BUSINESS SCHOOLS ARE RIPE FOR DISRUPTION

Warren Buffet wisely said that price is what you pay, value is what you get. Are traditional MBA programs really delivering value? The marketplace is finally starting to show some needed skepticism.

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Business schools basically sell 3 things: professional training, a lifelong network, and personal branding. Together, these elements are supposed to boost a graduate’s earnings enough to justify a shocking price tag. I’m not sure that’s realistic at today’s prices.

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How expensive is a traditional full-time MBA? Top schools can now cost as much as $150,000 over 2 years. Add 2 years of living expenses and we’re at $200,000. And since most MBA students have already been in the workforce for at least a few years, the opportunity cost of forgone salary can be significant too, easily adding another $100k or more to the price tag.

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Since prices always reflect supply and demand, MBA degrees must have been in high demand. But markets respond, and I think we’re now seeing the peak of a tuition bubble. Prices nearly doubled over the last decade, along with the number of degrees conferred. That looks like a hot market, and it’s no surprise that more schools jumped into the market.

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That bubble may be popping. There’s a surplus of MBA graduates in the job market, and their crushing student debt can make many of these grads unrealistic about the salary they should pull. Some of the weaker programs are closing their doors as faculty costs rise and applications fall.

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Falling applications probably has a lot to do with the tough value proposition of paying up to $300,000 for a degree. A lot of core business skills, like financial analysis and modeling, can be taught effectively in a virtual classroom. Business schools that don’t adopt e-learning are going to lose their lunches to competitors who use technology to offer the same product at a much lower cost.

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While the traditional MBA isn’t going away, there should probably be a lot fewer people pursuing these degrees, and a lot fewer programs offering them. It’s hard to disrupt a great brand, so really elite programs will always have something valuable to sell. But motivated professionals who want to improve their skills without breaking the bank have more and more options. That’s good for them, and good for employers too.

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