If U.S. business schools are hearing footsteps these days, it's because of the growing number of corporations that are blazing their own educational trail, implementing a customized brand of management development and training programs for their employees.

A recent report estimates that companies with management education/training divisions called colleges, institutes or universities increased from 400 to more than 1,000 between 1988 and 1995.

Whether this explosive growth signals a competitive threat to traditional management education or opens a whole new world of opportunities depends on whom you ask.

Jeanne Meister, president of Quality Dynamics, Inc. and the author of the survey report, "Corporate University Future Directions," believes b-schools will have new opportunities if they respond to companies' need for partners who can teach fast-changing skills.

"The big reason companies are doing this is because of global competition and technology," Meister said. "The main motive isn't that schools haven't done their jobs. It is that the pace of change in these industries and the skills their key people need are totally different from even two years ago. The shelf-life of knowledge is so short, the person who graduated two years ago is behind."

In 1988, most corporate universities were concentrated in the computer and high technology companies. By 1995, the field had widened to telecommunications, finance, utilities and health care corporations.

Besides the impetus of rapid change, Meister, in 100 in-depth interviews with corporate university directors, found other forces influencing the focus on non-traditional learning. One force is the companies' intent to link their employees' education more closely to business goals such as competitiveness, spreading the common culture and values, and driving change. Another influential force, in the age of down-sizing, is to develop the employability of workers.

Organized training departments have been a part of most large companies for decades. Corporate universities, however, are different in a number of ways, Meister's report says. Among those differences are that universities are more proactive, strategic and centralized. The corporate university offers more in-depth, customized programs to develop people in key jobs, using technologies outside the classroom.

The technological means employed to reach their mobile and far-flung students include a mixture of the more common video and audiotapes and CD-ROMs to interactive videoteleconferencing, satellite-delivered training and training on the Internet. Survey respondents said they expect their use of learning technology to grow from about 20 percent today to more than 50 percent by the year 2000.

Corporate universities will permit employees from outside their companies to participate in courses that are not proprietary, Meister found, but that does not seem to be a large part of the rationale for the schools.

AT&T provides training to some of its own customers in technical education, management and leadership and even some business and functional education. Motorola University opens some of its classes to a few outside customers or suppliers. In addition, MU also licenses its courses to suppliers and customers, but the university itself is not set up for outsiders.

Meister characterizes the corporate university as a "broker of learning resources," rather than a training department. The full-time staff tends to be small. Most of the instruction is accomplished through educational consultants, "cherry picked" professors, managerial or technological stars in the company, or through partnerships with one or a collection of universities.

Currently, most of the institutional partnerships have been with community colleges and local universities. Those alliances are expected to grow in the next five years and will remain the most common partner, with nationally recognized universities coming in third.

For traditional b-schools to take advantage of the growing market opportunities with corporate universities, Meister and others say the b-schools have to establish a different relationship than they traditionally have had with their corporate customers.

"Both parties have to learn each other's language," said Meister. "The corporate universities are looking for flexible educational partners that might offer an on-site MBA or an on-site undergraduate degree. They do not want to just pay tuition reimbursement, they want to be a customer of education. And, in the true customer/supplier relationship, they want to talk jointly about their needs and requirements and mutually decide how to best fit those needs."

AT&T School of Business is part of one of the largest corporate education providers in the country. The school has a staff of about 100, said June Maul, the school's director. About 50 percent of the education is outsourced to other providers.

"Our goal is to manage the school for our corporations," Maul said, "but to keep our permanent staff headcount very small. But we don't just give the work to vendors. We manage it and create unique value-added relationships."

Meister cited Nynex as another high technology company that outsources much of its employee education. Nynex found 23 New England universities that were willing be partners in creating a customized associate's degree in telecommunications technology.

In Canada, Eaton's, a family-owned department store chain, has partnered with a community college to offer an associate's degree in retail selling--a huge field that usually is ignored by b-schools.

