Business schools: Campus vs beach

The full-time MBA is under pressure from specialist degrees and online education

THE CONVICTION that the secrets of commerce can be taught in a classroom, whether real or virtual, shows little sign of fading. In America, more master’s degrees are awarded in business than in any other discipline—over 189,000 in the 2013-14 academic year, the latest for which figures are available. Business is the most sought-after master’s qualification in the world. The majority are masters of business administration (MBA), covering a broad range of business skills, a qualification that is close to a mandatory requirement for a budding tycoon. At any one time, around two-fifths of chief executives at Fortune 500 companies are likely to hold an MBA.

Yet a fresh case study on the MBA may be in the making. Interest in the full-time variety has waned markedly in recent years. Applications to most programmes are either falling or static, according to the Graduate Management Admission Council (GMAC), an association of business schools. Data from The Economist’s own latest ranking of full-time MBA programmes tell the same story. Five years ago, a business school on our list could typically expect to receive 17 applicants for each available full-time MBA place. This year the figure is 10.

The MBA is under pressure on two fronts; from specialist masters degrees, for example in finance or data, which are growing in popularity; and also from online education, which is quickly shedding its former, shoddy reputation. Specialist degrees are taken straight after a bachelor’s degree, and appeal to today’s new graduates, many of whom are still feeling the effects of the Great Recession. Unemployment among recent graduates in America is back to pre-recession levels, but underemployment is higher, at 12.6% compared with 9.6% in 2007, according to the Economic Policy Institute (EPI), a think-tank.

This has encouraged many to shelter in education for a while longer and to learn a specialised discipline. Yulia Kot, a 21-year-old graduate reading for a masters in international finance at HEC Paris, says she needed a “big push” before embarking on a career in investment banking. Because jobs in that sector are now hard to come by, she says, she has to have the specialised qualification. Big data is another growing area of study. Last year, 94% of schools that offer a masters in subjects such as business analytics saw applications rise significantly. It was big business itself that lobbied for the programmes, says Daniel Wright, vice dean of Villanova University’s business school in Pennsylvania, because firms found that traditional MBAs were falling short in areas such as statistics.

Students who take the specialist business degrees and who then start in the workforce are far less likely to want to stop five years into their job and take a full-time MBA. And recruiters, too, are less keen on hiring MBAs. Big banks, in particular, hit by the crisis, no longer run huge business-school recruiting programmes. Employers now have two main needs, say MBA experts. They are looking for people they think have leadership skills, and who can come up with ideas on strategy, but they also need graduates who can carry out specific, complex tasks. They tend to raid generalist MBA programmes for the former and specialised masters programmes for the latter.

Those bent on the generalist qualification, meanwhile, are increasingly choosing internet MBAs. These used to be thought of as a poor substitute for the real thing, offered by so-called degree factories, from which few of the thousands of business students who joined would actually graduate. But things have moved on. The very best business schools are offering online MBA programmes, and their number will grow by 9% next year, according to GMAC. 

“We often mistake the fact that millennials were born digital with a desire for online formats,” says Sangeet Chowfla, the president of GMAC. In fact, millennials want the experiences that come from campus education. Online options appeal most to the older generation, who can combine them with their full-time jobs, he says.

The high cost of the traditional MBA has left it particularly vulnerable both to specialist degrees and to the online sort. Tuition fees for HEC Paris’s 16-month MBA, for example, are €58,000 ($63,768), compared with €31,000 for its one-year masters in international finance. The return on investment—ie size of salary—from an expensive, traditional MBA has gone down since the recession.

There are online courses that cost nearly as much as their full-time cousins—the online MBA at the University of North Carolina, which comes 22nd on The Economist’s ranking, for example, costs $105,000, not much lower than the flagship campus programme—but most are far cheaper. Many students enrolled on the course at the University of North Carolina are firmly attached to their jobs and would not have considered an MBA course were it not for the chance to study online. Michelle Middleton, the chief operating officer of an insurance firm in New York, says that, 28 years after she took her undergraduate degree, returning to campus for an MBA was never an option, but with the online version she was able to complete classes on planes, trains and even the beach. Her firm promoted her twice as she studied.

Critics of online programmes argue that nothing beats the immersion that a university campus offers, where students mix daily with members of faculty and with well-connected peers. It is a selling point for the best business schools. Mid-ranking institutions may be struggling to fill classes for traditional, full-time, campus-based MBAs, but those at the top have no shortage of applicants. As the number of average MBA courses expanded in recent years, it is seen as more important to make an impression on employers by attending one of the top schools. The dean of the Tuck school at Dartmouth College, Matthew Slaughter, says that nothing could convince him, for that reason, to launch a wholly online MBA (it is a highly-ranked school).

For most in the sector, it seems inconceivable that a serious business school would not offer a full-time MBA. But over the past few years some, including ones formerly included in The Economist’s ranking, such as North Carolina’s neighbour, Wake Forest University, have abandoned their flagship campus programmes and now offer only part-time courses. More may soon depart from the traditional approach. As one old business-school saw has it, organisations must adapt or die.

Original