From Data to Strategy: Understanding Worldwide Trends in Graduate Management Education

Transcription

1 From Data to Strategy: Understanding Worldwide Trends in Graduate Management Education

2 From Data to Strategy: Understanding Worldwide Trends in Graduate Management Education By Bethanie L. Anderson GMAC has been pleased to provide you with the market research data over the past several years to help you make strategic decisions for your school. In 2007, to complement these data, GMAC offered four facilitated sessions at the Annual Industry Conference giving you an opportunity to further understand, interpret, and discuss the global trends that the data show. Four industry leaders Rose Martinelli, Dean of Admissions at Chicago GSB; Sarah Gardial, Associate Dean of Academic Programs at the University of Tennessee Knoxville; Julia Tyler, Associate Dean of the MBA Programme at the London Business School ; and Keith Vaughn, Assistant Dean of MBA Admissions at the University of Southern California guided these session discussions. This article highlights some of the information and trends explored during the Annual Industry Conference and at these facilitated sessions. The following text is not intended to provide general solutions; rather, it is intended to provide a framework within which you may reflect upon your learnings at the conference and identify the implications of industry trends for your particular school. As you read on, GMAC invites you to continue your own strategic brainstorming process and to share ideas, convey information, and implement new initiatives at your school.

3 Overview: The Changing Market Landscape As the worldwide graduate management education community seeks to better understand the market landscape and make strategic decisions for the future, shared high-level trends may be classified into two categories: (1) the global proliferation of graduate management education, and (2) the changing financial equation of graduate management education. The Global Proliferation of Graduate Management Education A Look at the Numbers According to GMAC data (unpublished), the number of graduate business programs worldwide is rapidly growing. In 1997, only 74 new graduate management programs (including MBA programs) were introduced by business schools worldwide. In dramatic comparison, 641 new programs have been introduced in Looking at this entire 10-year span from 1997 to 2007 a total of 3,710 new graduate management programs (including MBA programs), have been introduced throughout the world. As illustrated in the chart below, 1,553 of these new programs were introduced by European schools, 1,449 were introduced by business schools in Asia, South America, Australia, and Africa combined, and 708 of these new programs were introduced by North American business schools. The Importance of the BRIC Economies Arguably, the most significant factor in this changing face of global business education is the growth of the BRIC (Brazil, Russia, India, and China) economies. According to researchers Dominic Wilson and Roopa Purushothaman, 3 in less than 40 years, the BRICs with a combined GDP worth less than 15 percent of the G6 countries (France, Germany, the U.S., Japan, the U.K., and Italy) GDP could together grow to be larger than the G6. Wilson and Purushothaman predict 1997 refers to program start year refers to program start year. 3 Dominic Wilson and Roopa Purushothaman. Global Economics Paper No: 99, Dreaming With BRICs: The Path to October 2003, Goldman Sachs/GS Global Economics. that Brazil s economy will overtake the economies of the U.K. and Germany by Despite the obstacle of a shrinking population, Russia s GDP per capita by 2050 will be the highest in the group, surpassing the economy of the U.K. by 2027 and that of Germany by India will have the only BRIC population that continuously grows over the next 50 years and could raise its per capita income to 35 times current levels by China will become the world s largest economy by Graduate management education in BRIC nations will likely grow in terms of demand, quality, and quantity in tandem with this economic growth. GMAC research is already showing some evidence of this trend. For example, in 2000, there were 4,301 GMAT test takers in India. In 2006, that number more than doubled to 9,270. Additionally, an increasing percentage of prospective students in India can earn an MBA in their home country, instead of in Europe or the United States. In 2003, less than 3 percent of GMAT test takers with Indian citizenship sent their test scores to business schools in India. By 2006, that number had risen to nearly 9 percent. The Power of the Bologna Accord Important changes are taking place outside the BRIC economies, as well. The Bologna Accord, which has been signed by 40 European nations since 1999, represents monumental educational reform seeking to create greater uniformity in higher education throughout Europe by As stated by the GMAC Bologna Project Task Force in its 2005 comprehensive report, The Bologna Accord is a voluntary agreement among European nations that will radically reform European higher education, bringing into the educational pipeline more than 2.4 million new bachelor s degree graduates per year who are ready to consider graduate management education. Other effects of the Accord may include changes in education funding and an increase in the percentage of European students pursuing graduate degrees outside their countries of citizenship. The reforms outlined in the Accord include standardization of degree requirements and grading systems; a Diploma Supplement that explains degree qualifications; and a clear division between bachelor s and master s degrees.

