Will the Business School Model Survive the Pandemic?
WHY YOU SHOULD CARE
MBA programs teach students the smartest new business models. Now the pandemic is upending the business model of these programs.
During his 22 years at the University of North Carolina’s Kenan-Flagler Business School, Doug Shackelford has helped its MBA program adapt to the dot-com bubble burst, the 9/11 terrorist attacks and the recession that followed the financial crisis.
Shackelford, now the school’s dean, says the coronavirus pandemic is by far the biggest challenge to the MBA.
“I would be shocked if there is any school that can take the hit that has occurred to our sector and make money,” Shackelford says. “We were going to run another big surplus this year, but now we are trying to minimize the deficit.”
The COVID-19 outbreak has forced the higher education sector worldwide to spend heavily on online teaching systems while future revenue streams from new students become less certain. But travel restrictions and social distancing rules have hit business schools particularly hard because of their reliance on overseas students and graduate degree course fees.
Demand for the full-time two-year MBA degree in the core U.S. market has in any case fallen every year for the past five years. Competition has increased with alternative training providers such as Hyper Island and Jolt offering MBA modules via short courses taught at city center venues.
The recent forced campus closures and mass digitization of MBA course teaching has heightened the sense of crisis. Hundreds of existing students have signed petitions demanding tuition fee refunds from Wharton, INSEAD, Stanford and other leading schools. This pressure on schools could lead to the most profound shift in the sector since the Harvard Graduate School of Business Administration — as Harvard Business School was known then — introduced the first MBA program in 1908.
Deans have long been aware of the problems of the MBA business model but believed they had plenty of time to adapt, according to Cynthia Vitters, managing director of Deloitte’s government and public services practice, which helps business schools and other academic institutions develop enterprise risk management programs. “The situation has now changed,” she says. “If the quality of the course teaching is not up to snuff, there is definitely a risk that schools will lose people who applied this year.”
The way things have been delivered will have to change.
Cynthia Vitters, Deloitte
The cost of the MBA is a key issue, according to Vitters, but a difficult one to resolve. “Clearly in education the way things have been delivered will have to change, but I don’t think there is anything schools can do to make tuition [fees] go down because of the high cost of staff,” she says. “They will have to work on giving greater value to students for the same price.”
Agility and flexibility is likely to be key for survival in the MBA market, even among those with the financial reserves in terms of alumni donations and endowments to get through the current crisis.
Barcelona’s ESADE business school is among those resisting refunds. Instead it is offering its intakes additional career support services and free access to its suite of executive education programs once they have graduated.
“This is probably going to cost us more money than giving back cash [in the form of tuition fee refunds],” Josep Franch, ESADE’s dean says. “But changes to the MBA program have to be more than a question of rebalancing finances. We have to change our approach, and one way is to offer lifelong learning.”
Schools are likely to offer greater flexibility in how students complete their degree, allowing more intakes during the year and a wider range of course options, as well as the flexibility in payments.
Kenan-Flagler is considering setting up a subscription program, allowing students to spread the cost of their tuition rather than the current system of paying up front.
“I still think the MBA offers an incredible return because you typically recoup the cost of your studies in four years,” Shackelford says. “But why not pay those fees over an extended period in the same way that you would buy a house?”
The post-coronavirus future looks promising for MBA providers that draw students from the local community, and have already cut costs and increased flexibility. A model for this sort of MBA is Tobin College of Business at St. John’s University in New York City, where the intake is diverse (48 percent of the 2019 MBA intake are from minority backgrounds) and many students are from Queens, where the campus is located.
Some 35 percent of the current MBA class are eligible for the federal government’s Pell Grant, a subsidy for low-income households.
The coming recession will probably convince many people to improve their business and management skills. Since the pandemic began, Tobin has seen demand rise for its MBA programs. Deposits paid by students due to start their courses in the autumn are up 30 percent compared to last year, according to Norean Sharpe, Tobin’s dean.
“We are in one of the most densely populated cities in the world so we expect that we could appeal to a lot of those people who want to study close to home because of travel restrictions,” Sharpe says. “We believe that there are silver linings.”
Sharpe was making changes long before the coronavirus struck. Tobin introduced a fast-track MBA program four years ago, allowing undergraduates to start the graduate degree in the final year of their undergraduate studies and complete it within 12 to 18 months. “This not only increased the take-up of Tobin’s MBA but saved the students time and money,” Sharpe says. The MBA course was also restructured to add more online elements.
The college’s management committee has been considering wage freezes for faculty, price reductions for some graduate programs and cuts to the faculty travel budget. “No decisions have been made about any of these things, but everything is on the table,” Sharpe says. “These are unprecedented times and we really need to face the challenges head on.”
Sharpe has already reduced a tier of management by giving her existing faculty dual roles, including responsibility for specific degree programs, in return for reductions in the amount of teaching time demanded of them.
“We see it as investing in our faculty and maintaining our faculty’s capacity to research while running a lean operation. In the last three years we have cut our total operating budget by 10 percent,” Sharpe says. “I really believe that the core parameters of how you deliver an MBA will be changed forever.”
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