A block behind home plate at the old Durham Athletic Park, close enough to smell the hot dogs on game day but too far back to snag a long foul ball, sits the office of an unusual start-up business. The converted tobacco warehouse is just north of Durham's downtown loop road. But, like the trailblazing company it houses, it's far enough off the beaten path that part of the street leading to the entrance is gravel.
Inside, the office sports sleek wooden floors, exposed ceiling beams and ductwork, and huge windows through which sunlight pours. While some young employees sit at their cubicles quietly typing away on computers, managers hold meetings in conference rooms that bear the names of innovative thinkers through the ages: Aristotle, Sir Isaac Newton, Marshall McLuhan. This isn't the headquarters of some fledgling biotechnology company working on a breakthrough drug. Nor is it home to a dot-com company that has survived the implosion of the Internet boom. It is the office of Duke Corporate Education Inc., informally known as Duke CE, an operation established three years ago by the Fuqua School of Business to develop and teach executive- and managerial-training courses for Fortune 500 companies. It's a self-styled hybrid: "a cross between a business and a university." The corporate structure is that of a stand-alone, for-profit company, with Duke University as the majority shareholder.
The venture marks Duke's first major foray into for-profit services, a nascent but, according to experts, growing field for colleges nationwide. Already, the medical school is in the final stages of drawing up plans for a business incubator that would combine university research projects with outside investment, and nursing-school officials have discussed the idea of packaging and selling parts of the school's curriculum to other institutions.
" More people are looking at scenarios like this," says Michael B. Goldenstein, director of the education practice at the Washington, D.C., law firm Dow, Lohnes & Alberston, which has helped structure several for-profit ventures for universities. "It's a legitimate way to expand the reach of the university and build on the talent and research they've created."
That's the foundation that the president of Duke CE, Blair Sheppard, wanted to exploit when he came up with the idea for the company. Like many leading business schools, Fuqua had provided executive training to corporate customers for years, letting professors build courses around their specialties, from personnel management to marketing to finance. Fuqua had been so successful at it that corporate education had become a huge profit center for the school, and national rankings of such programs consistently placed Duke among the top providers.
But in the mid-1990s Sheppard, a Fuqua professor, saw that corporate education was evolving faster than universities could adapt to handle it: Major companies were seeking more customized training programs that could be taught worldwide. Duke's academic culture, as at most universities, is driven by research and focuses on individual disciplines, while custom corporate programs usually focus on solving business problems that cut across several disciplines and must be delivered quickly and in ways that cater to the changing needs of individual clients.
" Education is more strategic than before, and it's much more large-scale," Sheppard says. "Much more ongoing learning and continuous adaptation is needed today. Companies aren't interested in the old, two-day training of top executives. They want someone who understands their marketing needs or organizational needs, for example, and can work with them to get them where they want to go."
The shift in focus almost necessitated a change in how Duke handled corporate education. Sheppard saw two options: give the field over to private educational companies like Pearson and management-consulting firms like McKinsey & Company, or create an entirely new structure that could grow and change with the industry. In his mind, the first choice wasn't an option.
" We had built a really neat thing with our corporate-education program--it was a fairly precious jewel to the business school. It would be an irresponsible act to let that asset wilt and atrophy," he says. "As long as the program was a modest size, it could co-exist with the university culture. But if it grew the way we wanted it to grow, it could put that culture and everything that we have built around it over the years at risk."
Fuqua faculty members were well aware of the risks posed by the corporate education program, according to Dean Douglas Breeden. Professors feared losing a balance between theoretical research and practical applications if executive training and the money it brought in became a primary focus for the business school, he says. So they were willing to go along with the Duke CE experiment.
By moving outside the university's walls, the company was able to draw on other resources and try out new teaching methods, Sheppard says. For example, the company built a database of more than 1,200 business-school professors, former executives, and consultants across the globe who can teach courses to thousands of people on several continents--providing flexibility that Harvard University, the Wharton School of Business, and other competitors aren't able to match.