4 Countries that joined the EU in May 2004 Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia as well as Bulgaria and Romania, which joined in January 2007, are also changing the face of graduate management education worldwide by growing the European pool of programs and prospective students. Accession countries including Croatia, Bosnia, the Republic of Macedonia, Turkey, Montenegro, Serbia, and Albania promise to change the market landscape even further. Implications of Globalization: Effects on Pedagogy, Delivery, and Measures of Quality The increasing globalization of graduate management education is also likely to affect curricula deeply. For example, faculty worldwide may need to learn new pedagogical approaches moving from a knowledgetransmission approach to a communication-focused approach that maximizes cross-cultural experience and information sharing among students. Short class trips abroad may be viewed as insufficient in providing students with the global set of tools they need to succeed. Cases, which are overwhelmingly Anglo American in their focus and cultural points of reference, may need to change. Significant changes in program delivery methods may become necessary, as well. It is probable that the increase in international school partnerships and alliances along with multi-campus models will continue; preferences among students for online and simulation-based learning will become stronger; and rapidly emerging new technologies will create fresh, improved educational delivery options to better serve the market. requirements and rankings criteria. As London Business School Associate Dean Julia Tyler observes, Pre-MBA to post-mba salary increases among graduates can count quite a bit within rankings methodologies. When students move from nations with lower-paying economies to higher-paying ones to obtain an MBA education and employment offers then business schools that operate within the higher-paying economies get an increasingly large proportion of the credit when the rankings come around. The Changing Financial Equation of Graduate Management Education Re-Thinking a Traditional Business Model In 1988, the Association to Advance Collegiate Schools of Business (AACSB) International sponsored the Porter-McKibben Report, which told business schools that the leadership skills of their graduates needed to improve. During the same year, BusinessWeek published its first MBA program rankings. Although these two events altered the direction taken by business schools, the foundational business model for well-established graduate management education programs in the United States and newer programs throughout the world that have emulated this model grew out of the 1950s and 1960s, following the release of the Ford Foundation Report. Prior to the Ford Foundation Report, many in business education felt that the field was often marginalized by fellow disciplines and even considered by some to be an overly vocational training ground where corporate heavyweights recounted stories to well-bred young people seeking to make big profits. After the report, however which funded Harvard, Carnegie-Mellon, Columbia, Chicago, and Stanford to lead the charge in making business a more respectable academic discipline management education was propelled into a rigorous, demanding, competitive arena of scholarly research and teaching. As MBA programs evolve worldwide, so will external measures of quality, including international accreditation Fifty years later, the greatest cost driver within the traditional business model is faculty salary. Due to significant competition among schools, along with 3

