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Business education: have we reached peak MBA?

At its peak, the University of Iowa’s Tippie College of Business enrolled 240 20-something high achievers each year on its core MBA programme. Today, the flagship public research university, with one of the oldest and highest-ranked US business schools, is down to its last 35 students. When this cohort submits their final dissertations in May, the two-year course will close, 57 years after it was launched as the university’s flagship business masters qualification. It is the end of an era for Tippie’s dean, Sarah Fisher Gardial, who had the unenviable job of announcing the course’s closure 14 months ago.

The surprise move — at the time, Tippie was ranked 84th in the FT’s global list of top MBA programmes — sparked anger from students, faculty staff and alumni. Those who had completed the qualification appeared most upset, outraged at what they saw as a sudden devaluation in what was for them a considerable investment, both in terms of tuition costs and time away from the workplace. “Social media blew up on us,” Ms Gardial says about the hundreds of former Tippie students that took to Twitter and Facebook to vent their anger. “It was an emotional [reaction] with them that we could not fix.” The closure of such a highly regarded course suggests that those rising up through the ranks have lost some faith in the qualification, put off by the time commitment and expense of studying for a degree whose tuition fees now run into six figures at most top US business schools. Many are opting instead for shorter courses that cost less money or decide not to study for an MBA at all. Few have gone as far as Tippie, but there is an expectation that others will also close their programmes in the coming years. Some leading universities, such as King’s College London, have opened business schools without an MBA option, claiming that their corporate advisers no longer see a need for such a qualification.

The fate of the MBA has a significance beyond its importance commercially to a business school, according to Ms Gardial, who says that the Tippie degree was losing $1.5m a year when the decision to close it was made. “It was a difficult decision for me because the MBA is very close to my heart,” Ms Gardial says, noting that her first management role in academia was running the full-time MBA course at the University of Tennessee. “But that is not a good enough reason to keep it going.” The first MBA, devised at Harvard Business School as a generalist management degree, dates back to 1908. It combined classes in “quant” subjects, such as finance and accounting, with courses in soft skills, including leadership, entrepreneurship and communication.

The first curriculum was based on Frederick Winslow Taylor’s principles of scientific management and quickly gained traction, with the number of students taking the course at Harvard rising from 80 in 1908 to 1,070 by 1930. It was adopted by other fledgling business schools across the US, making the MBA a staging post for many in search of the American dream. But for the past four years, interest in the full-time MBA course has been on the decline in the country of its birth. Highly ranked schools in other countries are taking note. “I think the MBA has peaked,” says Arnoud de Meyer, former dean of Insead, Europe’s highest ranked school, and now president of Singapore Management University. “There were a few very good years in the US in the 1980s. Then with the emergence of European MBAs there was an explosion of the good, the bad and the ugly. Now we have a bit of rationalisation.”
This year 70 per cent of US schools with full-time MBA degrees reported declines in applications for their two-year programmes, according to figures compiled by the Graduate Management Admissions Council. That was offset by growth of 8.9 per cent in business school applications in the Asia Pacific region, a 7.7 per cent rise in Canada and a 3.2 per cent increase among institutions in Europe. Sangeet Chowfla, GMAC’s president and chief executive, puts a positive spin on the numbers, by saying that the overall demand for graduate management education was now “stable”. But like-for-like comparisons by GMAC showed a 0.02 per cent decline year on year, with 52 per cent of programmes reporting declining application volumes. The deans of US business schools had blamed previous declines in the MBA market overall on a “flight to quality”, in which students, keen to get the best return on their total course costs — which run to over $200,000 for the two-year programme at Stanford Graduate School of Management, for instance — limited their interest to a few highly ranked schools. But the 2018 figures showed that demand for MBA places also fell at first-tier institutions, such as Harvard, Duke University’s Fuqua School of Business and Berkeley’s Haas School of Business.

