B-school advantage: top schools are letting CEOs tailor programs to get the most bang for their buck.

Alan Hassenfeld, chairman of toy maker Hasbro, says executive leadership training programs don't work unless top management gets involved. He ought to know. He has been instrumental in starting a customized one-week program with the Amos Tuck School of Business Administration at Dartmouth College to train 200 of Hasbro's best and brightest from around the globe.

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The program, begun two years ago, includes case studies and leadership exercises and covers subjects such as best practices for the developing world, overall strategy, branding and marketing. It aims to give harried managers and executives a break from the stress of the corporate campus, put them in an environment that inspires creative thinking and problem-solving, and return them to work with a fresh perspective and a new set of tools. Hassenfeld attends the sessions, as does president and CEO Alfred Verrecchia--who teaches a class on ethics--along with a handful of other top managers.

Now that universities are offering tailored, goal-oriented curricula, such programs are becoming the norm. Ideally, they allow CEOs to harness the best of B-school brainpower without wasting time on theoretical models that have only questionable application to real world challenges. But given the relatively soft return on investment, CEOs have to ask, is it worth it?

Absolutely, proponents say. The ROI from working with business schools is not easily measured or quantified, they concede, but over the long term, cultivating universities as a resource for training can save money over more conventional business service outlets. And when the school is nearby, it often makes common sense. Relying on executive education programs to train the next generation of talent can beat paying an expensive headhunter commissions to bring in an outsider. With customized executive education programs becoming the norm at universities, such sessions can lead to more direct results at a lower cost than uniform in-house training programs run by full-time human resource staff or outside training specialists.

As an added plus, leaning on a business professor or dean for regular professional advice can be more economically palatable than bringing in a high-priced management consultant for a one-shot quick fix. Soliciting expertise from business school professors who have Ph.D.s in specific subjects can lead to deeper and more intellectual insights on strategic decisions. And with business schools focusing less on theory and more on real-life business scenarios, corporations can more readily apply lessons learned on campus.

Of course, all that's not cheap. Hasbro's program costs about $1,000 to $1,500 per person per day; all told, the company will have spent $1 million-$1.5 million to train the 200 handpicked managers. Hassenfeld says he can point to tangible returns, explaining that the program has led to a redesigned consumer marketing Web site and a new process for managing operations in India and China. "It has been a wonderful return on investment," he says.

Still, for other companies, the results will be neither that immediate nor obvious, and CEOs have to believe in the long-term pay-off. "The biggest issue is whether this is money well spent," says Mike Morris, chairman of American Electric Power, the utility company in Columbus, Ohio. Since 2002, AEP has sent more than 230 employees to its sponsored leadership program at Ohio State University, at a cost of $150,000 per session for 50 students, excluding hotel and airfare.

In addition to the training and skills development afforded, the nine-day program, held over a six-week period, has boosted loyalty at the company and has allowed Morris and other senior leaders to identify "the bright bulbs," though he says it's still too early to single out promotions or budding CEOs from the trainees.

So far, the promise of future return is enough to keep the program going. "I have walked away each time saying that this is an investment in people and is like any important investment that we make," says Morris, who personally spends one half-day observing each nine-day program.

Finding Time at the Top

The cost of the CEO's time might well be the biggest expense of the program, since experts say they aren't nearly as successful without direct CEO involvement. "We don't want executives coming here to spend two hours on campus and then going away," says Joseph Alutto, dean of Ohio State University's Fisher College of Business.

Other senior executives must be involved as well. Hassenfeld learned that firsthand when graduates of Hasbro's leadership training program were returning to the corporate corridors using new terms that their managers couldn't understand. For example, graduates began referring to projects being in different "boxes"--"box 1" for tasks done on a daily basis, "box 2" for projects that are to be moved forward, and "box 3" more broadly defined as the vision of the future. Not having the common terminology made it difficult for students to implement what they had learned. It was then Hassenfeld realized the program couldn't just be "the chairman's plaything," he says. He extended the program to Hasbro's top 10 executives, who now attend an abbreviated three-day version.

Those who are willing to invest for future return claim numerous benefits--even when they're not tied to hard numbers. Internal succession planning is one. Hasbro has already identified some of its highest achievers and moved them to the next level of management, says Hassenfeld, who says he specifically sought the academic connection when he was looking for an executive leadership program, rather than turning to management consultancies, like Bain or McKinsey. "If you're dealing with quality faculty, they are not giving you the answers, they are facilitating them," he says.

Jerry Jurgensen, CEO of Nationwide Financial Services, also based in Columbus, Ohio, agrees with the strategy. His company has been conducting two-day executive leadership sessions at OSU three times a year for the past five years. The curriculum, designed around functional areas such as accounting, marketing and information technology, was inspired by Nationwide management, Jurgensen says. "Any time a university campus is in close proximity to a company, it is an incredible resource," he notes. "It's a good two-way deal--the company gets access to academia and academia gets access to real life solutions and problems." For the latter, Nationwide sends several of its financial executives to teach finance case studies about Nationwide at OSU. Those executives are then able, to identify potential future talent for the company, which makes a handy recruiting tool.

