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New business of b-schools

Graduate business schools redefining the MBA and other programs to survive and thrive in today’s competitive environment
University Business, February 2016
(Click to enlarge infographic)

The traditional MBA, the flagship of graduate business education for more than a century, is losing ground as applicants increasingly turn to online degrees and specialized master’s programs in business-related fields.

The decline in enrollment in full-time, two-year MBA programs has prompted business schools to roll out a wave of new graduate programs, from one-year master’s in management degrees to hybrid online MBAs. The growing portfolio of degrees, along with ever-enhanced business school facilities, attracts students who can’t take a two-year hiatus from a career to attend full-time.

“A lot of schools are asking, ‘What are the ways we can grow or reinvent ourselves in the market?’ ” says Andrew Ainslie, dean of the University of Rochester’s Simon Business School. “Even though we have an excellent product, there are too many schools producing the product, so we are doing some experimentation.”

There are currently 516 accredited business schools in the U.S., according to the Association to Advance Collegiate Schools of Business (AACSB).

The number of domestic students enrolling in full-time MBA programs, however, has dropped in the last decade.

Applications from international students have surged, but administrators generally want to keep existing ratios of domestic to international students; one reason for that is the difficulty foreign students face in securing visas to work in the U.S. after graduation.

At the same time, enrollment in specialized master’s degrees, such as the master’s in management or finance, is booming among both demographic groups. As these degrees become more popular, some business school leaders worry about the impact on traditional MBA programs.

Arizona State’s no-cost MBA

Arizona State University’s business school has found a way to differentiate its MBA degree from the hundreds of competing programs across the country: offering it for free.

The W. P. Carey School of Business will offer full scholarships to all incoming full-time MBA students starting next fall. The university hopes to attract non-traditional students who feel an MBA is out of reach.

“We worry that some very talented professionals are making the decision not to leave the workforce and come back to get an MBA, even though they could be benefitting from it,” says Amy Hillman, dean at the business school.

The price tag of an MBA at the school, which ranges from $54,000 for in-state students to $90,000 for international students, may have discouraged applicants who wanted to work in fields such as nonprofits and couldn’t afford the tuition, Hillman says.

The lack of federal financial aid and sparse scholarships compound the high costs of MBAs. In addition, employers are more reluctant to pay for MBA degrees since the economic downturn, Hillman adds.

The scholarships are being funded by a $50 million donation from real-estate mogul and philanthropist William Carey, whom the business school is named after. Hillman hopes the gift will encourage the program’s graduates to donate in the future.

“It will be very salient to a student that personal philanthropy made it possible,” she says. “When they’re in their 60s or 70s, maybe they’ll make a scholarship to do the same.”

Administrators expect to offer scholarships to 100 to 120 students next fall. There are currently 86 first-year students in the school’s full-time MBA program.

“The full-time MBA is the bread-and-butter of any business school,” says Raj Echambadi, senior associate dean for MBA programs/strategic innovation at the University of Illinois at Urbana-Champaign College of Business, which built a new $60 million facility in 2008. “Full-time is what helps us in the rankings. How the full-time program does is very critical,” he says.

His institution isn’t alone in continuing to build and enhance business-school buildings. Currently, more than 100 b-schools are constructing or renovating facilities. In the mid-1990s, only about 20 construction projects were underway, according to the AACSB.

Here’s how strategic business school leaders are positioning those schools for healthy enrollment in the current environment while laying the foundation for future success.

Offering specialization and flexibility

Top-tier MBA programs generally require applicants to have three to five years of work experience. But the specialized master’s programs now emerging may better suit students just graduating from college.

Master’s programs in accounting or finance have been around for some time, and the one-year master’s in management degree is a newer option. Clark University in Worcester, Massachusetts, will launch a Master of Science in management in the fall of 2016. Similar to an MBA, such a degree provides a broad-based foundation in accounting, marketing, information systems and human resource management.

These degrees appeal to students wanting to enroll in a master’s program straight out of college and avoid disrupting their career later on. “The economy has a lot to do with it,” says

Catherine Usoff, dean of Clark’s Graduate School of Management. “When the job market is bad, they don’t want to risk leaving their jobs and not being able to find another one. On the other hand, when the job market is good, taking more time off from the workforce can be expensive.”

The potential for students to gain deeper knowledge in a particular field of business also makes the specialized master’s programs attractive. Students and employees may view the MBA as a generalist degree focused on management training, whereas the one-year master’s teaches students how to become practitioners in a specific career.

“The level of knowledge you need today to practice at something like accounting or finance or data analysis is so deep, you need that specialized knowledge,” says Tom Robinson, president and CEO of the AACSB. “With the specialized master’s, you can probe very deeply.”