5 a confluence of factors within business academia including the decreasing pool of PhD candidates and the perceived correlation between faculty quality and higher rankings, which results in market pressure to continuously increase faculty salaries to recruit and retain talent 4 schools may be forced to change their business models in order to remain viable within the new global economy. Faculty Salaries and Tuition Rates: On the Rise According to AACSB International, faculty salaries are increasing. The following table illustrates increases in a number of disciplines at the full-professor level since 2000 among AACSB-accredited business schools. Average Business School Faculty Salary: Full Professor* Discipline Accounting CIS/MIS Economics/Managerial Economics Finance (includes Banking) International Business Management Marketing Strategic Management Public Administration Quantitative Methods Real Estate Statistics Taxation Supply Chain Management/Transportation/ Logistics Entrepreneurship/Small Business Administration Human Resources Management * Salaries are noted in thousands. Source: AACSB International Salary Survey, AACSB International data show that annual graduate business program tuitions are also rising. 4 According to United States Bureau of Labor Statistics, Cost-of-Living Adjustment (COLA) increases have been made as follows: 2000, 3.5 percent; 2001, 2.6 percent; 2002, 1.4 percent; 2003, 2.1 percent; 2004, 2.7 percent; 2005, 4.1 percent; and 2006, 3.3 percent. The trajectory of increasing business school faculty compensation differs from that of that of the increasing cost of living in the United States, indicating that academic market pressures may indeed be influencing United States faculty salary trends. Graduate Business Programs: Average Yearly Tuition and Fees In-State Tuition Out-of- State Tuition $11,154 $15,185 $16,117 $17,963 $19,529 $20,504 15,776 21,597 23,379 25,689 27,437 28,972 Source: AACSB International Business School Questionnaire, (Note: AACSB International tuition data for 2006 are not yet available.) Student Loans: A Growing Burden Research from the United States Department of Education s National Center for Education Statistics (NCES) shows an increase in loan dependence among master s program students in the United States. During the academic years through (inclusive), loans as a percentage of any financial aid 5 among part-time master s program students receiving aid increased from approximately 15 percent to 35 percent. During the same 10-year period, loans as a percentage of any aid among full-time master s program students receiving aid increased from approximately 43 percent to 58 percent. Looking at the more specific groups of part-time and fulltime MBA students in the United States, 2007 GMAC research findings show that 37 percent of part-time MBA students report the use of loans during their programs at a median loan amount of $33,750, and 67 percent of fulltime MBA students report the use of loans during their programs at a median loan amount of $40,000. These numbers can shift significantly for MBA students outside North America. GMAC research findings show, for example, that only 12 percent of part-time MBA students in Asia report the use of loans during their program at a median loan amount of $22,000, and only 33 percent of full-time MBA students in Asia report the use of loans during their program at a median loan amount of $33,388. Student Starting Salaries: Staying Flat Overall, starting salaries among MBA graduates a key driver of the perceived value of MBA education are 5 Any financial aid, according to NCES, includes fellowship grants, tuition waivers, assistantships, employer contributions, and loans. 4

6 not keeping up with student expectations, faculty salary increases, and tuition hikes. GMAC data show MBA Graduation Year Starting Annual Salary and Other Compensation 2000 $73, $70, $70, $69, $65, $72, $71,593 average starting annual salaries and other compensation for first jobs after MBA graduation worldwide as follows. 6 Student Starting Salary Expectations: Increasing The changing financial equation of graduate management education will likely put growing pressure on schools to provide assurance that they can Average Post-MBA Salary Expectations Annual base salary earned before starting MBA Annual base salary expected in first job after graduation Survey Year MBA Program Type Full-Time Part-Time Executive 2003 $52,318 $54,821 $83, $51,764 $57,378 $88, $53,961 $58,257 $98, $53,372 $60,904 $103, $52,928 $60,237 $92, $72,406 $71,020 $98, $72,139 $77,166 $106, $79,236 $80,846 $131, $78,993 $86,220 $134, $81,416 $85,886 $122,115 reward students with higher starting salaries. GMAC research findings already indicate evidence of this trend as seen in the table below, which shows average post- MBA salary increase expectations among full-time, part-time, and executive MBA graduates. 6 Salaries vary according to factors including program type, geography, and graduates work experience levels. In addition, top-tier business schools worldwide see higherthan-average starting salaries among their graduates. However, the majority of business schools and business students are found within the vast area between the top and bottom tiers, and the deep ripple effect of the changing financial equation of graduate management education extends to the entire global business education community. Part-Time and Executive MBA Programs: The Beginning of the Boom The changing financial equation and student expectations of a program s return on investment within graduate management education will increasingly affect the accessibility and desirability of various programs among prospective students. It will likely also cause a growing number of students to consider part-time program delivery options, which enable them to earn income while enrolled. In 2003, only about 40 percent of part-time MBA programs worldwide reported an increase in their application volume. According to 2007 GMAC research findings, demand for full-time MBA programs is relatively stable and demand for part-time and executive programs is clearly on the rise. New data show continuous improvement in the quality of admissions, career services, and student services of part-time programs. Additionally, graduates give their faculty, fellow students, and curricula high marks. The part-time class of 2003 expected a 30 percent gain over pre-mba salary, and the class of 2007 expects a 43 percent gain. In 2003, executive MBA programs also reported a 40 percent increase in their application volume, and more than 70 percent of these programs report an increase today. New data show that executive MBA graduates are most satisfied with the provision of their top three educational priorities: an increase in long-term potential through the development of skills and abilities, a sense of personal satisfaction and achievement, and the ability to remain marketable and competitive. GMAC research findings also indicate that gender is a major factor in full-time versus part-time program choices among prospective MBA students. Data show that men are more likely than women to consider fulltime, traditional two-year MBA programs (61 percent of men versus 51 percent of women) and women are more likely than men to consider part-time MBA programs (44 percent of women versus 29 percent of men). Significantly, findings show that an increasing 5

