Annals of Finance

Business Schools Get Lean


Like many small, private business schools, Dartmouth College's Tuck School of Business (Tuck Full-Time MBA Profile) in Hanover, N.H., relied on its endowment for its budget before the financial crisis hit in 2008, says Steven Lubrano, assistant dean of administration and chief operating officer at Tuck. The crisis meant fewer alumni and corporate sponsors contributed, and endowment returns took a hit. The school struggled with a difficult question: To lay off staff or not to lay off staff?

Knowing layoffs would have a big impact on employees and the small town of Hanover, where jobs were scarce even in good times, the staff rallied to come up with creative ways to cut back on spending and become more efficient, says Lubrano. In the end, he says, Tuck was able to trim costs by nearly 3 percent and avoid layoffs by centralizing the school's recycling system, which saves janitors seven hours per week in labor; creating financial centers, where a few people handle all the necessary paperwork for employee expenses; reducing mailed print materials from 55 to 10 per year; and reducing travel in favor of videoconferencing and other technologies.

"We told people their jobs were not at risk, but we had to change how we do things," he said. "Once jobs were safe, people were more willing to participate and offer suggestions."

Practice What They Teach

Indeed, business schools across the U.S. had to practice what they teach by becoming leaner—not to mention more creative—to get through the thick of the financial crisis.University endowments suffered losses averaging 18.7 percent in the year ended June 30, 2009—their worst year since the Great Depression—and are just now beginning to recover. And with virtually every state in the union facing massive budget shortfalls, 43 have made cuts to higher education, according to the Center on Budget and Policy Priorities.

For some business schools, the solution to dwindling resources was layoffs and program eliminations. At Ohio University, the College of Business (Ohio Part-Time MBA Profile) on Nov. 12 suspended its full-time MBA program, citing "major budget challenges." The school has also cut two undergraduate majors with low enrollment, and had a number of B-school staff redeployed to other parts of the university, says Hugh Sherman, Ohio's B-school dean.

But like many other B-schools, Ohio didn't stop there. To create more revenue and respond to demand, the school expanded its executive education programs, increased its part-time MBA program from two cohorts to six, and increased recruitment of international students.

"Being businesspeople, there's a need for us to be strategists," says Sherman. "That's a different concept for universities, which like to think that you can service everyone. You can't."

Shifting Resources

To avoid layoffs and other drastic measures, many business schools opted for cuts that minimized disruption, sometimes shifting resources where they're needed more. For example, the University of Chicago's Booth School of Business (Booth Full-Time MBA Profile) didn't fill open positions, reduced the number of temps and contract workers, delayed expenditures on facility updates, and began requiring dean's-office approval for most travel—a change that forced staff to start looking for bargains, says Stacey Kole, deputy dean for full-time MBA programs at Booth.

At the same time, she says, Booth added career services staff to develop relationships with recruiters and provided funding for students who wanted to intern at nontraditional or nonprofit employers. "Students learned that we fully supported them in their job search by putting more resources into our career services at a time when we reduced resources to non-student-facing services," wrote Kole in an e-mail.

Determined to continue to recruit high-quality business faculty and refrain from cutting services to students, the University of Pennsylvania's Wharton School (Wharton Full-Time MBA Profile) gave other parts of its budget more scrutiny, says Peter Degnan, vice-dean for finance and administration at Wharton, which faced one round of layoffs in its executive education department. The school also negotiated more discounts from vendors and kept travel and entertainment expenses down, he added.

Saving on Utility Bills

The facilities of various business schools can cost big bucks to maintain. Much like American families who are paying closer attention to the length of their showers and turning off lights when they leave a room, business schools are finding ways to bring down utility bills.

Harvard Business School (Harvard Full-Time MBA Profile) realized that having the air-conditioning or heating systems turned on during nonbusiness hours was a waste, and it wasn't very green, which is a priority, writes Meghan Duggan, assistant director of sustainability and energy management at HBS, in an e-mail. Although a few employees who work late might have to wear sweaters during the winter or take them off during the summer, the savings, which Duggan would only describe as in the "six figures," are worth it, she writes.

"Simple behavioral efforts that don't cost a cent can have a positive financial impact," she writes.

With the economy showing signs of life, the need for additional belt-tightening has subsided. At Wharton, Degnan says, executive education programs have recovered most of their lost ground and gift-giving has stabilized. With money not quite as scarce as it once was, schools are starting to spend—Booth, says Kole, has begun filling open positions again. Still, don't expect business schools to revert to their old spendthrift ways anytime soon.

"We are still keeping a close watch on expenses," says Degnan. "It isn't time yet to open the floodgates and just let things happen."

No one will soon forget the Great Recession, least of all business schools. Kole admits the crisis brought on a "tough morale period" for the staff at Booth, who, she adds, shouldered more responsibility than usual. Despite the sacrifices, Kole says the staff united to make sure students did well, and people noticed these efforts.

"You couldn't 'bonus' people, but you could write personal thank-yous, which is something we weren't doing enough of before," she says. "It brought us closer together."

Francesca_dimeglio
Di Meglio is a reporter for Businessweek.com in Fort Lee, N.J.

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