One of the more tortured narratives in business has been the long and steady decline of the U.S. auto business. A relentless deterioration in market share ultimately led to the bankruptcy of General Motors and Chrysler. Are U.S. business schools headed for a similar fate?
Roger Martin thinks so, and he is deadly serious about it. The former dean of the University of Toronto’s Rotman School of Management, Martin is a leading thinker on business school trends and issues. He’s an iconoclast who has little patience for the status quo of business school academia.
He equates the tenured faculty at top business schools to the United Auto Workers in their single-minded pursuit of higher wages for less work in the classroom, their placing their own needs and wants over the interests of the customers, the tuition-paying students and the companies that hire MBA graduates. “I can’t help but see the situation as eerily similar to General Motors in 1971 when the company experienced a shock with OPEC and GM didn’t do all that much to change,” says Martin. “Some 37 years later, the company was bankrupt.”
‘WE ARE LOOKING AT A GM SCENARIO’
Martin glimpses the early warning signs of a collapse in the U.S. business school model. Enrollments are being propped up by an increasing percentage of international students. Rising tuition and relatively stagnant starting salaries for MBA graduates have weakened the value proposition of the degree, from a 170% return in 2001 to 96% last year. The MBA market share of master’s degrees in business began declining in 2010. The upshot: Martin says that the top 50 U.S. schools will be forced to dramatically reduce tenure-stream faculty as MBA enrollments continue to shrink and companies refuse to pay higher salaries to graduates.
“It’s not just MOOCs or the impact of technology on higher education. It’s not just Peter Thiel who is offering $100,000 to kids to drop out of college. And it’s not going from a payoff on the MBA of 170% to under 100%. It’s all of those things together that is creating storm clouds that are now being ignored. I absolutely believe that if business schools don’t take action in the next five years, we are looking at a GM scenario. Some 90% of current tenure-stream faculty positions will not exist.”
Like U.S. consumers who began buying Toyotas and Hondas, Martin sees increasingly numbers of would-be MBA students opting for one-year specialized master’s degrees, enrolling in online MBA programs at a fraction of the cost, or simply doing without advanced education and progressing in their current jobs.
“The MBA has had this awesome run from a tiny business in 1955, when it was 5% of all master’s degrees awarded in the U.S., until it became the dominant educational option in the U.S.,” he explains. “In 1985, the MBA degree started to flatten out compared to other graduate education. It ceased to become the winner, but graduate education was growing by leaps and bounds so it became a bigger and bigger business largely due to the growth of graduate education overall. There were things about the market that allowed the people in it to say, ‘Things are fine. There is no problem here.’ But there are signs that things weren’t so great.”
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