The decision announced yesterday (June 15) to at least temporarily shut down Purdue University’s residential MBA program was not a total surprise to many. And yet, for the 90 or so MBA students currently in the program, it still felt like an upsetting blow.

“The news has certainly been a shock to all of us,” says Cameron Cowger, an MBA at Purdue’s Krannert School of Management who will graduate in the Class of 2021. “The decision was heartbreaking, frustrating, and anxiety-inducing.”

For Cowger, the disappointment was felt more deeply because of his family’s long-time roots at Purdue, with multiple graduates and a great-grandfather who taught Neil Armstrong and other astronauts in the university’s engineering department decades ago. He chose Krannert over other options because of those family traditions and emotional ties. “I feel deeply saddened for my talented friends in the cohort here, who also made significant commitments and sacrifices by choosing Krannert over other opportunities, and the many wonderful faculty members who provide top-notch instruction and what that means for them.”

TUITION REVENUE FAILED TO EVEN COVER THE MARKETING, RECRUITMENT & SCHOLARSHIP SUPPORT FOR THE MBA

The decision, he adds, has caused “profound anxiety” for him and other students. “Ultimately,” he asks, “what is the value of a discontinued degree? In this scenario, I can’t imagine a steep reduction in the supply of graduates translating into high demand, particularly in the uncertainties of a post-COVID economy.”

Krannert Dean David Hummels, who ultimately made the call, says that internally there is a sense that it is “unfortunate but necessary” to take a pause. “Once you present the data, you know what the decision has to be. I haven’t heard any significant pushback. Once we got to the spring, this was not a particularly close call so it was not difficult in that sense. We’ll see if it turns out to be difficult in terms of the reaction. Most people so far say it is unfortunate but we understand. I am sure we will get some people who will be hot about it.”

Cowger and his fellow students learned of the decision yesterday in an email from the dean. Hummels has get to schedule a town hall to speak directly to students or alumni. But the data that informed his decision is compelling. Applications have been falling for years along with enrollment. In the past ten years, applications experienced a 70% drop. Last year, the school admitted 59.4% of its 192 applicants, enrolling one of its smallest MBA classes ever at 46 students. Today, MBA students in the residential MBA make up a mere 2% of the total student population at Krannert. And for at least the last two or three years, says Hummels, just the cost of marketing, recruitment and scholarship support exceeded the tuition revenue from the program by “six and seven figures.” If you added in the more difficult to quantify costs of staff, faculty and student services, the program was losing millions of dollars.

‘I WASN’T GOING TO LAYOFF 15 PEOPLE SO I COULD AFFORD TO RUN DIGITAL ADS FOR THE MBA PROGRAM’

The pandemic and the likely budget cuts that will come from it made the call something of a no-brainer to Hummels. “More than anything else,” he concedes, “the situation fundamentally changed this spring when we saw what the pandemic would do to university finances. In good economic times, it’s one thing to support a program that is losing money. But it is entirely a different thing when you potentially have to layoff a lot of people. I wasn’t going to layoff 15 people so I could afford to run digital ads for the MBA program.”

Hummels, who became dean five years ago, says that the school tried several things to right the program, focusing time and energy on strategy and execution. “First, we spent a good bit of time trying to improve our execution,” he says. “We built an outstanding marketing and recruiting team and they are hitting it out of the park on every other program. But for some reason, that success just wasn’t translating into the MBA program. Once we got the execution problem fixed, then it became a matter of strategy.

“Purdue is one of the top universities in terms of startups and the commercialization of technology so we made a major push for MBAs to come in and work with companies on making technologies commercially viable. We thought we would have a great uptake, but somehow it didn’t quite make it. We got five or ten students a year but that doesn’t make an MBA cohort.”

Krannert also tried to more effectively leverage the university’s reputation in engineering by starting a dual-degree program with Purdue’s engineering college. “But again, it attracted five to ten students. I would have thought that some of these strategy pieces that were aligned with the university would have been attractive to a greater number of students. They weren’t.”

‘THE RANKINGS WERE NO LONGER GOING IN THE RIGHT DIRECTION AND WE ASKED, ‘DOES THIS MAKE SENSE?’

And then the rankings began to plummet. “There was a period of three years where we turned around the Businessweek rankings and then they just turned back around on us,” says Hummels. “We had a year or two where placements dropped. Just two or three people didn’t get jobs and before you knew it the rankings were no longer going in the right direction and we asked, ‘Does this make sense?’”

