Is OneYear MBA a disruptive innovation ?

“Disruptive innovation, a term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market’, eventually displacing established competitors.”

To put out simply, a disruptive innovation is cheaper, dumber, and unattractive to the existing set of customers. Rather it attracts a new segment of customers. Lets evaluate the 1year MBA program being offered in India by IIMs, ISB and few other premium management institutes on the same scale of disruptive innovation.

a    Unattractive to a typical MBA aspirant – In India we are taught to learn and then earn contrary to the western philosophy of earn and learn. Learning, in India, for few doesn’t stop after graduation as they chose to complete their masters in business management before they take on the corporate world. Many students chose an MBA early on (read just after the college or when they have 1-2 years of experience) as they think that a two-year program from IIMs is a sure shot way to success in life. For many of them “Placements” is the biggest attraction, probably higher than the learning part. Then there are few who are so nostalgic about their graduation days that they are driven towards another college stint. Similarly many other reasons do exist for young people to choose a regular MBA program.

This mindset has created a flux of young, mostly fresh out of college, aspirants, who compete vigorously to secure a seat in the prestigious two year MBA programs in IIMs and other reputed institutes. Data corroborates this hypothesis, as 80% of the two year MBA class at IIM comprises of people with 0-2 years of experience.  For these folks time is an abundantly available resource as they try to take mileage out of their MBA. And mileage is important, as placement is the key driver for their MBA. For them a one-year capsule course is not attractive, as it doesn’t have the mass placement muscle that a two-year program enjoys.

b.   Dumber: Compare 860 contact hours of a two year full time MBA (IIM-C data) with a 800 hours one year full time program.  Holy Cow! You may wonder. That’s the reality! The course design for a one-year MBA program is no different. The same knowledge capsules designed for a two-year participant are shrunk slightly and made available to a one year MBA participant. The teachers, the courses, the structure, the workload, the assignments, the methodology everything remains the same. So from outside (well from inside as well) it appears to be a dumber course. It appears that not much intelligent thought has been put in the course design and execution making it dumber and unattractive for many. Also many wonder if one year is good enough to transform an individual, which they think a two-year program does help in achieving.

c.      Cheaper – I know many would be inching to grab me by my scuff reading this absurd statement that one year MBA is cheaper.  Lets look at it objectively. Two year MBA at IIMs will roughly cost 12 Lacs or so for two years. Plus the living expenses would constitute another 8 Lacs or so. So one can expect to dish out a total of 20 Lacs in two years. Is that it? No way. One needs to add the opportunity cost of two year of job forgone to calculate the total expense. So suppose a guy with 6-8 years of experience earning 10-12 Lacs of yearly income goes for a two year MBA, his total expense would be:

Two year MBA – 12 (tuition fees) + 8 (living exp) + 2*10 (opportunity cost)  = 40 Lacs for two years.

Plus he only starts earning after two years. In contrast a one-year MBA student spends 14 (IIM-C) -20 Lacs (other IIMs) as tuition fee and then 5 Lacs as living expense for a year. After adding opportunity cost of job it comes to:

One year MBA  - 20 + 5 + 1*10 = 35

So total comes to 35 or so for a year. Hardly a difference of 5 Lacs one may wonder. Not exactly! One saves a year of employment, which can give around 18-20 Lacs in return, which is 50% on average more than what a two year program can fetch for a fresher, and that too a year early. So by the time the clock his two years the situation is:

Two year MBA – 12 + 8 + 2*10 =40 + a 12 Lacs job (on average)

One year MBA  - 20 + 5 + 1*10 = 35 – 18 =17 + 18 Lacs job (on average)

 Now see which one is cheaper for a person with 6-8 years of experience? The scene is entirely different for a person who has 0-2 years of experience.  For him the two years expense would be around 25-26 Lacs as his forgone salary would be in the range of 2-4 Lacs. He would need the backing of a more renowned course (read 2 year PGP) for securing a good job. Plus he (in general as exceptions do exist) wouldn’t be able to command an 18-20 Lacs job right after a one year MBA.

So it doesn’t make sense for a less experienced guy to go for a one year MBA right now. In other words one year MBA attracts those 20% of students who are not interested (or can’t afford) in a two year MBA. Thus the argument that it attracts a new set of consumers in the market holds good as it brings in those students who otherwise would not have pursued MBA.

To give credit to Mr. Christensen – a one year MBA does fit the bill for a disruptive innovation. As it has picked up and become popular in Europe, it has the potential to become the preferred course in India well. As the popularity will grow, as the alumni base increases and does well, these one year programs would start attracting folks with the 3-5 years of experience. And time may not be far away when these courses may become equally popular if not more. 

However, the focus of the institutes should be on making the course more relevant than just re-packaging the same two-year course. That would take the proverbial dumbness out of these one-year programs.