Why business schools must become big(ger)
In the past ten years, significant changes have taken place in the business school landscape around the world. A range of business schools have merged with other business schools, notably in France, giving rise to schools covering multiple cities and magnificent new names like SKEMA, KEDGE and NEOMA.
Other business schools, which were independent, or autonomous within a university, have either been aggregated, or have merged. Manchester, Melbourne, Rotterdam, Tilburg and Henley’s merger with the University of Reading all come to mind. In a small number of cases, the trend has been reversed with business schools acquiring universities as was the case with IE and with Hult with SEK and Huron University respectively.
Finally, a number of business schools have been acquired by corporations or other for profit entities: GISMA in Germany, Laureate’s acquisitions, and private equity acquisitions made by Apollo Group and by Montagu Partners fall into this last category.
Triggers for these changes are both strategic and financial. Strategically, in a globalised world, creating a brand which is sufficiently recognised to attract students and to subsequently attract organisations which are willing to recruit graduating students is no small task.
Similarly, serving global clients with Executive Education globally is very difficult for a single location small or medium sized business school. Building a global footprint is expensive and requires scale. Business schools, which often have in the region of 100 faculty members are now competing not only with other business schools, but also with professional service firms like Deloitte and McKinsey who have identified business education as an attractive potential new market. Suffice it to say that Deloitte and similar organisations have more than 100 professionals on staff and have many global locations.
In addition to strategic considerations, there are structural, financial reasons for a larger sized school. Business schools need a base level of services to students ranging from marketing and admissions through to programme administration and alumni events. Central services like libraries and IT are also costly. Where the school also provides food and accommodation, keeping students and clients fed, bedrooms cleaned and gardens watered in a 24 hour a day, year round challenge. Similarly, a certain size is required to ensure that the faculty body is scaled and that there is a critical mass of knowledge and ability in each of the subject areas to ensure an intellectually engaged, research active, and diverse faculty body.
Lastly, managing a business school portfolio of programs is like being a diversified fund manager. Different programs have higher or lower levels of predictability, cyclicality and volatility. Predicting undergraduate numbers is relatively straight-forward. Additionally, as a multi-year programme, predicting progression rates is relatively easy. In other words, you can predict years two, three and potentially four from year one and predict up to 75% of subsequent years’ income. Pre-experience Masters are ok to predict. One can generally identify where candidates are – mostly at undergraduate – and the market is large. The MBA market, on the other hand, is hard fought and very unpredictable at the moment. It is also a cyclical market which relates to the overall economy. Most difficult to predict is the market for executive education. It is a cyclical, lumpy and project based business which is exciting to work in, can be lucrative for a school, but can also crash spectacularly, as it did, in the 2008-2009 recession.
A school that achieves size can balance its portfolio, can cover central costs and can reach out globally. Size matters.