Business schools: where next?

October 2005

Business education has had astonishing success. Monash Academic Professor Owen Hughes argues that prosperity should not be taken for granted.

Report: Professor Owen Hughes

Recent years have seen rapid growth in full-fee business courses at both undergraduate and graduate levels. This development prompts three questions -- why would someone be willing to outlay a large amount of money for a business degree, how does this affect universities, and what is likely to happen in the future?

Professor Owen Hughes.

The answer to the first question is that business students are willing to pay because they are likely to benefit later in career and income.

In June 2005, Access Economics calculated the net economic benefit of an undergraduate business degree at about $500,000, compared with $185,000 for a non-business degree. For postgraduate degrees it was $660,000 compared with $255,000. The estimate for lifetime earnings for a business graduate was $1.31 million to $1.5 million, compared with $1.02 million to $1.12 million for others.

To answer the second question, the growth in full-fee business courses has been good news, so far, for the universities that provide them.

International students provide fee income at undergraduate and graduate levels, and local students pay substantial fees at the graduate level.

Business education is highly valued by international students and is regarded as offering better job prospects in the global economy. The number of undergraduate business students at Monash has also increased through local demand.

Business courses are economical -- they are generally cheaper to deliver, allow for larger classes, do not require expensive facilities and permit higher numbers of students to enrol without affecting entry scores for local students.

Everyone should be happy, but they are not.

On the release of the 2005 Access Economics report, the president of the Australian Business Deans Council, Professor Peter Wolnizer, said business schools were seriously under-funded.

This problem can be traced to the need of all university administrations for money. With government funding in decline, the revenue being earned by business courses is more apparent, and university administrations want a piece of the action.

Even though business courses allow for higher student--staff ratios, their growth has been such that there are sometimes staffing problems and over-crowding of facilities.

Many Australian universities now regard their business faculties as cash cows to be milked of money to subsidise other parts of the university. Some level of fund-sharing is understandable, but over-reliance on cash cows can cause them to dry up.

Also, the international market for business education is highly sensitive to perceived changes in quality. Low-end providers make all Australian universities worse off, as tales of overcrowding, poor value for money and insufficient care of students rapidly travel around Asian capitals.

As for the future, Australian universities to date have done well internationally, but they are not well placed for the future. Current success cannot be taken for granted -- markets can move very quickly, as the decline in IT enrolments has shown.

Professor Wolnizer argues that Australia's business schools have historically been funded at relatively low levels, meaning they have had to achieve significant economies of scale through large class teaching.

Australian business schools need much greater investment to maintain their market position.

The current starvation of resources and overloading of business academics suggests such investment will not be made in the near future. The model of the separate business school that only offers an MBA is already in trouble, because the reliance on a single product is a doubtful business strategy.

Other countries are looking at business schools as a source of overall competitive advantage for the nation. Stand-alone business universities that offer a range of undergraduate and postgraduate courses may be a viable option, as with SDA Bocconi in Italy or Singapore Management University.

Perhaps there will be an Australian business university. But without the kinds of investment Professor Wolnizer wants, and without vice-chancellors viewing business faculties as strategically important for their universities as a whole, future prospects are not bright.

Professor Owen Hughes is director of the Graduate School of Business at Monash University.