The ‘Flight To Quality’ In The MBA Market

Full-time MBA enrollment trends at the top 130 business schools over the past 23 yearsCHART COURTESY OF POETSANDQUANTS.COM

Before leaving Philadelphia for the deanship of UC-Berkeley’s Haas School of Business last year, Ann Harrison had a late-night dinner with Wharton Dean Geoffrey Garrett where the talk inevitably turned to the pressures of being a business school dean today. “We’re on this island and the water is rising,” Garrett told Harrison, a Wharton professor of business economics who became dean of Haas on Jan. 1.

A strong economy, the rising cost of an MBA, anti-immigration sentiment that is scaring off international candidates have all combined to dampen demand for full-time MBA programs. A new Poets&Quants analysis of the latest acceptance rates at the top 50 U.S. schools reveals applications at about 80% of schools are down, by a little or by a lot, meaning it looks likely that admissions offices are compensating by opening the gates a little wider (see Acceptance Rates For The Top 50 U.S. Business Schools).

But the deans of Wharton and Haas have little reason to worry. Leading two of the world’s best business schools with deep pools of highly qualified applicants, their brands have lost no prestige and are in as demand as ever. In fact, the real story of the MBA market can be distilled in two simple charts that track application and enrollment trends in full-time MBA programs for the past 23 years. What those charts show, beyond a doubt, is that there has been a flight to quality. Schools at the top of rankings are doing very well, thank you. Schools near the bottom are struggling to survive, especially in filling their full-time MBA classes with highly qualified students.

While aggregate MBA enrollments have fluctuated substantially over that timeframe (red line in the chart below), and the last seven years show a sizeable decline, the trends are very different when enrollments are disaggregated by ‘tiers’ of schools based on U.S. News’ ranking. The disaggregate picture shows a consistent ‘flight to quality’ for both applicants and students.

Full-time MBA enrollment trends at the top 130 business schools over the past 23 yearsCHART COURTESY OF POETSANDQUANTS.COM

The upshot? Despite economic dislocations that range from the Great Recession of 2008-2009 technological disruptions from the advent of MOOCs and online MBA options, top-tier U.S. business schools have continued to grow and gain market share in both enrollments and applications. They continue to attract the very best MBA aspirants, and the academic quality–at least as measured by GPA and GMAT averages–of their matriculating classes remains unrivaled globally.

Grouping the schools in four tiers (rank 1-10, rank 11-20, rank 21-50, and rank 51-130) reveals that the decline is confined mainly to schools outside the top 20; aggregate enrollments at the top-20 schools have steadily grown as shown by the blue line in the above chart (for our complete analysis of the market, including which schools are up and which are down, see MBA In Decline? Not At The Top Tier Schools).

In fact, the U.S. full-time MBA programs ranked in the top 20 have increased their market share of MBA enrollment to 57% of the highest ranked 130 business schools for what will be the Class of 2019 this year from 41% for the Class of 1995.

The top 10 schools now account for 36% of MBA enrollment, up from 25% in 1995, while the schools ranked 11th through 20th now hold a 21% share, up from 16% (see below chart). Schools ranked between 21 and 50th, moreover, have held their own, with a share of 21% now versus 22% in 1995.

Full-time MBA application trends at the leading 130 U.S. business schools over the past 23 yearsCHART COURTESY OF POETSANDQUANTS.COM

It’s quite a different picture for U.S. schools ranked below the top 50 where the MBA market turmoil is more evident. For schools ranked 51 through 130 by U.S. News over the 23-year timeframe, market share plunged by 15 full percentage points to 22% from 37%. It would be a safe bet to guess that enrollments have become even more difficult for business schools that aren’t ranked at all.

The U.S. News database contains application volume data going back to the Class of 2003. The tier-by-tier historical trend of this data is also revealing. First, while total application volume has fluctuated up and down during the last two decades, the flight to quality towards top-tier schools is just as pronounced for applications (chart above) as it is for enrollments.

Outside the Top 20 schools, the decline of enrollments from peak levels has been equally pronounced for both domestic and international students. For schools in the lowest tier, domestic enrollments reached their peak for the Class of 1995, but these schools were able to increase their international enrollments until the Class of 2012.

Schools ranked 21st through 50th saw a total full-time MBA enrollment decline of 36% from the peak year of 2002, with domestic enrollment falling 37% from a peak of 2000 and international enrollment dropping 38% from a 2003 peak. But the fall is much more severe for the MBA programs ranked between 50th and 130th, plummeting 51% from a 1995 peak, with domestic enrollment falling by 53% and international enrollment declining by 58%.

In contrast, the top 20 schools have fared quite well. For the Top 10 schools, the Class of 2019 represents a new peak in MBA enrollment. The decline for the next ten schools, ranked 11th through 20th, was a mere 2% from a high point for the Class of 2013.

So the water may be rising around the island that is business education, but it has yet to threaten the shoreline of the top of the MBA market.

John A. Byrne is editor-in-chief of PoetsandQuants.com, the leading website covering business schools. He is also the former executive editor of Businessweek and former EIC of Fast Company.

 

[“source=forbes”]