Nevertheless, business school leaders worry that students who graduate with a specialized master’s degree do not receive the lucrative starting salaries MBAs have been able to command.

The starting salary for MBA graduates in North America is now $91,445, more than $31,000 higher than the average salary for graduates with specialized master’s degrees, according to a 2015 study by QS Quacquarelli Symonds, a British company specializing in higher education.

“I don’t think the firms are going to pay a premium for students with master’s degrees,” Usoff says. “But it could mean the difference between getting a job and not getting one, if they add on that one year.”

Moving MBAs online

While enrollment in full-time MBA programs has stagnated, more students now seek degrees online. Between 2009 and 2014, enrollment of U.S. students in distance learning, which includes online MBA programs, rose by 27 percent, according to the business school association.

One reason stems from a familiar situation: students’ reluctance to leave a career to enroll in a full-time MBA. Another is technology. With videoconferencing so common, rising managers—the MBA students—expect the same technology to be used in their MBA program, says Philip Powell, faculty chair of online graduate programs at the Indiana University Kelley School of Business, which uses Adobe Connect and Zoom for video-conferencing platforms in its online courses.

“The millennials think, ‘Why can’t technology deliver the same content as the full-time MBA?’” he says. “To many, the idea of a full-time MBA is becoming an obsolete concept because of the advances in technology.”

Indeed, many business schools promote the advanced technology used in online programs as a learning experience equal to the full-time MBA.

Temple University’s Fox School of Business, which hired instructional designers to create videos of lectures, uses a flipped classroom in its online MBA program, with students watching videos produced by faculty at the beginning of the week and then meeting in small groups via a live WebEx session to work on problems for the course.

“When we started the flipped classroom, it was working on problem sets—now we’ve evolved to high-level, sophisticated, unstructured problems,” says Darin Kapanjie, academic director of the online MBA at Fox, which currently charges $59,760 in tuition.

In an attempt to reduce the cost of the online MBA, a new graduate degree launched by the University of Illinois at Urbana-Champaign and Silicon Valley learning company Coursera promises a more affordable alternative. The price tag for the university’s new online MBA, which will include specialized courses in addition to MOOCs produced by university faculty, is $20,000.

That program began this January with 100 students, but the university plans to scale it up to 1,500 learners from around the world within five years. “In our traditional classroom setting, we do have capacity constraints,” says Echambadi in Illinois. “We can only have 60 students in a classroom because of fire codes. But online, there are no limitations.”

Other business schools, however, are firmly rooted in the idea that online MBAs still need to provide face-to-face contact with other classmates and faculty in a campus setting.

The online hybrid MBA at Carnegie Mellon University’s Tepper School of Business, which is in the process of designing a new facility, requires students to meet at one of the university’s three campuses—in Pittsburgh, New York City or Silicon Valley—for a weekend at the beginning of every six-week course.

“When we started the program, we were very skeptical that students would fly halfway around the country to do these live sessions,” says Bob Monroe, program director, adding that students have enrolled from as far away as India and Kenya. “But we found that it was their favorite part. They make friends, and it becomes a very tightly bonded program.”

Balancing U.S. and international students

The traditional MBA may be recovering. Applications by U.S. students to American business schools increased in 2015, according to the Graduate Management Admission Council’s latest trends survey.

The upswing in applications follows a five-year drop in the number of domestic applicants, which led some business schools to fill MBA classes with international students, particularly from China and India.

But as international students have become the largest group applying to business schools, school leaders are rethinking that strategy as U.S. applicants account for less than half—45 percent—of the applicant pool, the survey found.

Faced with an applicant pool with less work experience than in the past, several business schools have reduced the class size of their full-time MBA programs instead. At Arizona State University’s W.P. Carey School of Business, the cohort size of its MBA program has ranged between 70 and 86 for the past two years, down from an average of 100.

“Our program has been getting smaller, because we’re very committed to having significant work experience before we let someone in,” says Amy Hillman, Carey’s dean. “Do we want a 100 percent international class or do we feel a mix is right? We do want a class that has a balance.”

A related reputational problem for schools in allowing too many internationals is the difficulty international MBA graduates face obtaining U.S. work visas. “If a residential program has more than 40 percent international students, the research shows that it leads to a lot of problems in satisfaction,” Powell says.

And lower satisfaction scores impact a business school’s national ranking.

The rise in applications last year could simply mean that MBA candidates are keeping their options open at more schools. But even if the applications translate into increased enrollment overall for business schools, it is clear that the landscape of graduate business education will continue to evolve.

“It’s sort of an arms race,” says Usoff, Clark’s dean. “You’ve got to keep improving, with a lot of hands-on experience incorporating international programs for the students and ways to make it easier for them to pursue the degrees. It’s getting more and more competitive.”

Sherrie Negrea is an Ithaca, New York-based writer.

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