Strategic Choices for B-Schools: GMAC Book on Change in Management Education

Disrupt or Be Disrupted: A Blueprint for Change in Management Education is a recent publication from GMAC which takes “an evidence-based approach to improving the practice of graduate management education.” The book is very timely, given the increasing challenges of optimizing cost and quality for many business-schools. For example, the strategic choice of Thunderbird, a reputed B-school, partnering with Laureate, an aggressive for-profit network, to give a boost to its financials and reach. Or UCLA to go independent from public funding to have more autonomy and pricing power. These strategic choices are becoming integral to the success of business schools. The book had two very interesting and insightful chapters on this topic. First, is Framing and Making Strategic Choices by Michael Hay and other is Managing Aspirations, Resources, and Cost Structures in Differentiating Constraints by Authors: Jikyeong Kang, Andrew Stark. I asked these authors about their chapters and what future they foresee for business schools. Erich C. Dierdorff, Co-editor of Disrupt or Be Disrupted answered the questions on behalf of Michael Hay.

Rahul- The chapter by Michael Hay, “Framing and Making Strategic Choices,” highlighted the importance of clarifying strategic positioning of the school and concluded that “…schools that seek to copy the dominant design may be doomed to failure, especially if they attempt to design their strategies to improve their rankings by displacing schools currently ranked above them.” Are you suggesting that business schools with specializations and niches as their positioning are more likely to succeed? What do you foresee as the impact of new technology-enabled delivery of programs and shorter duration master’s programs on the future positioning of traditional business schools offering two-year MBA programs?

Erich C. Dierdorff- The main point Michael Hay is making in his chapter is that now more than ever, schools must develop a strategy and business model that fits who they are and who they want to be. This is especially the case for schools that do not have the luxury of substantial endowments or strong reputations. Put simply, there is no singular way to be a successful business school.

What makes this difficult for many schools is that figuring out one’s own unique value proposition is a significant departure from what schools have done in the past. Further adding to this difficulty is the rampant practice of casual benchmarking; where schools simply look to copy the strategies and practices of other “top-ranked” institutions without asking, “will this work for us?” Casual benchmarking is the exact opposite of a strategically driven approach.

In a bit of irony, thinking strategically requires precisely what business schools currently teach their students in strategy courses – concepts that include differentiation, value creation, and competitive advantage. Yet these concepts must not just be preached, but also practiced by today’s schools of business.

So where does a school begin? Hay describes several critical questions to be addressed in this process. Questions that range from a deeper understanding of the school’s mission and unique characteristics to highly practical concerns about whom does the school serve, how and where are programs offered, and how is the school funded.

It is true that being more strategically oriented could lead to increased specialization and niche positioning. And, this indeed holds the potential for promoting success. However, as with any strategy, there are trade-offs. At the most basic level, for example, schools must also decide whom they will not serve.

One trend toward niche differentiation has been the substantial growth and variety in degree program offerings (e.g., MS degrees, executive degrees, compressed formats, etc.). Such programs could indeed create uniqueness for a school in the broader education market. Yet, from a long-term strategic standpoint, critical questions remain to be answered. How new or unique are such programs? Do they really offer fresh curricular content, or are they simply repackaged, preexisting coursework? What is the personal competency cost for students in programs of shorter duration? Do employers understand the differences across various degrees? Again, thinking strategically requires asking the tough questions.

Another way schools might differentiate is through learning technologies. Such technology can profoundly influence the accessibility, efficiency, and effectiveness of education. At the same time, however, technology only deals with how learning is delivered, not what is delivered. Simply investing in better technology will not alone guarantee future value for a given institution. In fact, business schools should be asking a more pertinent question when it comes to technology – where and how business schools can add value beyond technology-based delivery mechanisms? Otherwise, why pursue university-based education?

The imperative is this – for any management education program to provide sustainable and unique value, business schools must first understand whom they serve before deciding how best to serve them.  This task is not only difficult, but also quite rare in business schools. This fact alone makes pursuing a strategically oriented approach both a challenging and a high-impact proposition.

Rahul- In your chapter “Managing Aspiration, Resources, and Cost Structures” you highlighted the research is an expensive positioning which influences the economics of running a business school.  Is it fair to conclude that existing business schools with research positioning are going to become even more expensive as they will have higher pricing power and less competition from new entrants? What do you foresee as the impact of new technology-enabled delivery of programs and shorter duration master’s programs on the future positioning of traditional business schools offering two-year MBA programs?

Jikyeong Kang, Andrew Stark–  We believe that tuition fees for programmes such as MBA programmes are close to the ceiling, especially in the United States and at existing research-extensive business schools.  Non-US schools aspiring to achieve research reputation have some scope to raise fees but will still be constrained by the limitation on tuition fee increases by US schools. But, our overall conclusion is that tuition fees are not going to get more expensive; instead, we expect to see some or all of the following measures: (1) increased quest for additional sources of teaching revenues; (2) increased use of adjunct professors; (3) increased exploration of ways of reducing per student cost; (4) increased pursuit of executive education opportunities; and (5) increased pursuit of endowment funding.

At this stage, we do not expect to observe any significant slowing down of the rate of increase in faculty salaries at research-extensive business schools or those which are aspiring to be such schools.  This is because we do not expect the imbalance between the supply of and demand for excellent researchers in business and management disciplines to be rectified in near future.  Indeed, as more and more schools aspire to acquire research-extensive status, there will be more pressure on salaries as more and more schools compete for a limited talent pool.

As mentioned above, some schools, in the absence of other opportunities, to fill funding gaps might well seek additional sources of teaching revenues to either supplement or substitute for revenues from the traditional MBA programmes.  We think that such actions are particularly likely to be observed at all but the very top-ranked business schools. Our view, however, is that the new technology-enabled delivery of programmes does not come cheaply, if educational standards and programme reputations are to be maintained, and/or if it is being exploited as a way to gain competitive advantage.

We also observe that specialist masters programmes are increasingly being introduced at US business schools and, in any event, have long been a common feature in many business schools outside the US. We would still expect, for the foreseeable future, that full-time MBA programs will be the main reputation driver for most business schools, even if their full-time MBA student numbers decrease. Nonetheless, we expect that, over time, rankings of specialist masters programmes will become increasingly important to the reputation of business schools engaging in them.

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