Some have even blamed the fall-off in numbers on Donald Trump’s presidency and the impression that the US is closing its door on overseas students, which make up a significant proportion of many MBA cohorts. But the problem predates the current White House administration. Bill Boulding, dean of Fuqua, where MBA applications are down 6 per cent this year, says it would be “too strong” to pin the decline on Mr Trump. While not dismissing the impact of the president’s anti-immigrant rhetoric he believes a bigger factor has been the longer term tightening in work visas for foreign students, who are now choosing to apply to schools in Canada, Australia and Europe. “That has been building over a number of years,” Mr Boulding says, adding that he expects other lower tier US schools to close their MBA programmes in the future. Demand for traditional MBAs is not weakening because people view the teaching as less relevant, Mr Boulding insists. The issue, he says, is that people now have many ways to gain these skills, either by taking online degrees or specialist business masters qualifications. Geoffrey Garrett, dean of The Wharton School, talks of a “bifurcation” in the MBA market. For the best business school brands, students are still prepared to pay a premium for the experience, and face-to-face learning is likely to go up on the courses they run, Mr Garrett says. At the other end, cost and convenience will be more and more important. “We’re doubling down with a two-year residential MBA, but the geographically challenged [those in remote locations], cash strapped schools are moving online,” Mr Garrett says. Another factor in the US is the booming economy — gross domestic product grew by an annualised 3.5 per cent in the third quarter — and when the jobs market improves people are less willing to put careers on hold to return to full-time study, fearing that they might miss out on promotions.

Stacy Blackman, who has run an MBA admissions advice service since 2001, believes that for the top tier of US institutions this year’s declines are part of a cycle from which they will recover. But she is less optimistic for lower ranked schools. “Quality will always win out,” she says. “The MBA market for lower-ranked programmes may be reaching saturation.” Deans of business schools with the strongest global brands remain bullish.  “If I was the age of our students, I would definitely do an MBA,” says Glenn Hubbard, dean of Columbia Business School. He defends his institution’s two-year full-time MBA, which costs $110,978 in the first 12 months, excluding study tours and student club events, according to the school.  “There is a huge opportunity cost to doing an MBA,” Mr Hubbard says. “People are not buying products but ideas and solutions.” The University of Illinois’s business school, which was seeing only modest demand for full-time MBAs, has launched a $22,000 iMBA course. “[While] global demand has declined quite a bit, the number of programmes and alternative specialised masters has risen,” says Jeffrey Brown, the business school’s dean. “Outside the top 20 schools there are very few experiencing any growth.” Ted Snyder, a professor at Yale School of Management, is more blunt, arguing that proliferation has “screwed up” the sector. “Why do we need 10,000 business schools in the world?” Yet he is cautious about a definitive turning point in MBAs, saying he started talking about a shake-up in management education over a decade ago. “It’s a slow shake-up, if there is such a thing,” Mr Snyder adds “There is pressure coming from below with the second tier really more and more aggressive with price discounting.” Adam Palmer had quit his job as a research associate at Dupont and was two days into the MBA programme at Tippie last August when he and his classmates were told by the course organiser that his cohort would be the last. “It felt like our world had been taken out from underneath us,” the 28-year-old says. Mr Palmer had only applied to business school at the prompting of his uncle and had turned down another institution to take his place at Tippie. “For the next couple of months, the thought that I should have taken that other offer crossed my mind four or five times a day,” he says. “We wanted the school to make sure that companies were still coming to campus.”  Despite the uncertainty about what the demise of the Tippie MBA will mean for his future job prospects and his need to pay off dept of about $30,000, Mr Palmer does not regret his decision to go to business school. He secured an internship at CVS Health, the US pharmacy chain, in the summer and is hopeful about making a career switch into data analytics after graduation. Yet for a growing number of Americans considering the best route to get ahead in business, the story of Tippie could just reinforce a growing sense that the traditional full-time MBA is no longer the way to do it.