Businessweek ranked Krannert’s MBA outside the top 50 in the U.S. at rank of 53rd in 2015 when Hummels became dean. His team was able to move it back up to 38th best two years later. Then, in 2018, Krannert fell by 12 places to 50th and last year plunged 28 spots to rank 78th. It was a similar story with the more closely watched U.S. News rankings. The school’s MBA went from 47th place in 2016 to 80th earlier this year.

As a current student, who consulted rankings when he was deciding on MBA programs, Cowger knows that was a worrisome sign for sure. “Momentum is a cruel mistress, and a few poor rankings and/or employment reports can have serious long-term repercussions,” he says. ”Indiana is not a populous state like Texas or California, so with three major MBA programs—Krannert, Indiana University’s Kelley School of Business and Notre Dame’s Mendoza—calling it home, one has to realistically consider the possibility that the rise of Kelley over the last decade or so spelled the ultimate downfall of Krannert.”

THE TRUSTEES ASKED HIM: ‘HOW DO YOU ESTABLISH REPUTATION FOR YOUR BUSINESS SCHOOL WITHOUT AN MBA?’

If Hummels had to pick two macroeconomic reasons behind the program’s decline, it would be the rise of alternatives in the form of online MBAs and one-year specialty’s master’s programs in business. He points to the success of the school’s one year master’s in business analytics launched five years ago as an example. “Our business analytics program is our shining star. That is a program that has attracted an enormous number of international applicants, but we have a 100% placement rate and graduates get salaries that rival or exceed MBA salaries. Because of that we have ten applications for every one spot we have available in that program. You can do it in a year and get a great job and that is very attractive to students.”

Last week, Purdue’s Board of Trustees carved out 45 minutes for the MBA discussion, between dealing with COVID planning and Black Lives Matter issues. The most challenging question Hummers was asked by the board?

How do you establish a reputation in your business school if you are not ranked in your MBA program?

“That question has stumped a lot of my counterparts around the country,” concedes Hummels. “The answer we settled on is that there may be some general halo effect from high rankings in an MBA program but at the end of the day, students are going to make a decision about where they attend based on the specific programs they want to enroll in. The best way for us to attract candidates is to invest resources in those programs. This decision will allow us to do that.”

SCHOOL WILL LAUNCH THREE NEW ONLINE GRADUATE DEGREES BY JANUARY

According to Hummels, it will free up resources that will be devoted to putting more degree programs online. “I don’t know how the next 12 months are going to reshape business education in the U.S.,” he says. “It’s not just a recession. It’s a recession induced by a pandemic that hits at the heart of what we do in universities. So instead of people coming back to retool and solve career challenges during a more typical recession, they may not be able to do it this time around. It would not surprise me if there are a number of other schools that reach similar decisions around the budget cuts they are facing. So I think there is a huge amount of uncertainly on how the pandemic will reshape business education.

“When we realized what was happening with COVID in January, we made a decision to rapid launch more online programs. A year ago, we had one online program, a master’s in economics. And we had a January 2020 launch of our online MBA program. We are going to launch three more master’s online in the next six months. Our online counterpart of business analytics will launch in August. Then we will do a global supply chain program and also an online launch of our human resources management master’s. We will go from one online offering to five programs in one year.”

Up until COVID hit, the school would enroll about 120 students a year in its business analytics program. This year, with three intakes in January, May and August, Krannert’s online MBA will enroll 80 to 100 new students. “We are starting to see the applications pile up for the August start,” he says. “Because of our historical position we have a lot of well-placed alumni in great companies and when we ask them how can we get them to come back for our programs, every single time we hear, ‘What do you have for us available online? We are two cohorts into our online BA offering and we have gotten the kind of students we used to historically attract to our residential program.”

The school will honor its commitment to this fall’s incoming class of MBAs. How large it will be is anyone’s guess, however. “We don’t know for sure because of everything related to COVID,” says Hummels. “We think it was going to be around 65 students without the COVID effect and probably two-thirds were international. At this point, we don’t know what we are going to wind up with.”

As for the pause, Hummels says there is no immediate timetable for bringing back the residential MBA program. “Like a lot of other schools, we have a very big challenge in front of us to be ready for a COVID-ridden semester. There is a massive amount of work to get universities ready for this environment and a lot of this falls on the faculty to rethink everything they have taught. Realistically, the launches and that will consume our time in the very near term. As soon as we are passed those hurdles we can get to a point where we can do some more thinking about the MBA program. We could revamp the program to make it shorter and more flexible. That might be a way to attract an audience. But we have to see how things evolve over the next 12 months.”

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