Not Business as Usual

In business, the saying is “innovate or die.” That also seems to be the mantra that business schools are taking.

The past few years have seen a host of developments in the financial model of business school, including new part-time M.B.A. programs, online courses, specialized degrees and innovative executive education programs.

One of the biggest changes came this week when University of California System President Mark Yudof approved a controversial plan to make the full-time M.B.A. program at the University of California Los Angeles’s Anderson School of Management into a self-sustaining entity, meaning the program will cease receiving state support in exchange for greater budget flexibility. That flexibility includes more freedom in setting tuition and could potentially serve as a model for other programs in the system to become self-supporting.

The program Yudof approved is a step back from the university’s original plan, proposed in 2010, to make the whole school self-sufficient. After pushback from UCLA faculty, the plan was pared back to just the M.B.A. program, leaving the doctoral program and undergraduate classes under traditional control. That plan received support from UCLA faculty but got what was essentially a “no” vote from the UC System’s Academic Senate, which argued that the program did not meet any of the criteria for establishing a self-supporting program. Critics of the proposal also said the state has poured decades of operational and capital funding into the program and wouldn't be adequately compensated if it made the program self-sustaining.

Many thought the Senate’s rejection effectively killed the plan, and the proposal has been simply sitting on Yudof’s desk for about 10 months.

Yudof’s approval Monday tries to balance the Senate’s concerns while pushing ahead on the plan, though it makes only small modifications to the version that stalled in the Senate. In the approved plan, the system also retains significant control over curriculum, and the president’s office – but not the system’s Board of Regents – retains control over tuition prices. “I want to acknowledge that the UC Academic Senate does not support this course of action,” Yudof wrote in a letter to UCLA Chancellor Gene Block approving the program. “I do believe this action represents a compromise between two strongly held and competing points of view, each of which is understandable and both of which seek what is best for the university as a whole.”

Anderson Dean Judy Olian, who pushed hard for approval, applauded Yudof’s decision and said it will benefit the university overall, not just the Anderson School. “The reallocation of resources and the fees-for-service we pay to the university will provide some money to the university and we will get to keep all the tuition the program generates," she said in an interview. "It’s a win-win.”

But Yudof’s statement of approval did little to assuage the concerns of the system’s Academic Senate, whose leadership said the president's office (Yudof will leave the role in August) should have waited for the completion of a review – launched last fall in the wake of the proposal – of the university’s policies for approving self-supporting programs and an academic review of the M.B.A. program before rendering a final judgment.

“If [the president] waited until after the review to decide, no matter which way it went, I think people would have just said, ‘Fine,’ ” said Robert Powell, chair of the system Academic Senate and a professor of chemical engineering and materials science at UC-Davis.

And Justin Chung, chair of the committee on graduate and professional schools for the UC system's student association, told The Los Angeles Times that taking tuition decisions from the regents reduces public opportunity to comment and challenge higher costs. Chung said that UCLA's M.B.A. program was being allowed to “to divorce itself from being part of a public university.”

But while UCLA’s plan was reshaped by, and continues to generate, faculty pushback, the administration at UC-Berkeley’s Haas School of Business has managed to accomplish a similar level of innovation without generating the same resistance. While the main M.B.A. program is not self-sufficient like Anderson’s will be, the Haas School has higher tuition for the full-time M.B.A., increased programmatic flexibility, several self-supporting programs and a plan to retain more tuition revenue from the full-time M.B.A. program.

Freeing the Program

Anderson is not the first public university business school to seek greater latitude in tuition setting and management in exchange for giving up state funding. The University of Virginia’s Darden School of Business and its School of Law have done so.

Anderson’s proposal wasn’t even particularly unusual within the UC system. As of February, the UC system had 50 self-supporting programs. At Anderson, those included the Master of Financial Engineering, global executive M.B.A., fully-employed M.B.A. and executive M.B.A. Hass’s evening-weekend M.B.A. program and Master of Financial Engineering are also self-supporting. Various iterations of M.B.A. programs are also self-supporting on other UC campuses.

What made the Anderson M.B.A. proposal different from the others in the UC system was that it was one of the first proposals to attempt to convert an existing program to self-sufficiency. The other programs in the system were created as self-sufficient programs.