American Express has partnered with Ria Salada, a community college in Phoenix, to offer an associate's degree in customer service for front-line customer service reps for their travel-related division.

Responsiveness is the key word describing what corporations want from their educational partners and what some say has been missing from much of traditional b-school executive education.

Al Vicere, dean of executive education at Penn State, understands companies' rationale for designing their own courses. Traditional executive education programs have asked leaders to stay on campus for weeks or months and focused on developing individual leaders.

"The real demand," Vicere said, "is much more applied focus, more hands-on. Companies need a rapid response, high volume intervention to help large numbers of employees and managers adjust to the new demands of a business environment. They are finding that to get the rapid response and deal with the volume, they've had to take a lot of that educational delivery under their own wings."

Besides customizing to be competitive, b-schools will have to lower costs by squeezing out waste. The down-sizing, cost-cutting measures within corporations include their education budgets. The larger the company, the more the comptroller's eye is on the cost of tuition reimbursement.

Reducing costs in the b-school is not just a matter of eliminating waste, however. The b-schools' education programs for corporate executives traditionally have been the proverbial "cash cow," giving universities access to more dollars than can be obtained from tuition.

Will b-schools have to give up their mark-up to keep or win corporate students, and if so, what will the universities do?

James Baughman, director of J. P. Morgan Leadership and Organizational Development and a former Harvard professor, said he is well aware of the overhead that companies are expected to carry when they work with a university.

"You only get about 20 percent of the university dollar when you sign an institutional arrangement with a university," Baughman said. "The market mechanism drives you to independent contracting with faculty. Why would you want to pin yourself down dealing with university overheads?"

Robert Sullivan, director of Innovation, Creativity and Capital Institute at the University of Texas at Austin and former business dean at Carnegie Mellon University, said the universities perhaps will have to first feel the pinch of the dollars going elsewhere before they are committed to major change.

"When a university starts recognizing that it cannot pay its bills, it'll go to the professional schools and say, 'We're going to have to tax you more,'" Sullivan said. "How do you get the money?," Sullivan asked. "Create value."

One of the best known corporate universities is Motorola's. Except for some proprietary courses, managers there don't have to send their people to Motorola University, said Vince Serritella, director of planning, quality and joint ventures. But it is hard to explain spending $3,000 a day for an ISO 9000 course at a traditional university when it is available for $200 a day at MU.

"I can't afford that many Motorolans going to what an MBA school costs now," Serritella said. "We don't have those resources, and we don't feel that the universities have done enough to analyze those costs and squeeze out the redundancies like we have here. I say, 'You guys have got to squeeze out waste because we cannot afford it as a company, our need is so dramatic for post-graduate level management education. We cannot afford $40,000 to $50,000 a head for the number of individuals we need to maintain our competitive posture over the next 10 to 15 years.'"

Schools with waiting lists for their MBA programs may have a difficult time believing what companies are saying, Serritella said, but his figures show that MBA enrollments from Motorola are down 18 to 20 percent in the past two years.

For its programs, Motorola uses a funding model that an increasing number of corporate universities are moving toward. The corporate allotment for the university is only about 35 percent, with the remainder of the budget coming from course tuition.

A business unit at Motorola can have any of the university's courses, materials, instructor specifications and back-up research for its own delivery, whenever and wherever it wants it, just for the price of the "education tax" that is levied on each unit, Serritella said. Tuition only comes into play when a unit sends employees to MU for the course.

This system helps to ensure the value-added that corporations are asking for in education. Payment for service, rather than a straight corporate allocation, creates a direct correlation between the courses the university provides and the needs of the customer business units.

Companies also are aware of the changing relationship between the individual and the organization, said Alan Merten, former dean of Cornell's b-school and new president of George Mason University. With even blue chip companies unable to promise a secure future, managers want to be able to offer a benefit that will be valuable anywhere the employee goes. High quality education is one of those enticements. The icing on the cake would be a degree co-conferred by an accredited university.

