Will Tippie Be The MBA’s Tipping Point?

On one level, it was an agonizing decision to shut down the full-time MBA program at the University of Iowa’s Tippie College of Business. On another, it was a no-brainer.

When Dean Sarah Gardial announced her decision in August, she knew the incoming class would total just 54 students. The program had been in the red for years on a $3.5 million budget. With state appropriations falling and budgets tight, it no longer made sense to pour resources into the tiny program. Earlier this year, no less, Tippie’s U.S. News’ MBA ranking plunged 19 spots ito 64th from 45th. It was the proverbial perfect storm.

“We’re seeing clear shifts in what students and businesses need,” Tippie Dean Sarah Gardial said at the time. “Both are expressing preferences for non-career-disrupting options for the MBA, while others are increasingly drawn to the focused education provided by master’s programs in specific subjects.”

OTHER DEANS CONCEDE THAT IOWA’S DECISION MAY HELP THEM SHUT DOWN THEIR PROGRAMS

As a business school in the Big Ten, Iowa’s decision has been something of a wakeup call to many in the MBA market. In the aftermath of that decision, however, Dean Gardial has gotten a surprising reaction from some rival deans. They’ve quietly conceded they have been grappling with the same issue and that her decision may help them deal with the political consequences from alumni, students, and faculty of ending their own money-losing MBA programs.

The backdrop to Gardial’s decision was three consecutive years of declining overall applications to two-year, full-time MBA programs in the U.S., a drop that would have been far more severe if not for the rising number of applicants from abroad. But even that offset has disappeared in the wake of anti-immigration rhetoric and a President who has made many would-be immigrant students feel unwelcome in the U.S.

Then, you had the earlier decisions by Wake Forest University, Thunderbird School of Global Management, Virginia Tech, and Simmons College to walk from the residential MBA market. Only this week, Kings College London, in the midst of opening a new business school next month, revealed that he decided against having a full-time MBA in its portfolio of programs. Kings’ Dean Stephen Bach believes there isn’t enough interest in an MBA program — either among prospective students or recruiters in the London business community. “What we are hearing from employers and some of our advisory group members is that companies are looking for talent at an earlier stage,” he said.

‘THIS IS AN INDUSTRY READY FOR DISRUPTION. THERE IS GOING TO BE A SHAKEOUT’

While the decline in interest in two-year MBA programs may have accelerated due to Trump, the writing has been on the wall for some time. As long ago as a decade, Gardial’s predecessor, Dean William (Curt) Hunter had already been discussing the viability of the program. He thought the school would have to either make heavy investments to keep it alive or would more prudently, perhaps, confront the decision to shut down their involvement in the most successful and most popular graduate degree in the post-war period. Ten years later, with Tippie’s MBA enrollment more than halved, it seemed like an easy decision.

He wasn’t the only dean of a Big Ten business school to seriously consider abandoning the full-time MBA market. Alison Davis-Blake, when dean of the University of Minnesota’s Carlson School from 2006 to 2011, wondered the same thing. She ultimately left for Michigan Ross where she cut an entire cohort out of the full-time MBA program. Over at Ohio State University’s Fisher College of Business, Dean Anil K. Makhija concedes he had that option on the table before deciding to launch a complete review of the MBA that will lead to a newly revamped curriculum to debut next fall.

“What I noticed is that the data on GMAT test takers was declining,” says Makhija. “Iowa is moving away from the full-time market. It makes you think what is going on in this sector? Has the product kept in touch with all the change in the business market? This is an industry ready for disruption. There is going to be a shakeout. I don’t want Fisher to be a victim but rather a survivor.”

‘THE BIG QUESTION IS WHERE IS THAT LINE AND WHAT SIDE OF THAT LINE ARE YOU?’

Michael Lenox, chief strategy officer for UVA’s Darden School of Business

Has the two-year, full-time MBA market jumped the shark? What’s the confluence of factors that have led to a serious decline in applications? Is Iowa just the latest domino to tumble, a harbinger of still more programs to close? Is the decline of the applicant pool for full-time MBA programs permanent?

The answers to those questions often depend on who you ask. The deans of the most elite schools believe the decline won’t impact their programs. Second- and third-tier deans areopenly worried. What is clear is that there winners and losers are already emerging. “A bifurcation is occuring in residential MBA programs,” believes Michael Lenox, chief strategy officer for the University of Virginia’s Darden School of Business. “There is clearly a lower part of the market that will be disrupted, and the big question is where is that line and what side of that line are you? But the shakeout will take a long time to play out. There is no active exit market in education as there is in business. A roll-up strategy of failing schools doesn’t make a whole lot of sense. So schools will hang on as long as they can.”

There are a number of reasons for the decline in applications. Would-be students now have more options, from online MBA programs to specialized master’s degrees. Since 2007, the Graduate Management Admissions Council data show that score sending to specialized master’s programs rather than M.B.A. programs had nearly doubled by 2016 to more than 25% of all GMAT scores sent. Non-U.S. business schools are providing significant global competition to their U.S. counterparts as well.