For that reason it didn’t meet the outlined criteria for such programs, including serving new, different populations, using different delivery models, serving a different geographic region or being offered at different times. That prompted much of the pushback from the Academic Senate and led to the system’s review of the policies, which has yet to be completed.

One of the original reasons for pushing self-sufficiency for the program was to raise tuition prices to market level, something that has happened anyway over the past three years as the university has tried to reconcile sharp cuts in state appropriations.

Last year the school charged California residents about $48,200 in tuition and mandatory fees for the full-time M.B.A. program, and non-residents about $54,500. That’s only slightly lower than many of its private peers, including the Massachusetts Institute of Technology ($58,200) and the University of Chicago ($58,760), as well as the University of Virginia’s Darden School of Business, which charges in-state students $50,900 and out-of-state students $55,900.

It’s also lower than UC-Berkeley, which charges California residents about $53,500 (about $4,000 more than UCLA) and non-residents about $55,500 (about $1,000 more than UCLA).

“That narrative changes over time because the market has moved over time,” Olian said. “We were at a different place then than where we are today.”

Olian said the larger factor now is predictability in setting tuition. Instead of waiting for the approval of the regents, which in recent years has come as late as June for a year that begins in August, the school can now receive approval from the president’s office earlier in the year. Olian said she expects changes in the marketplace and the increased predictability brought by the new tuition-setting process to lead to less-severe tuition hikes in the near future. “We see tuition rising more moderately under self-support than it has in the state support model,” she said.

There is little difference between the original proposal to make the whole school self-sufficient and the plan that ended up getting approved, Olian said. With the M.B.A. program’s approval, all of the school’s six master’s programs will be self-sufficient. Only a small part of the school’s budget is composed of state support for the doctoral program. But because the school is not entirely self-sufficient, it is still subject to some general policies, such as the salary approval process.

Innovating Under the Radar?

While Anderson’s move toward a different business model has proven time-consuming and contentious, Berkeley’s Haas School has been pushing ahead on several projects that haven’t generated nearly as much controversy.

Haas Dean Rich Lyons said in an e-mail that like the Anderson school, Haas has focused on moving the school away from rigid operational policies, but it has not gone the same route as Anderson. "For now, our school has focused on creating new administrative arrangements to achieve financial and operational flexibilities for our full-time Berkeley MBA Program," he said.

Much of the school's new flexibility comes from the establishment of multiple nonprofit organizations under the auspices of the school to oversee new programs and initiatives.

For example, Haas’s Center for Executive Education is incorporated as a separate 501(c)3 organization. Administrators at the school say the distinct structure allows for greater flexibility in terms of hiring and paying staff, outreach and program design. Several other business schools, including those at Duke, U.Va., UNC Chapel Hill and Indiana,  have set up their executive education in a similar manner.

The university also placed the development of its new building under a separate 501(c)3 organization. The project is being entirely funded by donors rather than state capital appropriations.

“What they’re doing at Haas is being entrepreneurial,” Powell said. “It’s not serving a traditional student population, these aren’t degree programs, but it’s something one can imagine there’s a market for. There’s an audience for this kind of thing.”

The university has also established a way to retain a greater share of tuition revenue from full-time M.B.A. students if it decides to grow its class, which it might do after the new building opens. At the moment, the school receives a share of general state appropriations to UC-Berkeley but must give 50 percent of its tuition revenue going back to the university’s central administration.

But under a new agreement with the chancellor's office, if the school decides to grow, it will continue to receive the same level of the general appropriations but it will retain a larger share of the tuition revenue of each additional student, with only 15 percent going back to the central administration, meaning the school keeps 85 percent of the revenue from those additional students. That 85/15 split is how the school's self-supporting programs currently operate.

"Our public nature is no longer defined only by state financial support, which has been in steep decline in recent years," Lyons said. "Rather, we see our public dimension being realized through our mission and values that support serving the people of California and the world through world-class business education and research."

“In an era of dramatic budget cuts, there isn’t a one-size-fits-all approach to the model, not even just for schools of management,” Olian said. “Schools are going to take different approaches to achieve what they need. We’ve achieved something that is quite important to our students and university – predictability in tuition – and there are certain things you can’t just achieve through financial restructuring.”