Unbundling the MBA

Much attention has been devoted to the unbundling of TV programming in recent years. Yet, there is a much more profound unbundling opportunity emerging in college education. For much of the past century, a college education (and in later decades, post-graduate education) has been marketed as the path to upward economic mobility. Even as the cost of college education has grown exponentially (the cost of cable TV appears trivial in comparison), millions of students and their families have been willing to taken on ever-growing debt in pursuit of this promise.

Rather than debate the merits of pursuing the traditional path, it is more productive to seek an attractive alternative. It helps to illustrate with a specific example, the proverbial “low-hanging fruit.” So, let’s focus on the MBA degree. While skipping college is perceived to be risky (although that hasn’t stopped the proliferation of software bootcamps, coding academies, and entrepreneurial incubators targeting 18-24 year olds), there is less stigma associated with skipping post-graduate education. Among the most lucrative professional degrees (law, medicine, and business), the MBA is the least essential to becoming a practitioner. How many lawyers and doctors practice their profession without a formal education in their respective field? How many business people are in business without a formal business education?

What Is the Value Proposition of the MBA Degree?

Students in the MBA program seek change: some combination of job function, industry, and/or geography. They perceive the MBA degree as a low-risk path (or perhaps even the only readily available path) to make significant career changes. But is that really the case? Twenty years ago, the answer to this question would have been straightforward. The cost of the degree was relatively low. If the opportunity cost of dropping out of the workforce was an issue, part-time MBA programs were readily available. Prospective students with the motivation and entrepreneurial instincts to shape their own careers did so. The rest sought shelter in MBA programs. The answer is not so straightforward today and in twenty years, current trends suggest the answer will be even more complicated.

So What Changed?

Let’s start with the easy one: cost. For illustration purposes, let’s focus on a specific degree program: the part-time MBA program at UC Berkeley. Since public universities are responsible for educating far more of the population than private universities, this example will be applicable more broadly. Yet, at the same time, as one of the top MBA programs, UC Berkeley also serves to illustrate the issues facing prestigious universities (public or private). Tuition and fees over the course of the 3-year part-time MBA program for students starting in 1995-1996 were approximately $40K for California residents. Twenty years later, they have grown to approximately $130K (~6% annual increase). Many large employers typically reimburse some of the cost. However, the maximum allowable reimbursement has risen far more slowly than tuition rates. Twenty years ago, it was not unusual to have employers reimburse most, if not all, of the cost. These days, students are fortunate to have employers reimburse 25% of the cost. Scholarships and other types of grants are available to a fraction of students. So, for the median student, the out-of-pocket portion of the tuition for the part-time MBA program has increased far faster than 6% per year (closer to 12%).

What Do Students Get For $130K?

A bundle of career services, professional & social networking, evaluation of mastery (aka grades), certification (aka the diploma), thought leadership (aka research), spectator sports (Go Bears!), and curriculum development/aggregation (aka courses & departments) and delivery (aka the campus). Tuition is actually charged for the courses and everything else is thrown in the bundle for free.

Does an Alternative Exist?

Thought leadership and spectator sports are readily accessible to anyone independent of university affiliation: There is no need to be admitted to a degree program and pay tuition to access research papers or attend football games.

The value of the grades and diploma is dependent on the reputation of the school. The more prestigious schools routinely report graduation rates above 90%. Many top business schools (or at least, their student government) have a policy of discouraging students from advertising GPAs during the recruiting process.

So the most valuable signal is not the GPA or the diploma, but the acceptance letter from a prestigious school: Completing the application requirements and getting admitted is far less expensive and time-consuming and nearly as effective for signaling purposes as completing the degree requirements. One could even go further and say it is more impressive to be admitted to multiple top schools than to graduate from any single top school (some people are even listing school admissions on resumes in place of or in addition to degrees).

How to Trim Excess Cost?

So, that leaves $130K for a bundle of career services, networking opportunities, and courses. Students typically take roughly 15 to 20 courses but usually seek (and benefit from) a subset (likely 5-6, the specific courses vary from student to student depending on prior education and experience): Sound familiar? Consumers paying for cable TV bundles face the same dilemma.

Is It Feasible to Have Courses Offered a la Carte?

My experience demonstrates that a course can be offered for about one-third of the university rate for the same content, instructor, and delivery format and a comparable class size, but unencumbered by the university’s cost structure. In other words, the economics to the faculty are comparable to or better than teaching at the university. If the typical student chooses 6 courses, total cost would be ~$12K. Since many students try to place out of required core courses and many core courses are already available through far less expensive means (including online), popular electives are the most important courses to unbundle. Where can one find these courses a la carte? For starters, many schools offer executive education courses but the content, delivery format, and cost of these courses do not compare favorably with the above example (the 3x cost multiple prevails). The preferred option is to have popular instructors from top schools offer courses directly to students, unencumbered by the university’s cost structure.

Can Students Put $118K to Better Use?

Can students find a suitable alternative to the university’s career services and networking opportunities for $118K? For that kind of money, one could hire a recruiter/agent/publicist/manager/career coach to manage one’s career and have sufficient time and money left to network at industry conferences, join various professional associations and country clubs, and travel. More enterprising folks can achieve similar results at far lower cost (for example, doing part-time/consulting work with a variety of companies for a trial period). Even more enterprising folks would use the funds to start their own business.

How Is the Cost Changing Going Forward?

Some of the rapid increase in tuition over the past 20 years has been attributed to a decline in government funding of public universities. However, in our UC Berkeley example, even after the program has become self-supporting (effectively independent of government funding), tuition rates have continued to increase at 5% per year and are likely to increase at a comparable rate for the foreseeable future (private schools are also showing comparable tuition hikes). A non-profit that uses revenue to measure progress has no choice but to increase cost. Higher revenue requires the manufacturing of higher cost and vice versa.

What Else Has Changed?

The more complicated dynamic arises from the impact of technology on the bundle:

  • Does technology offer more effective and/or less expensive means for delivering courses and identifying career/networking opportunities? If so, how?
  • Any benefits derived from technological improvements could be accessible to universities but would universities be motivated to utilize these advances in the most desirable way?

Those are topics for another day…

EducationReza Moazzami