Meister said one of the biggest surprises on the survey was that one-third of the companies said they expect to grant degrees in partnership with academic universities by the year 2000. The 1997 survey, Meister expects, will indicate an even higher number of those desiring to confer degrees.

Serritella at Motorola University, which does not yet offer degrees, said his customers are asking for degrees from MU in advanced technology and in business administration. "They say it needs to be portable and that they would value it even more if it were co-awarded by one or more world-class universities. We're looking to build a consortium of universities from around the world that would help us with that."

The aptness of the term "university" to describe the kind of learning provided is open to debate.

Meister says companies use the term to indicate a fuller education than "training department" conveys. "It's a systematic approach to training for the entire population," she said. "It's their strategic umbrella for linking the skills needed by the employees to the business goals of the organization. It communicates something bigger and bolder in their vision."

Motorola Training and Education Center was renamed in 1989 because the institution had moved beyond the narrow focus of a training center and had become more like a traditional university.

"We don't take the word lightly," Serritella said, "and I would not encourage another company to do it for 'flashy' purposes."

Baughman questions that it should be done for any reason. "To use the word 'university' to describe this thing is just a total misuse of the word," he said. "A university is a degree-granting institution, it is multi-disciplined, it has research-generating knowledge."

Ken Bardach, associate dean and director of executive education at Northwestern's Kellogg Graduate School of Management, agrees that "university" is a misnomer for organizations that aren't generating new knowledge. "I think they are labeling it 'university' as a way of upgrading and repositioning the function to give it more importance," he said. "I think that's useful. To the extent that they recognize that having all of it inside is incestuous and narrow and they need to go outside to seek other input, it is very good."

Are companies ultimately ambitious to confer their own degrees?

Meister doesn't think so. "Do they want to get into that business?," she asks emphatically. "I think they much prefer to say, 'We realize the job is so big that we need partners and we want universities as our partners, not be in competition with them.'

"These universities and their corporations are saying that the challenge to upskill the workforce is so tremendous that we must partner with accredited universities to really do our job. They are scouring for university partners to be learning resources to their corporate universities," Meister said.

If b-school educators listen to the corporate side, they will hear innumerable ways to regain any ground that's been lost.

Motorola's Serritella describes his 140,000 workforce as "an infinite pool" of educational work that is there to be done by someone. He envisions his university becoming a think tank and leaving the delivery to someone else as soon as there is some other place that will educate employees cost effectively and relevantly.

AT&T's Maul uses the term partnership and "win-win" repeatedly in talking about the company's desired relationship with higher education.

Vicere sees two things that have to happen for traditional b-schools to be the provider of choice for employee education. One, they will need a much closer relationship with and much deeper knowledge of companies with which they work. And second, they will have to learn how to work well in partnerships and consortia to move quickly enough to deal with the demands that companies want to make on education.

"We teach this stuff," Vicere said, "but we don't do it very well. We have access to faculty, research, plus years of understanding of educational process that they can borrow on. Corporate universities demand we be fast and relevant and accountable and have great teachers. The situation is really complementary and the key is bringing them together."

Karen Arden, dean of executive education at the University of Southern California, sees a niche for her executive education program with the top executives even of companies that have their own universities.

"They need something for their top 10 people," Arden said. "They've got some ideas but they want to partner with a university. They see a particular area of expertise that they might not have bench strength in. We've got the Leadership Institute, so people can say there is someplace we can go for that."

Companies also want a place where mid-level managers can go off-site to be with other managers for non-proprietary training. Arden said USC's executive education is changing its name to Office of Executive Development to convey a broader range of services in personal assessment, organizational improvement, leadership development and other skills.

Her school also is moving into new markets. "We're going after the doctors' market right now because doctors are needing quickly to become business people," Arden said. "That wasn't there four or five years ago, but it's there now."

