A Bellwether for the Future of Business Schools

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Wednesday, July 29, 2020
Stephen Taylor
Research Director, BusinessCAS
Photo by iStock
As more schools cancel their full-time MBA programs, spurred on by pandemic effects, what will characterize graduate management education post-crisis?

When historians write the chapter on 2020 and review the social, political, medical, and economic crises that continue to transform the world in unexpected ways, it is unlikely that there will be any note made regarding the role of business training.

The need for savvy, effective generalists in positions of leadership across the full spectrum of global challenges, however, has never been clearer as these crises continue to unfold. Perhaps, given the tumult of the past several years, it should come as no surprise that some of the most respected schools in the U.S. are discontinuing their full-time MBA (FTMBA) programs. Adding to the growing list of other ceased FTMBA offerings by business schools—at universities like the University of Illinois, the University of Iowa, and Wake Forest University—Purdue University’s Krannert School of Management announced in June that it would no longer offer the degree.

The move by these schools is an important case study for the graduate management education (GME) community to consider, as it seems quite likely that other schools will follow the trend. In fact, it is surprising that more schools have not yet canceled their programs in the five years since Wake Forest made its announcement. Krannert is the latest top-tier FTMBA program to fundamentally shift the focus of its portfolio away from the degree that established the field itself, but others will certainly shutter their programs because schools across the board have faced many of the same challenges with their FTMBAs: the inherently destructive nature of the rankings game, the cost dynamics of offering a residential two-year program, the shift in the U.S. market demand toward specialization, and the struggle to make the value proposition to students or employers that the MBA still matters. All of these issues are core challenges faced by any U.S. business school, and all are accelerated by the COVID-19 pandemic. In order to work through these challenges, schools will have to be increasingly agile.

Rankings as Restrictions

There seems to be general agreement across the field that U.S. and global rankings are a confounding variable in the equation of business school success, but that agreement has not yet produced a way of avoiding the pain. Highly prized by candidates both domestic and international, rankings illuminate the quantitative performance of admitted classes or employment prospects for students, but no admissions director would ever suggest that rankings are the best or only way to choose a program.

Yet the rankings, and the concomitant data management challenges that come with reporting, are inescapable for the differentiation-hungry administrators who hold executive authority over universities. Amazon founder Jeff Bezos—in his oft-quoted letter to shareholders known by some as “What does Day 2 look like?—warns of the danger of relying on proxies such as rankings. According to Bezos, it is far too easy for an organization to allow a proxy to become the center of a business and to lose sight of the customer/stakeholder experience. Rankings are not a problem to be solved, but a tension to be managed, although it has become clear from schools like Krannert that, across GME, performance in rankings has an outsized influence on the portfolio and program choices that schools make.

The Infinite Cost Machine: Full-Time MBA

Since its inception, GME has embraced the challenge of complex problems by creating one of the few remaining degrees designed to produce a generalist problem-solver: the MBA. With curricula structured on a two-year, residential, cohort-based model of learning that presents a unified core of analysis and decision-making, the programs are naturally cost-intensive. These curricula are run by peripatetic faculty who challenge students through a variety of methods, including the hallmark of a business school: the case method.

The high standards required by specialized bodies, the strikingly stiff competition for students, and the program characteristics themselves have created a continuous cycle of increasing costs for universities offering the degree. Many program directors openly admit that their FTMBA programs are loss leaders to attract students to more margin-friendly programs in the portfolio. It is far from controversial to suggest that the FTMBA-associated costs of scholarships, faculty salaries, and innovation present significant obstacles to keeping these programs running in their current form.

The Rise of the Specialist

Business schools across the globe have been responding to some of the structural challenges in GME by diversifying their portfolios. For the last few years, U.S. schools have been rapidly adding specialized master’s programs to their portfolios to emulate the more diverse offerings of their European and Asian counterparts. Tasked with creating new revenue sources for flagging MBA enrollment, U.S. schools now offer specialized degrees in all manner of subjects—for specialists in emerging fields such as data analytics as well as for those in traditional fields such as finance, accounting, and supply chain management.