"Most business schools can't scale up to serve very large corporate audiences," says David Miller, Duke CE's director of business development, noting that other schools are limited by faculty size and and teaching schedules. "We can put together a course in a matter of months that meets a client's needs and teach it to groups in Europe, Asia, and North America at the same time. Companies want that ability, so that all of their managers are working off the same page."
Jim Gray, Fuqua's associate dean for marketing and communications, says the company purposely chose to set up shop in trendy off-campus digs to help it assume the appearance and mindset of an entrepreneurial business, not an academic venture. And Duke CE officials and employees have been able to view their corporate customers not merely as students, but as partners in research; the classroom as a setting where interaction and innovative instructional techniques can be applied and adapted to achieve a desired result. "We're creating interaction with the firms. We're bringing features of universities, such as creativity, and influencing corporate cultures," Sheppard says. "Universities tend to take a long view. They generate knowledge without knowing whether it has any utility. We're using a blended model of faculty working alongside executives to create something that will have meaning and a practical purpose for people."
ABB Power T&D Company Inc., a Raleigh-based unit of the giant European producer of industrial-automation technology and electric-power-generation and -transmission equipment, has used Duke CE to create a leadership-development program for hundreds of junior-level managers, a follow-up course for graduates of that program, and a course on pricing tactics. The company reviewed proposals from Harvard, Stanford, and the University of Michigan, but was attracted to the working relationship and the flexibility Duke CE offered, says Cheryl A. Sulborski, a vice president for human resources at ABB.
" Most schools didn't want our input. They said, 'Here's how we teach executives. Don't tell us how to do it.' Duke was very cooperative and based the course on what we wanted to do," Sulborski says. The courses are taught by a combination of Duke CE instructors and ABB executives. "Duke people provide the academic background, while our executives give a practical view. There's a good match between what both sides say, and people come away with a good idea of how to apply what they have learned." The interactive creative process is what officials say really sets Duke CE apart from competitors--aside from its status as a for-profit company, which they note is inextricably linked to the way it operates. Many of the company's developers have backgrounds in the corporate world instead of academe, and they work with representives of each company to determine the goals of a course and to establish a curriculum and outline the teaching methods needed to achieve those goals.
" Our competitors believe content is everything, so they take lectures right out of the classroom and configure it for companies," Miller says. "We're trying to connect training to business strategy. We build our content and our distribution. If you want the lesson to be learned and put into practice, how it's taught to people is just as important as what is taught. So we do everything from the ground up, according to what the client is trying to accomplish."
Distribution could include face-to-face classes taught by some of the hundreds of instructors in the Duke CE database, online learning, or both. The company uses technology owned by Fuqua for online instruction. The D4 platform software was developed in 1995 for Fuqua's Global MBA program, and the school later sold the software to Pensare, a California-based Internet company that wanted to refine it and use it to mass-market online business-education courses. When the Internet bust forced Pensare into bankruptcy two years ago, Fuqua anted up more than $1 million to outbid other business schools to regain the rights to the software.
John Gallagher, Duke CE's vice president for learning technology and development, is reluctant to reveal what makes D4 such a valuable tool to the company in its development of customized corporate courses, saying only that it goes beyond having people sit in front of their computers reading lessons and typing in responses. "We recognize students have their own experiences to share and are able to create a context for meaningful discussion and to extract insights," he says. "We're not just digitizing a small part of the classroom experience for a download."
The combination of creative processes, technology, and global reach offered by Duke CE has attracted almost three-dozen major clients, including British Airways, the Ford Motor Company, IBM, Merck & Co., Goldman Sachs, and The New York Times Company. Some, like ABB, use the company repeatedly for different training needs. In May, the Financial Times of London ranked Duke CE first in an assessment of customized corporate-education programs worldwide.
