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Dean Rich Lyons of Berkeley Haas

Dean Rich Lyons of Berkeley Haas

Half Of U.S. Business Schools May Be Gone By 2020

That’s how you write a headline! And that was the prophecy made by Richard Lyons, dean of the Haas School of Business at the University of California-Berkeley.

Actually, Lyons’ quote to Bloomberg Businessweek was, “Half of the business schools in this country could be out of business in 10 years—or five.” So MBA programs may have a few more years of shrimp and chardonnay. But Lyons message is clear: There is a day of reckoning upon us.  Adapt or die because a hard rain’s a-gonna fall.

And you thought law schools had it rough?

So what’s behind Lyons’ dour assessment? Well, he probably isn’t too worried about Haas, a top 10 program with global renown. He is more worried about those downstream state, private, and even publicly owned institutions.

And here’s why: The dirty secret among business school deans is that part-time and executive MBAs are their bread-and-butter. Schools don’t make money off their brick-and-mortar students. The real revenue comes from weekend, part-time, and online students (who are rarely on scholarship and willing to pay a premium for their education). With schools like Harvard and Wharton looking to move online, the worry is that students who traditionally attended local schools will gravitate toward the big brand schools.

And what working professional wouldn’t want an Ivy League degree …especially when they’re anchored down in Alameda? And that’s Lyons premise: Student will flock to these prestigious programs once their doors are flung open to the masses, taking their high-margin dollars with them. As a result, part-time and executive programs will be saddled with the remaining students, who weren’t good enough to join their peers in the luxury suite programs. This decreased selectivity will further devalue these downstream programs’ MBAs, making it harder for them to recruit new talent.

Bottom line: Geography no longer determines a candidate’s B-school destiny. If students are good enough to get into an Ivy MBA–but they can’t relocate their job or families–they don’t have to settle for a meat-and-potatoes education. They can have it all, in Lyons’ perspective. And the area schools will fight for diminishing returns or simply wither on the vine.

Yes, it’s dog-eat-dog competition, where alleged quality trumps convenience. So what do others think of Lyons’ premise? Ash Soni, executive associate dean at Indiana University’s Kelley School of Business, tells Bloomberg Businessweek that his school–a pioneer in online education–isn’t fretting yet. “If you’re a dean from a regional school and you’re asking, ‘Are these online guys tapping into my space?’ The answer is: maybe in the future, but not yet.”

The topic extends to Bloomberg Businessweek’s parent company. Megan McArdle, a Bloomberg View columnist, argues against Lyons’ forecast, emphasizing that the true appeal of a top MBA program is that it is exclusive:

“Elite schools could be doing that now, if they wanted–throw open their classes and admit five times as many people as they currently do …

So why don’t they?

When I was starting at the University of Chicago, back in 1999, one of the career-counseling people said something I’ve never forgotten: “We could put you guys on a cruise ship for the next two years, and you’d still get the same jobs.”

She was stating, in a rather funny way, something almost everyone knows: Most of the economic value of an MBA from an elite business school comes from demonstrating that you can get into an elite business school. The rest comes from the classmates you meet, networking, and project experience you get. Something close to zero percent of the value comes from your classwork…

An MBA is an exclusive club, and much of the value from joining that club lies in its exclusivity. None of the business schools in the Top 5 or Top 8 or Top 10 have much economic interest in flooding the market with their students.”

Still, schools shouldn’t take too much comfort in McArdle’s assessment. As she notes, they face a far bigger threat than top tiers moving into their space: “But losing a handful of students is not going to kill those third-tier programs. What’s going to kill them is if the rest of their students decide they’re not willing to take on big debt for dubious employment benefits.”

Source: Bloomberg Businessweek, BloombergView

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