How Can Public Compete with Private?

[Lu Lu Wu]

Seven years ago, the University of California at Berkeley's Haas School of Business was in a rut. For decades the program was on the short list for top MBA talent. But as competition in the B-school world increased, Haas began losing top faculty to private B-schools that could offer higher salaries.

As a possible solution, then-dean Laura Tyson proposed a pilot program that allowed Haas to supplement faculty salaries with funds raised through self-supporting business programs such as executive education. The idea was that this would bring the pay scale at Haas to levels comparable with those offered at top private B-schools.

It seemed like a long shot, but the plan worked. Since its implementation last year, Berkeley has been able to retain faculty and secure its spot in the top tier of B-schools.

Most public business schools are dealing with this challenge to compete. Because public programs get little state monetary support, yet have to abide by university mandates for hiring and tuition, they are left to fend for themselves in raising money to compete.

At some schools, this means ramping up executive education offerings; others have worked out deals with their universities that allow the business school to pay faculty with private money. These solutions have worked for schools such as Berkeley, Indiana University's Kelley School of Business and the University of Texas at Austin's McCombs School of Business. But most haven't been so lucky.

Self-Sufficiency
Is it possible for a public MBA program to compete without operating like a private B-school?

Robert Bruner, dean at University of Virginia's Darden Graduate School of Business, doesn't think so. "It would be difficult to continue to make the investment necessary to remain a top business school without the assistance of private support," he says.

And he should know: His school became entirely self-sufficient in 2002. Darden now draws all of its support from tuition, executive education, and earnings from its endowment.

In being self-sufficient, Bruner has control over what the school charges for tuition, as well as what the student intake will be each year. He also has greater flexibility in offering faculty compensation packages and employment terms that match those offered at other top MBA programs.

Darden is required to pay 10% of MBA tuition to the university as a fee, but to Bruner, it's worth it. "We wouldn't be where we are today without the benefits self-sufficiency has provided us," he says.

Darden's total privatization is not possible at UT's McCombs School of Business. Instead, Dean George Gau has opted to take a different route: he's put an added focus on for-profit endeavors, most notably, nondegree executive education.

When Gau became dean at McCombs in 2002, 15% of the school's budget came from executive education. Today that has doubled to 30%. "A big chunk of my faculty's salaries is being paid by the customers of executive education," Gau says.

Small Fish, Big Pond
For schools like UT—located in or around large cities—executive education has proven a good way to raise the money necessary to compete. But for schools like the Henry B. Tippie College of Business at the University of Iowa, located in small-market Iowa City, a robust open-enrollment executive offering doesn't make financial sense. Because of this, Dean Curt Hunter has come to grips with the fact that his school can't compete with the elite MBA programs.

So he must decide the direction of his graduate program. Does it make sense to go for national recognition in a few specialized areas? Or would he be better off marketing the program as a destination for MBA seekers in the region?

Hunter has even considered shutting down the full-time MBA program and focusing solely on the popular part-time MBA offering and the booming undergraduate program. "It's conceivable," Hunter says, "but not preferred."

Whether or not executive education is a possibility, Paul Danos, dean of the private Tuck School of Business at Dartmouth, isn't sure that schools should rely too much on for-profit endeavors. If the economy weakens and MBA applications drop, Danos says, not only would schools miss out on the executive education revenue they were depending on but they also wouldn't have a full MBA class. "It's a double whammy," he says.

For now, historically strong public B-schools are putting up a good fight in holding onto top faculty and competing with the private MBA programs for talent. But as the line between the "haves" and the "have-nots" grows wider, it's hard to say what other options public schools will have—other than to follow in Darden's footsteps and go completely private, or to get comfortable being a second-tier program.

by Geoff Gloeckler