Middle-Ranking MBA Programs May Not be Worth the Investment

October 28, 2011 · Leave a Comment 

As the lagging economy drags its feet many students are second-guessing the value of the MBA. Why spend up to 80,000 dollars and lose two years of wages on a degree that may or may not pay back the investment? However, this prevailing attitude towards the MBA has had a limited effect on the elite business school enrollment, such as Harvard Business School and Chicago’s Booth School. Who it’s really hurting is the middle-ranking school; those on the top 100 list of US business schools but not within the top 15.

This is because while the salary of a graduate from an elite MBA program has stayed high – 110,879 dollars – the salary of a graduate from a middle ranking school has dropped to 78,442 dollars.

Student Enrollment Drop But Costs Stay the Same

The falling enrollment in middle-ranking schools is becoming an issue as the costs of running the MBA program stay the same. Business School professors are paid as much as 250,000 dollars a year. Maintaining and building attractive campuses (a major draw for students) is costly and time-consuming. Now, with the drop of US student enrollment many schools also need to make up the difference with international students – but sending recruiters to developing economies such as China or India is another added cost.

The lower-ranking business schools actually are doing better than the middle-ranking schools. This is because for most of these schools the cost of attendance is far lower and oftentimes the time commitment is only a year long, as opposed to two years for higher-ranking schools. Also, online MBA programs are becoming more and more attractive to the prospective MBA student as they allow students to continue working while they get their MBA and are usually cheaper than residential programs.

Elite schools, of course, do not have this problem. Their enrollment is still high as the draw of having a pedigree business school on an applicant’s resume separates them from the pack of candidates. The middle-ranking schools don’t have this advantage.

In Hard Times, Opportunities for “Creative Destruction”

The Economist recommends that the “MBA program business model” needs a change – quick – or leave themselves vulnerable to major financial losses. It recommends that middle-ranking schools should start shortening their programs to only one year (apparently the one middle-ranking school on their top-100 list that is doing the best is Hult, which has shortened their program). Another alternative for a mid-ranked school is to find a niche and play off their best programs. Does the schools have a strong medical school? Make an interdisciplinary MBA for those interested in the medical industry.

Finally, middle-ranking schools need to update their curriculum quickly by making it more global. Many US schools are sadly lacking in an appropriate program that deals with cross-border challenges and issues. This will also likely continue to attract more international students.

For many of those in the middle, these are hard times. However, hard times also can produce opportunities of innovation – a “creative destruction,” if you will – of outdated business models and lines of thinking.

Read the Economist’s article about it here.

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