Companies aren't always attached to the top 10 or even the top-tier schools, Meister said. They are more interested in schools that are flexible, have good teachers and are willing to collaborate, not just with the company but with other b-schools.

Corporate universities want to establish partnerships and alliances with universities in their local area. One example is the Arthur D. Little (ADL) School of Management exploring experimental training ventures with its "neighborhood schools" of Boston College, Boston University and Babson College.

AT&T considers the world its neighborhood when it comes to finding university partners. Among the schools Maul works with is Penn State, designing customized mini-MBA certificates.

AT&T teams up with St. John's University in New York for some certificate programs, Maul said, because the school has a campus in Rome and an affiliate in China. "They are a global university and they were willing to work at a fairly high level in the university to establish a partnership." The two partners are exploring an executive MBA using distance learning.

The University of Phoenix has landed a good chunk of AT&T's MBA degree business, Maul said, because it is flexible and accessible. "Employees can take some courses through the University of Phoenix on-line, and some by coming into the AT&T School of Business. They can meet internal training and business needs and college degree needs and count them both toward a degree. This saves money for AT&T, saves time for our associates and is more likely to direct them to the University of Phoenix because it is the most convenient."

No longer are companies content to just pay their employees' tuition. "They want to talk jointly about their needs and requirements, like in a true customer/supplier relationship, and then mutually decide on how to meet those," Meister said. "Companies are starting to say, 'If we're going to continue spending money, can we work with universities to help impact the curriculum? Can we have more of a voice?'"

Corporate philanthropy is changing, too. A corporation that might once have just donated money to a b-school, now more likely will ask the school to invest jointly in some needed distance learning technology.

"I believe there is a tremendous opportunity out there for universities to rethink what they are offering and how they are delivering it," Meister said.

Roy Herberger, president of the American Graduate School of International Management/Thunderbird, said his school's openness to corporate partnerships will adjust the school's curriculum just as a matter of course. "This is a fundamental change in the way we do business," he said. The school becomes like a subcontractor for the company's objectives. "It's a built-to-suit kind of educational model."

That kind of cooperation serves the open enrollment courses of the school, Herberger believes, because if a school is working with many companies on custom programs, everything learned can be brought into the campus classroom.

A major opportunity to learn in this way, Herberger said, is in the global arena. If faculty are working with corporate managers to develop a case format for an international course, the faculty hear the successes, failures, struggles and strategies of people who work overseas.

"You get this amazing amount of cross-fertilization and learning when an oil company sits alongside a packaged goods company, sitting alongside a computer products company, and they compare and contrast," Herberger said. "Our faculty walk out of those experiences and back into the regular classrooms very much enriched."

Creating alliances with other business schools, or with other disciplines, as part of a venture with corporate educators is something new for schools.

Kellogg has successfully created an alliance with Columbia University to work for two years with Deloitte & Touche's 1,500 partners in North America. The program is geared around the accounting firm's core mission and strategy and will provide the partners with the knowledge they need to implement the strategy.

"We're sharing faculty and ideas, so there are two different programs and two different universities with lots in common so that it feels like a similar experience at both sites," Bardach said. "If we weren't teaming with Columbia effectively, this never would have happened. Both of us have to keep our focus on the client to make it work."

A question that corporate universities raise among educators is, "How much of a threat are they to traditional b-schools?"

"Certainly this is added competition for the universities," said USC's Arden. "It's not that it hasn't been there before. It's just getting bigger and so is the consulting business in executive education. We used to have a corner on the market and we don't any more."

It is a wake-up call for b-schools, said Herberger. The more corporate universities there are, the more organizations in existence that think that they can do a better job than b-schools and the greater the erosion of a core market for b-schools.

"Corporate universities probably wouldn't exist in the form they exist today if it weren't for the fact that they weren't getting from us what they though they wanted," Herberger said.

