Economic Impacts of COVID-19: B-School Outlooks and Opportunities
When we look back on 2020, this one year will feel like an entire decade. After all, with a historically rancorous U.S. presidential election, rising levels of social unrest, seeds of future geopolitical conflicts, all amidst a deadly pandemic that ignited the deepest recession in more than 80 years, this definitely seems like the longest year ever. While 2020’s events will fill history books, it is the ripple effects of COVID-19 that could change business schools as we know them.
The initial economic effect of the pandemic became starkly clear in March—as consumers changed behavior to avoid exposure to the virus and governments imposed new restrictions on economic activity in order to “flatten the curve” of COVID cases and deaths. Together, these responses triggered the deepest global recession since the 1930s. Within weeks, in the U.S. alone, the economy contracted by 31 percent, and 22 million jobs disappeared.
Six months later, the economy has only regained half of the lost jobs, and the pace of the recovery is slowing as the coronavirus lingers. The secondary effects of the initial economic shock will remain in motion for months, and even years, to come. While the economy will eventually recover, some parts of our pre-pandemic existence will never be the same. This is especially true for universities.
First, even after the pandemic wanes, universities likely will rely more on hybrid delivery modes for their programs, combining online and in-person delivery of course content. While this is a trend that was accelerated by necessity, it will persist because of its efficacy. After all, proper use of instructional technology to deliver some course content remotely complements, rather than supplants, in-person teaching.
As with online courses, faculty teaching hybrid courses can post video lectures that students can watch multiple times. Furthermore, in both hybrid and online courses, faculty can easily incorporate interesting internet content from discipline experts. Unlike online courses, though, hybrid courses still preserve the opportunities for in-person faculty-student and student-student interactions. In short, hybrid courses offer the best of both the face-to-face and virtual learning environments.
Since well-designed hybrid courses give students the best of both online and in-person learning modalities, students should perform better. And given that faculty have now become more comfortable and more effective with teaching in hybrid and online formats, there will be less demand for, and frankly less value in, teaching as many traditional face-to-face classes as we did pre-pandemic. With improved learning outcomes and enhanced faculty effectiveness, hybrid course delivery will eventually become the new norm.
The second major change universities are likely to face is a significant decline in revenue streams—something lots universities are already battling. The business model for many residential universities in the U.S. requires auxiliary services like athletics and student housing to generate the vast majority of their own operating revenues. Unfortunately, these business operations do not have immunity from the pandemic recession that is crippling the rest of the economy.
When the National Collegiate Athletic Association canceled March Madness—the association’s annual basketball tournament—and its other spring championships, it was forced to reduce its yearly distribution to member schools by 375 million USD. Coupled with the decline in attendance and the difficulties of fundraising during a recession, athletic department budgets across the U.S. are now facing unprecedented deficits. It is possible that some universities will require athletic departments to absorb the full financial effect of their revenue shortfalls. However, given the importance of athletics to university branding, students, alumni, and donors, at least some institutions will likely subsidize these shortfalls, at least temporarily, with funding from academic units.
Student housing and dining operations face similar challenges. In order to attract students in recent years, many universities have built enticing on-campus housing and dining options. Typically, these new facilities are financed through debt offerings, and the universities make their debt payments using revenue from the housing and dining fees charged to students. To be financially feasible, though, these new facilities generally require high on-campus occupancy rates.
However, the reticence of many students to return to campus, out of concern for their health, is resulting in significant financial shortfalls that universities must cover in other ways. When university reserves are substantial, an institution may be able to absorb the financial burden without affecting academic operations. But for many universities that have already been struggling with funding difficulties this last decade, the decrease in student housing occupation is creating a financial storm that threatens all aspects of campus operations.
The financial challenges facing universities are likely to worsen the longer the recession lingers. The National Conference of State Legislatures recently reported that 38 U.S. states have already revised downward their fiscal year 2021 revenue estimates as a result of the recession, with the median revision exceeding 10 percent.
In this perfect storm of forces hurting university finances, academic budgets will undoubtedly be affected, too. In response, business schools need to become even more entrepreneurial than before in developing innovative, new revenue streams. Business schools will need to become more flexible than ever to prepare for the uncertainties that lie ahead. Business schools will need to further strengthen connections with our external stakeholders to ensure that we continue to make a difference in our communities.
Changing What We Teach
Finally, in addition to the modifications to how we work and the recognition of new financial challenges we face, I believe the third major change we need to embrace is what we teach. As business schools, we pride ourselves on educating learners for successful careers in our corporations, our small businesses, our nonprofits, and our government. Frankly, the evidence from this pandemic indicates that our society needs business schools more than ever.
For example, in the last several months we have seen a rise in xenophobic rhetoric from some of the world’s highest offices. To counter this messaging, business schools can teach students about the importance of global cooperation. Further, during the pandemic we have seen people ignore the recommendations of experts in health, science, and economics. Business schools, though, can emphasize the importance of using data to make decisions. Also this year we have seen our society become even more divided. Business schools, however, should teach about the importance of diversity and how, despite our differences, we are all in this together. And throughout the course of this recession, the poorest families have been facing the toughest job market. In these times it is even more important that business schools continue to provide the tools that have helped millions climb the ladder of economic prosperity.
Moments of crisis are also moments of opportunity. The connections of our social fabric are straining. The challenges we face are immense. Thankfully, the opportunities for business schools to rise to the occasion, to provide insight, to give guidance—to make a difference in our society—remain as strong as ever.