Reports Of The MBA’s Demise Are Greatly Exaggerated

graduate management education

Sangeet Chowfla, former CEO of the Graduate Management Admissions Council, reflects on the business of business education

Full disclosure. The title for this column is the same as a piece in The Economist a couple of years ago that stemmed from an interview with me. Then, after a couple of years of declining applications to U.S. MBA programs and a couple of much written about program closures, I argued that the MBA remained relevant and vital and that what we were seeing was the normal ebbs and flows of global demand. Now, several years and a global pandemic later, not much has changed. There are shifts, certainly, but the MBA degree – once called the greatest educational innovation of the 20th century – remains relevant, vital, and in demand.

We need to separate the underlying value of the category (MBA) from the normal changes we should expect in underlying detail (geography, delivery, length, cost). As an example, demographic and economic changes have made China and India the largest automotive markets in the world and volume leadership have changed from GM to Toyota to VW to BYD. The category has remained strong while the players have changed. Similarly, technological change is creating a shift from internal combustion to EV’s with players like Tesla and Hyundai benefiting. The category stayed strong, people still needed cars – the detail and the relative position of players changed.

The MBA category saw a step function growth in demand after two macroeconomic and geopolitical events. One was economic reforms in India (1991) and China (1992). The second was the creation of the World Trade Organization (WTO) (1995) and China’s ascension to it (2001). Taken together, these events led to a sea change in economic growth and global trade. Huge middle classes were created around the world with an attendant rise in demand for education. Global growth created demand for managers and one answer to rising aspirations was a business degree, seen as a passport to a better life in a new, globalized world. 

Business schools, at that time mostly in the West, responded by increasing capacity (supply). Capacity in a university setting has very low operating leverage as it is driven by fixed costs in physical infrastructure and faculty. Financial viability is a function of capacity utilization.

Then three things started to change. Supply, that was largely controlled by Western (or US) business schools started to even out as schools in other regions caught up. You can see this in the chart below that shows the geographical distribution of the FT’s top 50 global MBA programs. Second, economic growth (and geopolitical posturing) made more and more students in high growth markets choose to study at home. If my future career is in Shanghai, the argument goes, why do I need an MBA from Ohio when I can get one of equivalent quality from Fudan, CEIBS or Antai, with their local networks as a bonus. Lastly, the rising costs of an overindulged student experience, global experience programs sometimes akin to “MBA tourism”, and reducing faculty teaching loads drove tuitions to unsustainable highs – making one year programs more attractive to international students and changing the Roi for domestic ones.

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A fourth factor was the impact of the business cycle. Analysis of the economic environment and hiring from business schools has shown that there is a strong correlation between the two. Companies that state that their focus is on expansion (new products, markets, M&A) tend to hire more MBA’s. Companies that focus on efficiency (cost, productivity, efficiency) tend to hire more specialized Master’s. One is perceived as the strategic thinker who will open new doors for tomorrow. The other, the job ready, lower cost, professional who will get today’s work done. The “00’s were the go-go years of globalization with a lot of MBA hiring. The global financial crisis changed that and a slow recovery in Western economies kept the focus on cost.

As Western economies (and companies) adjusted to 2% growth rates, Asian economies continued to grow at 8%-10%. They hired a lot of MBA’s and with more business schools of quality coming online within their country or region, they preferred to hire from there rather than from Western schools except for the “elite” brands.

Bernie Arnault, the Chair of LVMH, was asked during the financial crisis about the future of his company after the “demise” of conspicuous consumption due to the crisis. His famous response:

“Conspicuous consumption is not dead; it’s just relocated to Asia.”

That may be true of the MBA as well. For every 50 to 100 student MBA program that closes in the West, there is a 500 to 1000 student program building in the East.

That said, there seems to be pockets of growth in MBA West as well. The elite global brands – you know who they are – continue to do very well attracting both domestic and international students. A new breed of online program in the $20K to $30K range has demonstrated that price elasticity does exist in higher education and Europe has shown that one-year (well, maybe 15-month) programs can appeal as well, perhaps again because they have a lower total cost – that price elasticity point again. It may well be that the market will segment into high touch-high experience programs (the traditional MBA) from a limited number of brands, Low touch-low cost online programs from innovative schools that can adjust their cost models appropriately and a middle ground of shorter high touch-lower total cost programs for those who want the in-person experience but shy away from two years of tuition and salary loss. What may be at risk is not the MBA as a category, but programs in the mushy middle. High touch – High cost – mid brand and low touch (online) but of equivalent cost to their high touch brethren.

One last point. I have deliberately stayed away from demand shifts caused by the Pandemic. We saw tremendous domestic application growth in 2020, a classic countercyclical effect and are now seeing domestic decline but international growth due to pent up demand in 2021 and 2022. China’s reopening may carry this into 2023 as well. It’s too early to call the longer-term impact but it seems that the secular effects that I have spoken to in this column are more fundamental.

Globally, the MBA stays relevant and vital. There will be changes as a result of changing demand and supply, driven by macroeconomic factors, not programmatic ones. Those who stay committed to the category would do well to understand these changes and have a plan to stay relevant. To quote Bob Dylan out of context:

“May you have a strong foundation, when the winds of changes shift.”

Author and former GMAC CEO Sangeet Chowfla

Sangeet Chowfla led the Graduate Management Admissions Council as president and CEO for nearly ten years from 2014 to 2022. A globally recognized and respected executive with deep experience in the technology, telecommunications, and venture capital sectors, he began his career in New Delhi with IBM/IDM. Chowfla went on to spend 18 years with Hewlett-Packard Co. in Europe, the Middle East, Asia Pacific, and the United States. He culminated his tenure with the company as vice president and general manager of the Inkjet Media Division from 1995-2001. He then moved to Timeline Ventures as a partner in the venture capital partnership. In 2007, Chowfla became the chief strategy officer and executive vice president of the Mobile Services and Global Market Units of Comviva Technologies, a leading Indian telecommunications software company. Chowfla joined GMAC during a period of disruption in the organization and industry. During the last three years of his tenure, he helped to stabilize the candidate pipeline, renewed GMAT exam growth, diversified GMAC’s footprint and ensured a strong financial foundation to enable future investment.

 

Earlier Ruminations Columns by Sangeet Chowfla

The Value Of Standardized Testing: Don’t Throw The Baby Out With The Bath Water

Why Students Go To Business School & How They Make Their Choices

The Changing Face Of International Student Mobility

Why Diversity Is Essential To The Health Of The U.S. Domestic Student Pipeline

A Decade Of Graduate Management Education: ‘I Love You, You’re Perfect, Now Change’

Business Casual Podcast: Interview with Sangeet Chowfla

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