Joe White, dean of the University of Michigan's b-school, strongly disagrees with Herberger. The missions are different, he said. "I don't see the rise of corporate universities as either a result of or a critical commentary on what's happening in business schools."

White thinks that corporate interest in education, training and development only will increase the market for schools that are willing to supply the demand.

But one thing that b-schools have to ensure is that their institutions, not just their individual faculty members, are included in the game, he said. The "cherry picking," or selection of elite faculty to teach in corporate universities, can leave the b-school out of the loop.

"Corporations need to realize that if they don't help ensure strong business schools," White said, "over time, they will not have those faculty to draw on as freelancers. We're the place that gives birth to these people, through the MBA education, doctoral education or faculty development. The business school is the source of talent for them."

Many corporations choose, however, to sidestep the institution in order to establish a stellar ensemble. "One of the advantages of an in-company program is that you can mix faculty from a variety of schools," said J. P. Morgan's Baughman.

"There is no school on the planet that can provide a company with an all-star at every position," he said. "You want to exercise the advantage of being the buyer to mix and match faculty. If you buy a tailored program from a university, it is staffed the way the university wants to do it."

When he was managing General Electric's management education program, Baughman said he contracted with 25 individuals from 10 or 12 different schools or consulting companies to form his own faculty.

White is working at Michigan to accommodate the company's desire for the best and still keep the school in the action. He said the Whirlpool Corporation has established a strategic educational partnership with Michigan, Indiana University and INSEAD in France.

"It's very important that we press corporations to do this," White said, "and that we be responsive to their needs so that they are able to work with us as a whole institution, not just selected faculty."

Penn State's Vicere agrees that faculty serving as freelance consultants is a "huge issue" for b-schools. The problem mostly comes up when faculty are not tightly linked with the executive education delivery arm of the b-school.

"I'm talking about reward systems, recognition for doing executive education type work, support for developing materials, and those sorts of things," Vicere said. "If it's not acknowledged in the reward system as a viable activity, then the faculty members are in fact better off working on their own."

B-schools cannot expect companies to want to partner with them if traditional management education isn't responsive to change.

"It really hasn't been responsive," said Sullivan. "We've seen lots of band-aids," he said. "We have no more band-aids to put on. We have been very reluctant. We almost have to be pushed into substantive change and we haven't been charting the paths others are following. We've been the preachers, telling people they should chart new waters, not the practitioners."

Sullivan said that even the top business schools have only made what he called "public relations" changes. That is, the changes are minute and superficial, not substantive. "They will need a way to build a force mechanism so that they are constantly looking for ways to improve themselves. That isn't in place today," he said. "Traditional business schools are traditional, despite what they say in whatever politically correct terms--global, diverse, interdisciplinary, information-intensive."

If b-schools lose their monopoly on credentialing to corporate universities such as AT&T or Motorola, higher education's ability to sustain itself with minimal change will be lost, Sullivan predicted.

ADL, the first ever non-traditional school to be accepted into pre-candidacy for accreditation by AACSB, will not be the last one to seriously consider the idea if b-schools don't make the moves corporations want.

Thomas E. Moore, ADL's dean and former dean of Babson University's graduate business school, said that if he still were at a traditional b-school he would be very nervous. "When I was at b-schools, most of the time we talked about faculty and teaching," he said. "On the corporate side, we spend a lot more time talking about students and learning. There are people who really think about how adults learn and how you need to design and deliver education in a way that people learn it."

Even though the b-school educators Newsline talked with acknowledged that the growth of corporate universities is competition, they seemed reluctant to say they feel threatened by it. Some believe their schools already are dealing with the competition; some say they are preparing to do what it will take to counteract the corporate schools; and others say the corporate boom might harm others, but not themselves. Is this justified optimism or whistling in the dark?

"The worst-case scenario," Vicere said, "would be that business schools bury their heads in the sand and say the corporate university isn't really education and that we are just going to continue to do our thing and eventually they will come around."

The footsteps are for real.