But the economic recession and the fall-off in business travel after the September 2001 terrorist attacks have cut into the corporate-training market over the last two years, creating problems for the company that would be less pronounced if it were still under Fuqua's wing. With business failing to keep pace with initial growth projections, Duke CE was forced to lay off about 13 percent of its work force in late 2001 and has not filled the positions of some employees who have left. A number of desks in the company's office remain empty months after the cutbacks--devoid even of computers--a sign that Duke is committed to keeping expenses in line with more slowly expanding revenue. Although plans call for eventually bringing in outside investors to help raise more capital and spread the risk of ownership, the university is currently still the primary owner of Duke CE--some employees own minor stakes--and Breeden, the Fuqua dean, says the lack of profits at the company has been a concern.
The company lost an undisclosed amount in fiscal 2002 after recording about $18 million in revenue. It generated $24 million in revenue in fiscal 2003, which ended in June, allowing the company to begin paying a portion of the annual royalty it owes to Fuqua for using D4 and for borrowing professors to teach some corporate-education classes, Sheppard says. "A lot of this is a matter of timing, and they've had a bad run with everything that has happened in the business world over the past year or so," Breeden says. "We understand that, but we also have had discussions with them about profitability--we are a business-oriented institution, after all. We challenge them on their business plan, and they are responding."
The burden of meeting such challenges, the fear of tarnishing brand names that universities have nurtured for decades, and the difficulty of dealing with potential conflicts with their academic mission are some reasons why so few universities have breached the for-profit services arena, according to experts.
Officials with Duke Clinical Research Institute, for example, have, over the years, discussed the idea of splitting the operation, which performs clinical studies on experimental drugs and treatment methodologies, from the Duke Medical Center. But Director Robert Califf says those conversations always reached the same conclusion: DCRI's research mission would be compromised if it became a for-profit company, where the bottom line would always vie with academic merit in determining which projects to pursue. "There's a great advantage to being inside Duke, and there's little reason for us to be separate from the university," he says.
Still, the interest in developing new sources of revenue, especially when college administrators are facing declining investment returns on their endowments and are hard-pressed to continually raise tuition to help pay for escalating costs, is beginning to erode arguments against pursuing for-profit ventures.
" These are more of a long-term economic investment than a short-term answer to financial problems, but they do represent another revenue stream," says Damon Monetta, director of communications for the National Association of College and University Business Officers, which monitors financial issues and promotes sound fiscal practices at universities across the country.
NACUBO counted fewer than two-dozen for-profit companies affiliated with universities nationwide in 2000, many of which were set up to run university-owned hotels or conference facilities; Monetta says the number has grown slightly since then. But Goldstein, the Washington lawyer, points to Duke CE's financial situation and notes, "If you go into something like this, it has to be with the notion of expanding research, because nobody is making huge money on this."
Sheppard and Breeden say Duke CE is experimenting with teaching methods that, if successful, can be taken back to Fuqua and applied there. University officials also recognize the research opportunities offered by Duke CE. John Burness, senior vice president for public affairs and government relations, says that planning for the company stretched on for several years, as officials examined the business plan to be certain that there was a market worth exploring. Drawing up documents that spelled out Duke CE's relationship with the university was also a protracted process, he says, adding that Duke CE would never have gotten a green light if it were a bad idea. (The same has been true for Duke Translational Medicine Inc., the for-profit venture being planned by the School of Medicine. Likewise, the School of Nursing is a long way off from possibly packaging part of its curriculum for resale to other nursing schools after holding some preliminary discussions on the idea, says Eileen Watts Welch, assoiate dean for development and external affairs.)
Still, Burness says that he doesn't see a wave of for-profit ventures in Duke's future, even if Duke CE and others thrive and become important partners for the university. "These are unique cases where there's an advantage to creating this type of arrangement, and I don't expect that to happen very often," he says, noting that the university doesn't have any coordinated effort to explore potential for-profits.
Sheppard says he is "guardedly proud" of Duke CE's first three years of operation, noting that its ability to recover from some early missteps and slowly build a foundation for future growth--all in the midst of a miserable economy--has proved his experiment a success. "It's hard to be a world leader in education if you're not willing to experiment," he says. "You have to attempt to push boundaries."