New Strategies for an Uncertain Future

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Wednesday, August 24, 2022
By Hanumantha Rao Unnava, Sarah Nutter
Photo by iStock/olaser
In a rapidly changing market, business schools must embrace new educational formats and financial models if they are to thrive.
  • Business education is rapidly changing as more students opt for shorter programs over traditional educational delivery.
  • Colleges and universities are facing increasing competition from alternative providers and grappling with enrollment declines in traditional four-year undergraduate programs.
  • To respond effectively to shifts in the market, business schools must place greater emphasis on stackable educational options that support lifelong learning.

 
The market for business education has experienced fundamental shifts over the last ten years, but the COVID-19 pandemic accelerated many of these shifts significantly. In response, administrators at business schools worldwide have had to think and act fast. They have had to find ways for their schools to create and disseminate knowledge, all while remaining financially viable.

Moreover, our pandemic-era challenges are far different from our pre-pandemic challenges. Before 2020, we were coping with decreasing government support, changing student demographics, declining enrollments, and volatile business cycles. But over the last three years, we have seen the emergence of new competitors, new technologies, and new consumer behaviors. The entire value chain for higher education—from enrollments to graduation to alumni engagement—has experienced an upheaval.

What responses can business schools mount so they can, ironically, stay in business? Below, we point to four major shifts now happening in the higher ed market. Then, we discuss several strategic options that administrators can adopt to deal with these changes.

1. Education Is No Longer Just for Universities

Remember when pursuing education was synonymous with going to a university or college? Well, that’s not true anymore. From the global eruption of the India-based edtech company Byju to the continued expansion of educational offerings from MOOC platforms such as Coursera, Udacity, and edX (now part of 2U), nonuniversity credentialing has attained acceptance among employers and learners alike.

Opportunities such as certificate programs and apprenticeships have been touted by senior government officials as viable alternatives to traditional higher ed. Costing much less than a typical university degree, these credentials often are tied directly to job opportunities.

New players in the higher ed market are now legitimate competitors that are taking market share from universities.

In fact, when campuses closed due to the pandemic, the number of certifications offered by alternative players in the market grew significantly. In the early months of the crisis, enrollments in a stackable undergraduate bachelor’s program in IT offered through Western Governors University more than doubled, according to a story by The Hechinger Report. During that same time frame, when many universities were seeing enrollment declines, the number of students taking microcredential programs through edX increased 14-fold.

Earlier this year, the National Student Clearinghouse Research Center reported that undergraduate enrollments in the U.S. have declined nearly 10 percent over the last two years. That figure should be a jolt to all of us. It indicates that new players in the higher ed market are now legitimate competitors that are taking market share from universities.

2. Online Learning Is the Emerging Model

Business education always boasted intangible benefits that go beyond degree credentials. These include the power of a business school’s alumni network and the chance to form lifelong friendships with other high-potential classmates. In the past, many prospective students believed that remote learning could not offer the same advantages.

That belief is quickly dissipating, for two reasons. First, the pandemic rapidly accelerated students’ conversion to, comfort levels with, and acceptance of remote and hybrid learning formats. Second, a number of prominent institutions—including Indiana University, the University of North Carolina, and Carnegie Mellon University—are leading the way in online program delivery.

As a result, the popularity of online education has exploded. According to AACSB data, the number of online MBA programs offered by accredited universities has doubled over the last ten years. Poets&Quants recently reported that the number of students enrolled in online MBA programs now exceeds the number enrolled in traditional full-time programs.

As other top universities enter the online education race, it spells big changes for the part-time MBA market. Encompassing evening, weekend, and executive MBA programs, the part-time MBA program model might consolidate into one hybrid version, where students move between online and in-person classes based on their convenience.

3. ‘Lifelong Learning’ Is More Than a Buzz Phrase

Business schools have relied on their reputations and alumni to design executive education offerings that convey new knowledge to various professionals. However, only a small portion of schools generate meaningful revenue surpluses via this route. Even schools that do well in exec ed suffer during economic downturns when companies cut training expenses.

A 2018 report, authored by the Institute for The Future and released by Dell Technologies, predicts that 85 percent of the jobs that will exist in 2030 don’t exist now. That represents just how much our graduates will have to adjust their approaches to learning. Sporadic executive education might no longer be enough to help them manage the pace of change.

Business schools already have started a vigorous dialogue about how to recruit students for their entire professional lives—not just for a single one-, two-, or four-year program. The shift to a life-cycle approach to education is revolutionary. It has many positive implications for alumni relations and executive education, and it could bring a significant portion of corporate training budgets to universities.

4. One Song at a Time—Not the Whole Album!

Current trends indicate that more students will want to pursue education in smaller segments, rather than in one large chunk. In response, business schools are increasingly unpacking education into multiple certificates that can be collated or stacked toward degrees. That will mean that four-year undergraduate programs and one- and two-year graduate programs—typically marketed to students as “all-or-nothing” experiences—could be on the wane.

