Will Tippie Be The MBA’s Tipping Point?

‘DISRUPTION DOESN’T START WITH THE STRONGEST PLAYERS’

Rich Lyons, dean of UC Berkeley’s Haas School of Business (Photo by Noah Berger)

“Everybody knows these disruption stories don’t start with the strongest players,” says Rich Lyons, dean of UC-Berkeley’s Haas School of Business. Lyons believes that that half the business schools in the world could be out of business over the next 10 years. “What has always struck me is that the research at the AACSB (the primary accreditation agency for business schools), shows that there are 13,000 business programs in the world. Many of us play in the upper 1% of the market where there are only a little more than 100 MBA programs.If you sucked the part-time revenues out of the schools, they won’t have a viable financial model. At the edges, programs that are offering more flexible formats are starting to pull people away (from full-time programs).”

While overall MBA applications have fallen at U.S. schools overall in the past three years, with more programs being run as loss leaders, there’s been little to no disruption at the upper end of the MBA market. Of the Top 25 MBA programs in the U.S., for example, only five have experienced a decline in applications to their two-year, full-time programs (see table below). In two of the four, the dropoffs are inconsequential, less than 3% at Dartmouth College’s Tuck School (2.6%) and Emory University’s Goizueta School of Business (1.9%). The biggest fall—29.8%—at Cornell University’s Johnson Graduate School can largely be attributed to upheaval in the recruitment and admissions office.

Application increases at many of the Top 25 programs suggest a flight to the highest quality and reaffirm the perceived value of the degree. At Yale University’s School of Management, applications have climbed by 45.0% in the past three years to new records. At the University of Michigan’s Ross School, apps are up 31.7% since 2013. At UNC’s Kenan-Flagler Business School, they are up a healthy 44.0%. Applications to Harvard Business School are at near record levels, up 11.1% in the past three years.

EVEN AMONG THE VERY BEST SCHOOLS, SOME MEAGER INCREASES IN APPS IN THE PAST THREE YEARS

Yet even among the most elite and highly selective MBA brands, there are some disturbing trends. Schools that have long been known as primary feeders to the world of finance, including Wharton and Columbia Business School, have seen their applications grow far more timidly in the past three years. Wharton is up a mere 3.0%, Booth 5.5%, Columbia and NYU Stern, both up 7.3%.

Schools that are funnels to the more dynamic part of the economy, the big tech firms and the startups, have done considerably better. In the past three years, for example, the University of Washington’s Foster School in Seattle—home to Amazon, Microsoft and a thriving ecosystem of tech startups—has flourished. Foster applications are up a whopping 74.2%. Applications to the University of Texas’ McCombs School of Business in Austin, another entrepreneurial hotbed of tech players, have jumped 47.9%. At Carnegie Mellon’s Tepper School of Business, full-time apps have risen by 29.9%, at MIT Sloan by 28.0%, at UC-Berkeley Haas by 20.7%, and at Stanford Graduate School of Business by 15.0%.

Those increases, moreover, have occurred at already highly competitive MBA programs with far more applicants per seat than is necessary. A likely outcome is that there will be less expensive, more flexible MBA options and fewer full-time, residential two-year programs. “A Porsche is a better car than a Kia but there is a reason why more Kias are sold,” reasons Darden’s Lenox. “A pure online degree is inferior to a residential degree but for many people it may not make a difference. They will go for the cheaper, less valuable experience. So there will be cheap and affordable MBA programs and there will be elite, branded MBAs”

At Iowa’s Tippie College, meantime, the final class of full-time MBA students will graduate in May of 2019. By that time, don’t be surprised to find quite a few more schools scrapping their MBA programs.

  • John

    It’s not all conclusive. No one with M7 or T15 offer will use their right brain to go to ASU.

    Cost is a big issue, sure it is! but that’s what loans are for. The death of MBA is from employer segmentation that either (a) think it’s commodity like a high school diploma to not value it highly anymore, or (b) elite employers, who, have many elite MBA grads in company, know which MBA sources are the real good raw talents.

    To advocate what John Byrne advocated, firms probably should ban GMAT/Scholarship on résumé. Those are admissions indicators, whatever, but still, you can find fools with superstar GMATs unfortunately.

  • 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!