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Be Careful: Adding Programs May Not Solve Revenue Concerns

Nearly every business school dean we know asks us (often worriedly), “How can I feed the increasing revenue demands of my institution?” The specific answer, of course, depends on the particular circumstances of the institution. This post focuses on the nearly universal hypothesis that adding specialized master’s programs is the first strategy to try. (Hint: It’s not necessarily.)

Let’s look at the facts. Using IPEDS, we focused on the 4-digit CIP codes typically used for specialized business master’s degrees (52.XX, found here.) We kept our analysis to only those that conferred more than 500 degrees in 2015-16, the latest reporting year in IPEDS. We then compared the number of institutions conferring that degree code in 2015-16 to the same number in 2010-11 to see the change in the number of institutions offering a program in each code. Below are the results.

We also recently asked almost 100 business school deans from across the country if they believe the number of degree programs they offer will be increasing over the next five years. For those who said yes, we followed up by asking in what degree category they expected to see this increase:

So, not only have more specialized master’s degrees emerged in the last five years, but, looking forward, there doesn’t appear to be an end in sight. This presents a challenge, of course, as increased supply doesn’t necessarily mean increased demand.

To round out the context of the situation, we looked at the total conferrals by each IPEDS code for the past few years and found that almost half of the program categories have declined in conferrals over this time period. Very few have had a meaningful bump in market interest.

Finally, we put both sets of IPEDS data together to see the average number of conferrals per conferring program, to find only three categories showing demand outpacing supply.

What does all of this mean as deans and business school leadership teams assess their options for growing revenue? Moreover, hat else should be considered when making important program expansion or contraction decisions? We have three pieces of advice:

  1. The expectation that increasing the number of programs in a portfolio will generate more revenue, without a strategic market-based approach, is flawed. We know this because we see firsthand at many institutions that the drivers behind programmatic expansion exploration are often proactive faculty who believe in the merits of their program but are often short on a market fact base. For instance, opening a program in the past five years in International Business (CIP Code 52.11) had a much lower chance of success than opening one in Management Sciences and Quantitative Methods (52.13), despite any faculty enthusiasm for the former. Of course, the growth CIP codes of the next five years are likely to be different than the last five years’, so identifying those future growth areas, then finding faculty to champion programs, is more likely to lead to a profitable program than relying solely on the options faculty bring forward.
  2. We find resources—especially those related to marketing and enrollment management—do not get the consideration they should when making programmatic expansion or contraction decisions. In many cases, new programs are initiated without marketing and/or recruitment budgets attached to them. This leaves marketing and admissions teams in a conundrum: Do they focus more resources on new programs at the detriment of existing programs (which likely need those resources to sustain past years’ numbers) or do they starve new programs from the start to preserve existing programs they know can be more successful? Often, these teams end up diluting the marketing and admissions needs of all programs, harming the ability of each to generate needed revenue. That’s a vicious cycle and we advise institutions not to fall into this trap when initiating new programs. Make sure that the new program is funded appropriately and/or that trade-off decisions on where resources should come from are decided by leadership, so expectations are shared and fact-based.
  3. Program expansion is not the only option! We were surprised when we saw that only 8% of deans surveyed believed the number of graduate degree programs at their institution would decrease over the next five years. We know that closing programs is not an easy thing to do—rooms need students in seats, faculty need course loads, and alumni have loud voices. At the same time, if you can grow revenue by focusing on the few programs you do best and ensuring they are adapting to market demands, they have the opportunity to continue to grow and fulfill the objectives that ever-broadening portfolios can, with less risk.

As you’re planning for the next year (which many of you are at this point in the semester), we urge you to do your due diligence ahead of any decision-making. When we are asked by business schools to help provide the fact base needed to make program expansion or contraction decisions (and reduce risk), we focus on three broad categories of data and information:

  1. Market size and trends: Each market (geographically and programmatically) is unique, and there are many ways one should build on the national IPEDS analysis above to make informed decisions. Bringing this information to light, using an appropriate combination of sources (Google search volume data, BLS data, USNWR data, etc.), yields an important baseline of knowledge to take the guesswork out of available market opportunities and trends.
  2. Product- and brand-related realities and trends: Once high-level market opportunities are identified (or debunked), really understanding who can, and how to, capture the available opportunities is essential for making the right decisions. Through identifying programs that are having enrollment success and understanding what they have in common, as well as conducting primary market research to hear directly from the market about what they’re seeking, and if they believe our client can deliver on it, we bring to light the reality of whether a particular program can be expected to be successful (and what may need to change about it in order to expect success.)
  3. Marketing and recruitment necessities: By using Google tools and industry benchmarks, among other resources, determining expected marketing budgets and tactics along with down-the-funnel resources prior to any expand-or-contract decisions can become more science than art. Getting this right is essential for building a long-term plan for growth for any program, be it one that’s currently under consideration or one that’s been in the market for years.

Remember, not all program categories are created equal, not all markets are the same, not all needed resources are easily utilized, and not all brands have the same market power. If you’re in the situation where revenue generation is a key focus, drop us a line as we’d love to help you make the right decisions, with data and context appropriate to your market and situation.