  • You’re right. Until U.S. News discontinues using the standardized test scores as a significant metric in its rankings, schools will attempt to get the highest averages to report. I agree that this is far less important for H &S. Wharton has focused on high GMATs because it is in a fight with Chicago Booth and several of the other M7 schools along with Yale SOM for the third spot in the consciousness of many elite applicants. Wharton has lagged in scholarship assistance and lost a good many superb candidates to peer schools in recent years.

  • juscurious…again

    thank you for your insight. very helpful and makes sense.

    as someone who will be going through the application process soon, i’ve heard from reputable people that elite schools outside H/S/W use the GMAT to compete against each another to snag talent to keep their stats high (i.e. Kellogg knows it can’t compete w/ HBS in terms of its “cache” but it may stand a fighting chance luring an applicant away from Booth if Kellogg were able to offer the candidate more money). This analogy obviously only applies to candidates who get multiple offers and are selecting among elite programs.

    so, i guess my question is, if H/S/W even were to decrease its mean/median GMAT scores, wouldn’t other elite programs still be looking to keep their numbers high, knowing they can’t compete with H/S/W on brand name/prestige alone? everyone knows what the top 3 schools are, it just seems like schools in the 4-10 range are constantly jockeying against each other to pick up the candidates who don’t get into schools (#1-3).

    apologies if this comes off as insensitive, i’m just curious on your take, john.

  • Lauren Bacall

    It’s about money. Retake the GMAT, it’s most money for the testing company. For the schools, it gives them “bragging rights” as a marketing tool (and ultimately more money) to vie for a dwindling student base.

  • Lauren Bacall

    The next disruption in higher education will be the merging / consolidation / or closing of schools.

    In my own home state, we have 3 very large state universities that serve a population of about 3.5 million. On top of that, we have over 100 private and community colleges, all fighting for the same declining consumer base. It’s not a sustainable model.

    Unfortunately, those who run higher education don’t want to face reality. They’re stuck in a time warp of the 19th century, both in the administration of institutions, programs, and teaching principles.

  • Yes, of course. I know of at least one elite admissions director who wants to lessen the dependence on the GMAT by allowing applicants to submit one of the following: HBX grades from its CORe program, a CFA exam score, a GRE or a GMAT and possibly some other type of test that would be less onerous than the GMAT. I suspect we’re going to see some action on this in the near future.

  • juscurious

    Of the people you’ve spoken to (admissions director/MBA director of a business school), has anyone addressed this topic? No need to delve into specifics, just curious about their thoughts on this “arms race”

  • Sad to see it go, but I suppose the market gives & it takes away.

  • It sounds like you’re already pretty convinced, but for what it’s worth, I haven’t met a current international MBA student who wasn’t concerned as well. The official WH policy is pushing for huge cuts to legal immigration–you don’t need a Hillary ’20 sticker to believe that, you just need an internet connection to see the policy for yourself.

  • C. Taylor

    It’s a double-edged sword.

    Absolutely there is a punishing effect on those who are otherwise outstanding candidates. But biasing for high GMAT scores also offers a singular opportunity for non-pedigree applicants to compete with the ivy league to elite career feeder complex.

  • C. Taylor

    Thanks for this look, John.

    There are a couple of things here.

    1. In the currently highly regulated business environment, returns have increasingly gone to a handful of firms in a disproportionate way. This drives income disparities between workers at those firms and workers at other firms (MBAs, in some cases).

    2. In aggregate, the US economy is growing.

    Growth in firm needs – effects of technology on demand for MBAs = Net change in demand for MBAs

    If the market domination by the firms with outsized returns continues and we continue to see economic growth* (at least for those firms), then the number of high paying jobs–e.g. top shelf MBA jobs–will increase.

    Continued strong performance by a few firms and weak performance by the majority of firms suggests we may see an increase in the supply of well-paying MBA jobs at the same time growth in non-well-paying MBA jobs remains lackluster. This assumes technological advancements in meeting firm needs do not outpace growth in those needs.

    The nine MBA programs leading the US market do not appear to be increasing their intakes in line with the growth in the supply of well-paying MBA jobs. If that is indeed the case, you will see a few or several elite and near-elite programs continue to narrow the outcome gap with the leading nine MBA programs.

    Between first, the current growth challenges faced by firms outside the small group of leaders, and second, the proliferation of graduate business programs; MBA programs that do not, or cannot, tap into opportunity cascading down from the market served by top programs will face ongoing pressure to either better compete or exit the market.

    I suggest this is currently the case and that these pressures may continue absent appropriate government reforms in the US.

    * The current environment suggests there are significant risks to broadly increasing productivity growth in the event the US proves incapable of reforming taxes, reducing red tape, and enabling broader innovation. The last five years of Obama’s term averaged 0.6% growth in productivity.

  • Chris Rousse

    Oh, ok , now I see you’re southwest asian. I’ll admit you are hard workers, smart, but for some reason you have to come to the U.S. in order to prosper ethically. Your own country was so rotten with corruption that in order to prosper there you would have to engage in corruption to get ahead. I don’t have to cite it, it’s well known your countries are controlled by filthy bureaucrats who snuff out innovation and growth through primitive greed. So you come to the u.s. A. Proof’s in the pudding! You’re here! Thank Heaven for the USA, or you’d have nowhere to prosper! Haha. In the end you are like high tech farm laborers, accepting the scraps tossed to you.