Science fiction writer Robert Heinlein famously wrote “specialization is for insects!” in response to a question about education. This sentiment resonates when considering how the proliferation of these degrees may have temporarily supported failing financial models, calling into question the role of GME. Are business schools mere trade schools, or are they institutions that teach a philosophical approach to complex problem solving? The pandemic will accelerate the solution to bloated portfolios by exposing how incredibly reliant U.S. business schools are on international students. It has yet to be determined if these one-year, pre-experience programs show significant benefit to the broader business community, or to GME as a field, but there is no doubt that the explosive growth of specialized programs strains recruitment efforts for FTMBA programs.

The (Failing) Value Proposition

How do schools maintain balance in this environment? There is an air of desperation among some schools where new models emphasizing lifelong learning and career resources take center stage for persuading students to take on the opportunity cost. Others are offering increased scholarships, blended learning modalities, subscription pricing proposals, and a wide range of marketing ploys to convince students that it is, indeed, reasonable to leave their jobs for two years to complete a degrees. Add to this the fact that media outlets constantly question the value of an MBA, and it becomes easy to see how schools with such well-regarded U.S. programs would consider canceling the traditional flagship of graduate business schools.

What much of the media miss when reporting on the rise or fall of the MBA, however, is that schools operate in highly contextualized environments. In their homogeneous analysis of the degree, the media, like the rankings, do little to help advance the field. While all schools can succeed with a careful focus on strategic differentiation, cost dynamic management, and organizational resiliency, some schools are at significant organizational risk. Here is what the spectrum of outcomes for different categories of U.S. schools could look like:

  • The Big Brands. The high-rank, high-name-recognition schools are obviously best positioned to thrive for several reasons. These schools have exceptional global brand recognition, usually with perennial applicant pools of top students, meaning that student recruitment and program recognition are less critical. While there is certainly angst over maintaining a high ranking, there is something of an unbreakable wall between the group of top 20 or so schools—which rarely have new entrants—and everyone else. These schools often have comfortable financial endowments that can weather longer periods of uncertainty in enrollment and philanthropy; again, this allows for a greater uncertainty tolerance. Finally, in a crisis, there is a well-documented phenomenon known as the “flight to quality”: Consumers will gravitate to known brands during times of crisis. These schools are likely to usher in a more global acceptance of online learning, and although their students are sure to have very different experiences in the time of COVID-19, the faculty, curriculum, and ability to focus during crisis will allow these schools to build an even bigger gap in perceived quality between themselves and competitors.

  • The Solid Performers. U.S. schools occupying the 20th to 50th positions in the rankings are the biggest question marks right now. This group includes many schools with failing funding, complex portfolios, and rigorous regional competition. These schools are highly tuition-bound and generally have no additional capacity to shrink the enrollment in their programs to increase rankings. They are also highly dependent on international students, few of whom typically enroll in online degree programs at international tuition rates. These schools will endure the greatest discomfort because of the difficulty of unwinding such unwieldy portfolios; cost shedding and efficiency are hardly the forte of business schools in the U.S. Add the complexity of academic governance, and the difficulty becomes clear: These schools need to be extremely nimble to weather this storm. They may need to think more deeply about the types of operational partnerships available to them that will allow a greater focus on core activities.

  • The Aspirants/Climbers. Schools that occupy the 50 to 100 spots and below in the rankings now have the chance to make some real noise in the field. Small, private, and regional schools occupy most of this category. These schools are similar in some ways to the solid performers but generally operate under more limited financial support, and some have complex faculty identity issues related to online learning. One of the strengths of these schools, however, is that they can be far nimbler than the big brands. Unfettered by rankings angst or the rise of specialization, these schools may be able to innovate more quickly.

Deans and their leadership teams will shape the future of this crucial field. Will they be able to strike the balance between marketing costs and rankings performance? How will they manage their portfolios, grow enrollment, or sustain advantages if an MBA program is slated for cancellation? Can a portfolio be balanced between MBA and specialized degrees? If there is to be any value to the tradition of generalist training, and if this field is to rise to meet the challenges of the changing world, GME leaders will need to hold these pioneering schools in their minds as avatars of their potential future.

Stephen Taylor
Research Director, BusinessCAS
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