Big B-Schools' mega investments

Industry hiring is poor and applications to B-schools are falling, including in India. You would have thought B-schools would be cutting back on spending. Not the big ones, it seems, going by a story in the Economist:

Scholars sipping a glass of red in the posh rooftop bar of Oxford’s Saïd Business School could be forgiven for thinking they had wandered into the nearby Randolph Hotel by mistake. Stanford students can view an impressive modern-art collection housed in its own museum. Harvard Business School MBAs can book a masseuse to relieve the stress of a hard day slaving over case studies......On January 9th Yale’s School of Management formally opened its swanky new home, designed by Foster + Partners, Norman Foster’s architecture practice. The Kellogg School of Management in Illinois will soon start work on a new headquarters (see artist’s impression, above) for its MBA programme on the shores of Lake Michigan, at a cost of $200m. Stanford’s business school spent $345m on its new campus, largely thanks to the largesse of Phil Knight, the founder of Nike.

The biggest project, at least in terms of cost, is under way in New York. Columbia Business School is within touching distance of raising the $600m it needs to complete a new campus in West Harlem. From Cambridge, MA, to Cambridge, UK, an arms race is under way to provide MBAs with the plushest place to study.

How does one explain these huge investments at a time when the market is uncertain or shrinking and it appears that online education could pose something of a threat? One, as the article points out, B-schools investments are largely funded by alumni and other donations, so it's not as if it has to be repaid from future revenues.  Two, online education may not threaten the top schools. On the contrary, it is the mid-level and smaller schools that could face a threat as they may not offer quality that is clearly distinguishable from online education. Those in the top league will try to outsell each and market themselves to students by staying one jump ahead in infrastructure.

These are plausible reasons. Still, the economics of such investing appears fuzzy given the trend towards rising fees in the top schools and the number of years it takes to repay loans. At least to some extent, the big investments that B-schools are making will translate into higher fees, making the choice for students- even bright students- more difficult.

Peter Drucker once wrote that the big universities of today would become extinct because their cost structures could not be sustained. If the B-schools succeed in the investments they are making, he would have been proved wrong at least in respect of them.