That's definitely a goal for PepsiCo Chairman and CEO Steve Reinemund, who has started a Leadership Development Program at his alma mater, the Darden School at the University of Virginia. The summer internship program that began last year trains a handful of MBA students in the ways of Pepsi, and recruits students for the course from five core universities: Stanford. Harvard, Columbia, Yale and Darden. The program director and senior executive sponsors for each school invest time in building relationships with the deans of the business schools, faculty members, career center associates, admissions office personnel, student group leaders and individual students.

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"The goal is to develop a presence on campus that leads us to finding the best of the best students," says Reinemund, adding that the involvement extends to participation in career panels and speaking engagements. Reinemund points out that last summer's interns have been offered full-time jobs with Pepsi starting this fall. In a separate program, Pepsi also brings 40 vice president-level executives and board members to Darden's Charlottesville campus annually for strategic and leadership development training.

AEP also sponsors a program for future recruits, one designed to develop a talent pool with very specific technical skills the company needs. AEP developed this separate, technical training curriculum with the West Virginia State Community and Technical College. Designed to award students with an Associate in Applied Science degree in power plant technology, the program kicked off this January with 35 students who are learning how to operate a power plant. The program also includes a 10-week internship at AEP, and students are paid about $14 per hour. Morris says AEP anticipates hiring a number of graduates from the program over the next decade, which is useful since the average age of employees is 50 and more than 15,000 of its employees are power plant technicians.

In the past, new hires learned on the job, but with new emission control equipment systems coming on board, employees need the technical training from day one. "These are great jobs, but we found that the kids were not prepared for them. So we thought a better idea would be to have them work for us while they're studying; in this way, they become more valuable to us," says Morris, who adds that AEP gave approximately $400,000 to the school to help kick-start the program. "This helps us to avoid needles-in-the-haystack kind of recruiting."

Not everyone is a believer in using business schools, of course. IBM, most prominently, does not believe in sending its key people to offsite training and development. It believes that employees, whether top managers or interns, act and think differently when they are off the job than when they are back on the job. (It prefers internalized training and coaching.) And clearly, not all business-generated programs at B-schools are cost-effective, particularly when the time of senior management is factored in.

But those caveats aside, it does appear that there has been a change in the nature of the relationship between CEOs and B-schools. The academics are less rigid and less focused on theory and more eager to customize programs for specific real world needs, even if it involves bringing in faculty from other universities. Done right, there's little question that there's a long-term ROI from exploiting business schools.

RELATED ARTICLE: Q & A

Only a Passing Grade

Garten says B-schools don't prep for the real world.

Jeffrey E. Garten, who is stepping down after 10 years as dean of the Yale School of Management, says he doesn't think U.S. business schools are doing a good enough job. Here are excerpts from a conversation originally conducted for The New York Times:

Do you feel you were able to improve the way business students are educated?

Ten years ago, the role of business in society was on a upward trajectory. There was a sense that business leaders would be the champions of globalization and would fill in where governments had left a huge vacuum in terms of the rules of the world economy. Today, that seems like a very fanciful notion. Post 9/11 and post-Enron, the role of business leaders has been enormously diminished. It's been an enormous challenge to have an impact on business education because the ground has shifted so dramatically.

Is this challenge confronting all business school deans?

I'm sure it is. The real question is how to be relevant. What do you teach about corporate governance when the rules and expectations are changing so quickly? What do you teach about the global competitive landscape when countries like China and India are likely to fundamentally reorganize the way production and trade are conducted? I was an investment banker for 15 years. I was in four presidential administrations. But this job has been the most difficult of all.

Are you a critic of how your own students have been educated?

The current model of business school education needs to change dramatically. There should be a different criteria for tenuring faculty. Right now, professors would get tenure on the same qualifications as they would if they were in a department of economics or of history. Business schools need to add some criteria for promotion, such as real world experience in the same way that a doctor teaching at a medical school would have had to see patients.

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What percentage of B-school professors have had real world experience?

I would say it's miniscule. Business schools also need to have a two-track faculty, with the second track being a clinical faculty, or people who may not have the academic qualifications to get tenure or even do real academic research, but who would bring into the classroom the world of practice and experience.

You don't think the faculty are plugged into how business operates?

In a world where one of the most critical attributes of leaders and organizations is the ability to adapt to hypercompetition and conditions that change with extreme rapidity, the standard academic model of professors who are deeply steeped in one specialized area is not the best model.

What else has to change?

Business schools need to rethink the way they're preparing students to operate in a global economy. There's a lot of lip service to this and no end to courses that have the word "international" in front of the name. But the fact is that most business schools are quite insular. There's a strong case for mergers between American schools and schools abroad. Not episodic exchange programs--but a global school that matches a global market, a school in which the students can go back and forth between the United States and China. No business school is even close to approaching that degree of global focus.

You don't think business schools are producing people who understand the role of companies in the world?

One of the things that has really perplexed me is, what should aspiring business leaders be taught about their role and responsibility in managing the world economy? I had hoped when I came here there would be a great interest among the faculty and the students in producing business leaders who first and foremost would run profitable organizations, but who also would have some involvement in creating a more prosperous and equitable world economy. But the second part of that seems quite remote.

Have you been frustrated?

No, I'm not frustrated. I had a wonderful experience. But I leave with many more questions than when I came. The biggest one is, is it possible to produce graduates who will not only be great leaders of their companies but also make a broader contribution to the world economy? The formula for doing that still has to be invented.

BY WILLIAM J. HOLSTEIN