VideoApplications to business schools are down this year — at least in America, where management education was born and where business schools still award about 85% of the world's business degrees. Kenneth Dunn, dean of Carnegie Mellon's Tepper School of Business, says that applications for the full-time MBA programme, one of the country's best, are about 30% lower than this time last year. Allan Conway of the University of Calgary, and programme director of the MBA Roundtable, an industry body, estimates that applications this year for MBA programmes in America are down by between 15% and 25% on 2003.
Does that spell disaster? Not for top schools such as Tepper, which turn away far more applicants than they accept. Applications for MBA courses are counter-cyclical: they tend to rise when executive jobs are scarce and shrink when they are plentiful. This year's decline is a sign of the current economic boom, just as the 40% rise in applications to Tepper two years ago partly reflected hard times in the managerial job market.
But business schools face more competition, and more criticism of the quality of their work, than they have ever done before. In time, that may lead to fundamental changes in the structure of the business-school market, and perhaps in what schools teach and how they teach it.
The demand for business education has certainly grown at a phenomenal rate. As Paul Friga of Indiana University, co-author of a paper on the future of business schools, points out, business degrees rose from 14% of all undergraduate degrees in 1971 to 21% in 2001, and MBAs from 11% to 25% of all master's degrees. (See "Changes in Graduate Management Education and New Business School Strategies for the 21st Century" by Paul Friga, Richard Bettis and Robert Sullivan. Academy of Management Learning and Education, 2003, Vol. 2, No. 3.)
American universities award more than 100,000 MBAs a year. And business education is booming in places where it hardly existed a quarter of a century ago. In Britain, for example, enrolment on MBA courses grew by 35% in five years in the late 1990s and business schools have become one of the country's top 50 exporters. China now has at least 21 MBA programmes run with American partners, and another 40 or so run by Chinese universities alone. In Russia and central and eastern Europe, more than 1,000 new business schools sprang up during the 1990s.
Why the boom? After all, in America at least, there are fewer jobs for middle managers. The answer may be that people yearn for the riches that they think a business career will bring. A hungry young doctor or lawyer may see an MBA as a short-cut up the corporate ladder. Business schools sell themselves as a way for students to raise their incomes. Jeffrey Pfeffer, from the Graduate School of Business at Stanford University, argues in a critical article that the basic business proposition of business schools, especially those with MBA programmes, is "the enhancement of the careers, measured mostly in terms of salary, of their graduates". (See "The Business School 'Business': Some Lessons from the US Experience" by Jeffrey Pfeffer and Christina Fong. Forthcoming in the Journal of Management Studies.)
Diversify and Grow
Vigorous though the market for business education may be, it is no longer the traditional full-time MBA that is driving the growth. In all but the smallest programmes, says Mr Conway, that source first lost momentum in the early 1990s and then stalled by the late 1990s. In response, schools found all sorts of ways to supplement the core business of the conventional MBA. However, some of these activities are now under threat, for various reasons.
Thus 15 years ago, schools launched executive MBAs, charging premium prices and suggesting to companies that such programmes might be a handy tool to retain itchy-footed high-fliers. Whereas individual students usually carry the cost of an ordinary MBA, companies often finance an EMBA. However, employers have since grown wary of sending good managers on a course from which they may be poached by a rival or where they may suddenly decide to make a career change and leave to start their own business. The MBA Roundtable's figures suggest that applications for executive MBAs are 15-20% lower this academic year than they were in 2003.
More successful are evening and part-time MBAs, often backed with distance learning to allow students to pursue the course off-campus. There are now significantly more evening MBA programmes than full-time ones, says Mr Conway. More than 48 American business schools now offer online MBAs, among them upstarts such as the universities of Phoenix and Webster, both with annual enrolments of around 4,000 and 7,000 full- and part-time MBA students respectively.
The other big money-spinner has been foreign students, who account for 20-30% of students on many American MBA programmes. At the top European schools, the proportion of foreign students is much higher: at IESE in Barcelona, for instance, Spanish students account for only around 20% of each year's class, a proportion that is carefully managed to retain the international flavour of the school. But here, too, American business schools face a threat from the squeeze on visas to study in America. For example, 25% of the students in Tepper's current first-year class come from abroad, well down on two years ago when the share was 36%.
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