Do You Need An MBA To Move Up In PE?

Business Schools Face Business Realities

Higher education institutions are called the “ivory tower” for a reason. For the longest time, they were seemingly immune from economic contractions. When costs rose, they simply boosted tuition and fees (or leaned on the taxpayer if they were public schools). Maybe that’s one reason why people naturally resent academics who point a finger with one hand while holding out the other for a handout.

Ah, such sentiments are so pre-economic meltdown.

Nowadays, administrators are focusing on debits and credits as much as their private sector graduates. Endowments are languishing as costs and student expectations rise. More demands…evolving models…new threats – you’d think business schools have actually become a business. Well, they are. And they’re facing the perils and lose-lose decisions that comprise their case studies.

For starters, many MBA programs are wrestling with their identities. “Everybody wants to be research driven and global,” Steef van de Velde, dean of Rotterdam School of Management at Erasmus University, tells The Financial Times. This aspiration has led to a global arms race that has increased costs for all schools as they attempt to keep up with the Joneses. To compete, schools build new facilities, launch courses and services, and recruit the top talent in the field. “It’s staggering what you have to pay to recruit a top professor, especially in finance or accounting,” van de Velde adds (with The Financial Times citing that top academics can demand $400,000 or more).

So how do schools make up the difference? Like private sector businesses, they raise tuition and fees. According to data from the AACSB, public MBA programs have jacked up in-state tuition by 50 percent, while private schools have boosted fees by 25 percent. However, some of these extra revenue is offset by the increasing number of scholarships used to lure students. “We don’t use the word discounts, we say scholarships,” Arnoud De Meyer, president of Singapore Management University, tells The Financial Times. “But they are discounts.”

To counter, many schools are tearing a page out of their textbooks and diversifying, adding specializations, joint degrees, partnerships, and non-degree delivery like boot camps. Even more, schools are exploring life-long learning to draw graduates back to campus (or least back online). “That may not be high price, but it will be high volume,” adds Alison Davis-Blake, the outgoing dean of the University of Michigan’s Ross School of Business.

While companies can go public or make public offerings, business schools must rely heavily on philanthropy (even public schools). As The Financial Times notes, endowments have traditionally yielded four or five percent – though such numbers were often cut in half during the recession. Even more, as De Meyer cites, endowments generally only cover just 10 percent of school operations costs. While philanthropy is emerging again, as evidenced by Marion Anderson’s $100 million dollar gift to UCLA and John Paulson’s $400 million dollar donation to Harvard’s engineering school, it isn’t consistent across the board. In fact, Davis-Blake warns against a have’s-and-have-nots model, where top schools maintain funding levels needed to absorb increasing market demands as second and third tier programs flounder.

To survive, schools may  need to make decisive, risky, and potentially painful decisions. “I do think a number of business schools will have to decide they are not a research business school, that they will be an excellent teaching school,” predicts De Meyer, who also envisions mergers coming to fruition. At the same time, van de Velde cautions that schools must become “first movers” and “hope that other people go bankrupt or give up.”

To read the full article, click on The Financial Times link below.

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Source: The Financial Times

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