7 number of women are considering specialized business master s programs including programs in accounting, finance, information systems, or marketing rather than MBA programs. Additional Challenges in Europe and Beyond It should be noted that, at European business schools, the challenges posed by the changing financial equation of graduate management education worldwide are often exacerbated by traditional state funding systems. According to Eric Cornuel of the European Foundation for Management Development (efmd), The greatest obstacle to proper funding seems to be that most European universities remain largely state-funded, as opposed to having diversified sources of funding (student fees, corporates, and donors). In many cases the state even prohibits charging tuition fees and creates obstacles for other sources of funding. This is worrying when considering that even developing countries are developing a for-profit sector in higher education, concentrated in business-related subjects. European universities face the problem of low levels of funding, and will be less able to adapt to the changing needs and demands of the market and to adopt appropriate solutions for the challenges that the business schools of the future will be facing. 7 Lastly, both European and non-european business schools that do operate programs as profit centers and depend upon the charitable donations of their alumni and corporate supporters also face increasing challenges. For example, programs that have been historically considered by such schools as potential revenue opportunities such as part-time MBA programs are now being held to a higher quality standard by prospective students and are being asked to provide a return on investment similar to that of full-time programs. The Changing Market Landscape: Implications for Your School Pulling It All Together The changing market landscape shaped predominantly by the global proliferation and changing financial equation of graduate management 7 Eric Cornuel. Challenges Facing Business Schools in the Future Journal of Management Development, Volume 26, Number 1, pages education is requiring business schools to adjust the manner in which they define, operate, fund, and deliver their programs. Business schools worldwide need to continually prioritize the refinement, growth, and innovation of business education and to infuse everything they do from curricular design to administrative processes with technological creativity. They will also need to address the challenges of faculty shortages and faculty compensation. Pre-Conference Questions to Consider Prior to the 2007 Annual Industry Conference, which will give you an opportunity to further understand, interpret, and discuss the global trends that GMAC data show, GMAC invites you to consider the points raised in this article, along the questions below, as they relate to your particular school. The Global Proliferation of Graduate Management Education What are the wide-ranging implications of the growing number of business education providers globally? How can business school leaders respond successfully? How do nontraditional providers affect the landscape? How are dramatic shifts in the global economy likely to affect graduate management education in terms of content, pricing, marketing, and delivery in the coming decades? How might the future needs of hiring companies change? How might business schools accordingly approach their strategies in new and creative ways? How will quality measures such as rankings likely shift with the market landscape? How might the definitions of prestige, value, return on investment, and educational priorities change? The Changing Financial Equation of Graduate Management Education How might the changing financial equation of graduate management education drive the business models of schools to evolve in the coming decades? 6

8 As loan levels rise in the United States, will students become more tolerant or less tolerant of this debt? What risks and opportunities might the changing financial equation present to various existing program types? Will it give rise to new program types? How can business schools address the challenges of faculty salaries, PhD shortages, and funding limitations? How might new technologies support the success of business schools? The worldwide graduate management education community is largely familiar with the characteristics of Generation Y, or the Millennials, which is the next demographic cohort approaching graduate-school age. How will the expectations of this group further affect the changing financial equation? How might business schools successfully address the unique ways in which Millennials (and their parents) will perceive, experience, value, and choose graduate management education programs? Bethanie L. Anderson is assistant dean at the Villanova School of Business. She serves on the MBA Roundtable Board of Directors and has served as editor of the industry magazine MBA Innovation. Prior to her work at Villanova, Anderson was a writer/editor at the Tuck School of Business at Dartmouth. She frequently contributes to industry initiatives and articles and her work has been featured in GMAC, AACSB, and AMBA publications. 7

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