’ degree and only concern themselves with an MBA to the degree that you have one and do well in earning it. People who are thinking about moving in Management, should be particularly sensitive to what the degree will do for them. That is, only certain kinds of people ever get the chance to become CEOs of major corporations, whether private or public. Generally, these are the people who found such companies and build it, or who join the company as a ‘fast-track’ hire, whose degree may impress but more often they had a connection, a mentor or more often a high-ranking patron who opened the door for them that most people never see. That’s not to say you can’t do well without that opportunity, but there is no ‘magic wand’ associated with the top name schools. Your work defines your opportunity, in most cases, and therefore the school becomes less important as your experience grows and you demonstrate a true work history. I have seen many solid executives build their career through hard work and an MBA from a ‘little’ school, but never one who went to a top school but did not also do the work to earn the promotions. Therefore, careful consideration of the school’s cost, its name recognition, its growth in the past decade and its suitability to your personal career goals are all vital factors to include in your decision.

When Morons Have Power

This week’s edition of BusinessWeek warned that casinos are losing money. Well, duh. It’s not hard to figure that when you have no disposable income, you will be even less inclined than usual to do things that are wasteful and expensive. Or at least that’s how normal people think. For some reason, some people with a lot of power make incredibly stupid decisions. Today’s example is Drayton McLane, owner of the Houston Astros Major League Baseball club.

The Houston Chronicle released a study which showed that MLB has been trying to protect fan interest and attendance during the recession, and one of the steps taken by almost every club is to allow fans to bring in their own food and drink. While certain conditions apply (no glass bottles for example), every Major League club but one allows folks to bring in their own food and drink. That exception is the Houston Astros club.

The Astros actually set up sentries at the gate to catch anyone trying to sneak in food. Ahhh, but it gets better. An NBC reporter noted “inane stadium policies seem to be Houston's stock in trade. From personal experience, you should know that if you should purchase a beer on one level of Minute Maid Park you are not permitted to bring said beer with you to your seat on a different level. Attempts to figure out why that's the case via conversation with the guard stopping you from the stairwell will result in splitting headaches.”

Nice to know that the ‘Stros are building a national rep in that category, huh?

The Astros first tried to claim that they are bull-headed about food price because they have low ticket prices, but that turns out to be a lie as well: 19 of the other 29 teams offer lower average ticket prices than the Astros.

The team also tried to suggest that we are paying for a quality team. Problem there is that the Astros are in last place in the NL Central, and playing like they mean to stay there.

McLane then tried to claim that banning outside food at Astros games “has been kind of a tradition in Houston”, said Astros owner Drayton McLane, who purchased the team in 1992. Spoken like a descendant of Louis XVI, not a guy who knows baseball or gives a fart about anyone but himself. Even Steinbrenner would know better than to toss out that kind of arrogance to the public.

So all that establishes that the Astros club doesn’t care a fig about its fans, and is just a business based on greed. That proves poor morals, not bad business, right?

To answer that, let’s consider the business model of MLB club. There are four sources of revenue for a ball club; ticket sales, shares of broadcast revenue, marketing and souvenir sales, and concession sales. McLane is not about to open his books to the public – that kind of honesty has never been how Baseball clubs work – but we can figure out some general numbers from public data. USA Today says that the Astros have a payroll of $103 million, which happens to be the highest in the NL Central. The average ticket price for an Astros game is $28.73, and average attendance for Astros home games so far this season is 29,932, lowest in more than a decade.

That’s down 13.9% from last year’s average at this time, which was also no record-setter. But the revenue from attendance, using the year-to-date pace, would produce $69.6 million for the Astros, more than $33 million short of the payroll even if it cost nothing to operate the stadium, equip the team or pay anyone else. The drop in attendance from last year means at least $11 million lost in lower ticket revenue, unless the Astros do something to attract more fans.

The same effect happens in broadcast games, in fact it’s amplified. The networks only run games that they believe have significant fan interest. While the Astros would receive a minimal amount of attention, their poor performance and low fan attendance would reduce their network profile, meaning fewer televised games and lower revenue from broadcast. Specific numbers are closely protected, but it’s just common sense to conclude that empty seats mean lower broadcast share revenue.

Then there’s souvenir and marketing sales, like jerseys and bobbleheads and so on. How hard is it to understand that if folks don’t buy tickets and go to the games, they won’t buy anything from the gift shops? And even though many stores sell Astros merchandise, last-place teams are not known for strong team product sales. Combine the lousy performance this year, the recession, and management’s jerkwad attitude towards the fans, and it’s very reasonable to guess that product sales are sharply down, by even more than attendance.

Then there’s that concession revenue. Just how stupid McLane is being, becomes evident when you think about the fact that absolutely no one will buy food at Minute Maid Park unless they actually go to a game there, meaning that Drayton’s ridiculous attitude is punishing the people he should be bending over backward to make happy – the fans who are still coming to games. As attendance goes down, concession revenues will also necessarily decline, and given the nature of concession inventory, profit margins will also fail. I used to run movie theaters, and I know that when attendance falls below certain levels, your losses from unsold food increase, no matter how well you try to plan ahead. That is, a 14 percent drop in attendance will necessarily mean about a 16 percent drop in concession profits, unless you lose even more.

Forbes says that the Astros' operating income is only 8.76% of their total revenue, meaning that unless the Astros had a 5.1% profit margin or better in 2008, they are going to lose money this year. This is because so much of the Astros’ costs are fixed, like payroll and leases; they are not going to be able to reduce costs to any great degree, because their variable costs are below 10 percent of their total costs. The short version of MLB clubs’ model is that they are profitable only when their home games have high attendance; low attendance produces business losses. Accordingly, the only sane strategy for a team owner is to attract the maximum number of fans, and this is why 29 of 30 clubs have relaxed their rules on outside food and drink – it’s much better to lose a bit of concessions revenue but protect the fan base, than to lose money in all four categories through sheer stupidity.

It’s curious that Drayton McLane could fail to understand this rule of business. McLane is very wealthy, and became so through running his father’s grocery business, spending 14 years as a general manager of operations. The key seems to be that from 1964 on, McLane moved out of operations and into distribution planning. That is, McLane has not had real contact with regular people for decades and has increasingly come to believe not only that he is competent at whatever he chooses to do, but also that only he understands the situation and the best plan of action. Not so long ago, Sports Illustrated wrote that McLane is obsessed with control, unwilling to allow anyone else to make adjustments, even when those people know far more than he does about what needs to be done.

It appears that this is another such situation.

In the 2005 season, the Astros started off horribly but rallied and frankly got a lot of luck on their way to the World Series, where reality set in and they were swept by the Chicago White Sox. The Astros have not even made it to the playoffs since then, something McLane seems to miss every time he raises prices or does something else to show his contempt for Houston and the people who live there. The bottom line is that McLane does not understand the bottom line, strange as that may sound. He has the power to do what’s needed, but would rather ram the iceberg at full speed in order to prove he has control.

Sadly, there are many people like McLane around right now, in all sorts of positions of power.