  • Dab

    We stole your high paying jobs, not your welfare, but sorry anyway. Also asians are the most negatively impacted by affirmative action so your implicit whining is adorable.

  • Chris Rousse

    Provide evidence. And tell your family of legal immigrants to refrain from applying for too many welfare benefits. Could you do that? Do you think you can live without subsidies, maybe sometime soon? And that includes affirmative action.

  • Chris Rousse

    That speaks volumes about the type of people who gravitate to academia. Face it, most people who teach and administer at these MBA programs are purely academics. Few have actually succeeded in business, other than part time gigs in consulting. You’ve let yourself get sucked into their bubble! Also, Trump’s “anti-immigrant rhetoric ” is more accurately called “anti-ILLEGAL immigrant” rhetoric. When are you self -described “sophisticates” going to get it right?

  • Dab

    My family of legal immigrants are smart enough to know Trump’s cruel racism and xenophobia, and those of his base, are not limited to “illegals”

  • Geff

    “It would take little courage”, unfortunately most admission people at those schools are cowards to take such step. They are mediocre employees with desperate career and the GMAT is the easiest way for them to filter applicants. Do they realize that filtering people based on scores is a job that can be done by an excel! One could ask what the hell are they doing? How to know if they have any skills knowing well rounded candidates? It is really shame to see such ridiculous race.

  • I haven’t met a dean, an admissions director or an MBA director of a business school who disagrees with the notion that Trump’s anti-immigrnat rhetoric has been a major factor in the decline of international applications. No one, including the Graduate Management Admission Council.

  • Chris rousse

    John Byrne’s claim that Trump’s opposition to illegal immigration affected foreign applications to MBA programs is hilarious. Byrne, legal immigrants are disgusted by cheaters who sneak into this country. Legal immigrants are smart enough to understand what Trump is truly against: lawless chaos. Trump had no effect whatsoever on any supposed drop in foreign applications. Did you forget his wife is an immigrant? Next you’ll be saying he’s antisemitic, even though his daughter converted to Judaism. You provide no credible evidence for your snotty assertions about Trump, who graduated from Wharton by the way, so you can’t say he’s dumb, huh?. But I bet you made some brownie points with your leftist masters in NYC, you poor little slave to ideology.

  • I completely agree. The GMAT arm’s race is out of control. We need the leading schools to take a public stand here against this ridiculous inflation in both average and medians. It would take little courage for a Harvard or Stanford to make that move because their app volume is uninfluenced by the U.S. News ranking. Because Stanford’s GMAT is highest of any school, it would be smart and prudent to bring down the average by 10 to 20 points in a single year to prove to people that a standardized test score isn’t dominating the selection process.

  • Tuk Tran

    can someone please reconcile for my small brain the decline in applications and the dramatic increase in GMAT numbers? schools like columbia are calling people with 720 gmats and asking them to retake the gmat to push it up to around 740. That is lunacy. What is going on?

  • FXTrader33

    I think there’re two big things to consider:

    (1) Companies have started moving from away from hiring based on pedigree to hiring based on your skills. People can learn some technical skills and get a $100,000.00+ a year job in tech without even a degree. If this trend continues with other companies I could see a lot fewer people going to college/graduate school.
    (2) Perceptions towards going to average schools have changed a lot over the years. 20 years ago people viewed going to a average school as the ticket to the middle/upper middle class. Now those people more looked at as being losers going nowhere.

  • Herald

    to support this notion, we all have seen the surge in applications number submitted to the ASU Carey’s Full Time MBA program when they announced the full ride! I believe it is the most important factor and the current costs of the full time programs is hurting the schools and pushing students away.

  • Herald, Thanks for adding your perspective. Price is clearly an issue and you are right to bring it up. Applicants often see those sticker prices and just throw up their hands and walk. But every school is throwing millions of scholarship dollars into their MBA programs which are largely subsidized. It’s still hard for an applicant to make the rational calculation on price and value when those scholarships are hidden from public view and you can’t apply with certainty that you will get one.

  • Herald

    In my humble opinion, the very expensive price for the full time two year MBA is the main reason. Business world today moves much faster than 20 or 30 years ago, and therefore, two year is quite long time. Plus the insane cost, direct and opportunity cost, all play significant role. What makes specialized masters appeal is that most of them is one year, or practically, 9 or 10 months, an mba with specialization in the intended area is much better than the MS. I wish Tippie has considered shortening their program to be one year instead of abandoning it completely. Other factors include the correlation between the MBA and its rank, it became clearer more and more that unless the student did the MBA in the top 30 or so worldwide, it is really worthless and waste of time and money. But, whether it is top 1 or top 10, the two year full time program is gradually becoming irrelevant in the new fast business world, specially that we see now one year MBA programs such as INSEAD, Kellogg 1Y, Cornell One Year, among others, open pretty much the same doors that Harvard, Stanford, or Wharton two year MBA open, It is pretty strange that those top schools of M7 didn’t start offering one year option!