The shift to a life-cycle approach to education is revolutionary and could bring a significant portion of corporate training budgets to universities.

The idea that a university’s main product is not a static degree, but a degree broken into multiple parts, will have major implications for the revenue models of business schools. There also will be implications for metrics that universities traditionally use to track student success, such as graduate rates and time-to-graduation. Such metrics could lose their relevance as more students choose not to complete their degrees or do so only at their convenience.

Residential, Hybrid, or Fully Online?

Business schools now are enrolling a new group of students who took remote high school or undergraduate courses during the pandemic. Among this group, we are likely to see larger percentages who would like to continue working while they pursue their educations, as well as others who would like seamless options for taking classes either in person or online.

Forbes recently reported that 82 percent of students surveyed want to take at least some of their courses online. The same survey finds that 41 percent want to access all of their education online.

What does this mean from a strategy perspective? Primarily, it means that, in the future, a fully residential higher ed model will likely become a niche segment. While some students will still seek out the fully on-campus experience, many universities will not be able to afford to cater to this segment alone.

We have started to see almost all business schools embrace hybrid delivery models, and we expect this response to the pandemic to stay. What this new model might look like is the focus of a June article in Harvard Business Review Perspectives by Vijay Govindarajan of Dartmouth College and Anup Srivastava of the University of Calgary. They show the economics of residential, hybrid, and fully online models, as well as how a fully online model can deliver high-quality experiences while bringing the price of education down.

What Should a Business School Do?

Such substantial changes in the market for higher education will require business schools to adopt new business models. For many schools, these models will be based on the following strategic approaches:

Start with the revenue model. How revenues flow from the university to the business school varies. Some schools operate in a system of responsibility-centered management, in which revenues are driven by the number of credit hours or cash they generate. Other schools have their revenues completely controlled by the university provost’s office.

Many schools fall in between these two models. They might be able to pursue various incentives for different activities. These incentives might arise from legacy agreements or be devised to support the university’s strategy.

While many deans have a pretty good idea of their revenue streams, they still will find it useful to examine the various pathways through which revenues flow into the business school. They also should know the link between each of these pathways and the effort required—it will become increasingly important for academic leaders to know where they can achieve the biggest bang for the buck. 

Some schools might find it most advantageous to focus on undergraduate education; others, on graduate education or executive education. For our schools to survive and thrive, we will need to align our models to our institutional settings while leveraging our schools’ competitive advantages.

Schools must address how to integrate stackable courses within the current degree system without sacrificing the academic rigor that has set universities apart.

Create lifetime value. Tuition has traditionally been a business school’s main source of income, with additional revenue coming from executive education and philanthropy. But the increased popularity of lifelong learning provides opportunities for all schools to generate income while keeping their alumni engaged.

Many business schools have just started examining this new revenue pathway and analyzing education in terms of its lifetime value. An emphasis on lifelong learning means that revenues from students are spread over many years, not concentrated in just two or four years. This new approach will disrupt our current accounting and have implications for our operations.

Offer stackable courses. As we discuss above, unpacking the business degree and offering it in smaller bites is a trend that is catching on. Yet, before stackable options become truly mainstream, all schools must address how to market, operationalize, and integrate these smaller chunks of learning within the current degree system without sacrificing the academic rigor that has set universities apart.

Further, institutions that offer stacks must resolve how to deliver experiential learning in stackable formats and how to address a completely new set of challenges. These challenges include the implications of shorter programs potentially cannibalizing revenues from current degree programs, the budgetary impact of spreading out revenues over time, and possible opposition within university governance structures.

Merge disciplines. Ultimately, the revenue model any business school adopts must align with the university’s overall strategy. That’s what makes interdisciplinary initiatives such an attractive option. University administrators will view interdisciplinary options favorably because of the shared costs and joint benefits they generate. At the same time, students will appreciate opportunities to be exposed to multiple disciplines and integrate business knowledge with other passions, such as biology or the arts—experiences that truly bring out the value of being at a university.

Innovate. Adapt. Grow.

The pandemic might have limited physical human interaction over the last two and a half years. But it could not contain the innovation and adaptation of educational institutions.

That has certainly been the case for business schools. Our institutions aren’t just leading the way in embracing new modes of knowledge dissemination. They also are at the forefront of adopting new models of revenue realization and forming new types of partnerships. By remaining agile and willing to innovate, business schools can sustain and grow their programs in an ever-shifting market.

Authors
Hanumantha Rao Unnava
Dean, Graduate School of Management, University of California–Davis
Sarah Nutter
Charles E. Kern Professor, Lundquist College of Business, University of Oregon
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