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It was in 2005 that the Financial Times published a feature under the now seemingly prescient headline, “Shredded credibility? The MBA market may be facing a shakeout: Academic pursuits not based on reality”.
One banking crisis and a recession later, many business schools, it seems, have still not got the message that was writ so large a decade ago. It is hard to fathom why, given that business schools are relatively low-cost operations employing some of the brainiest and potentially most agile knowledge workers in the world.
What is more, star professors earn huge sums by telling executives how to develop a coherent strategy in a rapidly changing world, be relevant to customers and make money. Much of this they do under the rubric of the executive short courses that are the subject of this magazine.
To be sure, although we have seen the closure of some full-time MBAs, most schools seem to be staggering on regardless. Yet some deans continue to make headlines with their predictions of business school demise, most notably Rich Lyons, dean of Berkeley Haas. This modern-day Cassandra argues that half of the world’s 10,000 business schools will be out of business within 10 years.
His predictions have been greeted with horror, particularly in the US. But is his prognosis really such bad news? The death of 5,000 third-rate schools could create space for more, potentially higher-quality schools to enter the fray, not to mention low-cost educational technology companies and others.
The past two decades have proved that business schools founded 100 years ago in the US do not have a stranglehold on quality or popularity. The Indian School of Business in Hyderabad and the business schools at the universities of Oxford and Cambridge in the UK, all set up in the past 20 years, have proved that, with the right proposition, business schools can do well.
In China the case is even clearer. The MBA was launched only 20 years ago and now the business schools at universities such as Tsinghua, Beijing, Fudan and Shanghai Jiao Tong are high-profile and well up in the rankings.
Even in the US, the Rady school, established a little over a decade ago at the University of California San Diego, has shown that in a crowded market, a quality upstart can make its mark.
The dilemma is that it is not necessarily the third-rate business schools that will bite the dust.
To date, all the evidence suggests that schools embedded in a university are the least vulnerable. Not only is there an economy of scale in services and resources, but there is a ready-made business for them in teaching joint degrees and business courses to students in other departments.
Those schools that have been forced into mergers in recent years have been outside the traditional university system and where revenues are most exposed. These have included a host of schools in France, traditionally part of the chambers of commerce, Henley and Ashridge in the UK and Thunderbird in the US.
Perhaps the other most notable point about schools such as Ashridge, Henley and Thunderbird is that they tend to earn much of their revenue not from degrees but from executive short courses, a notoriously volatile market.
Kai Peters, Ashridge chief executive, is clear in his warning to similar schools. The safe ground is in degree programmes, particularly undergraduate courses, he says, as these give three to four years of predictable income when markets get tough.
It is a message many schools have taken to heart in the US and Europe as universities ramp up the number of places on their business bachelor degrees and masters for pre-experience students.
But here is the rub. As schools teach younger and younger students, who is teaching more mature managers? Managers who used to be on the road to retirement at 55 now face another 10–20 years of work in a fast-changing environment. This should be the domain of the executive education provider.
What is more, standalone schools traditionally have been much more responsive to corporate need, as in the end it is companies that fund them. That has also been the case at the big executive education schools such as Ashridge: they eat what they kill.
The omens are not good. If current trends continue, business schools may become more and more irrelevant.