Prof Theuns Pelser
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What Must Fall: MBA Fees or the Fallists? - Prof Theuns Pelser

2017-01-11

At the end of December 2016, the author posted [1] a LinkedIn update on the current MBA fees [2] from South African Business Schools. Within fifteen days after the post, almost 10 000 views, 53 likes and 16 comments were noted. Numerous comments harped on the Fees Must Fall dogma and other views on the affordability of obtaining an MBA. So, clearly this is a hot topic and require further consideration.
On the outset, one can say that the MBA degree is an internationally recognized brand that signifies management and leadership training. A Masters of Business Administration (MBA) signifies that an individual has become a specialist or master of the skills necessary to manage a business or operation.
In 2016 we saw the roll-out of the new NQF level 9 MBA. Whilst the change is the most significant revision of the admissions requirements for the Masters of Business Administration (MBA) in nearly a decade, it came as a consequence of the Higher Education Qualification Sub-Framework’s (HEQSF) revision of the previous 8 level framework to the current 10 level framework. This change means that students intent on studying towards the new NQF level 9 MBA, are required to be in possession of an NQF level 8 qualification i.e. an honours degree, a postgraduate diploma or equivalent qualification prior to gaining admission to the MBA degree programme.
The concept of public goods is central to economic analysis of the role of government in the allocation of resources, especially when it comes to higher education. Public goods are defined by two characteristics:
Non-excludability: It is not possible to exclude non-payers from consuming the good.
Non-rivalry in consumption: Additional people consuming the good do not diminish the benefit to others. [3]
The benefits of higher education are shared by the participants and the rest of society. It follows that it is reasonable for the costs to be shared as well. It would be inefficient not to subsidize universities and their students. People would under-invest in their own education if they had to pay the full cost. The benefits of a postgraduate degree, especially a professional degree like the MBA, are not all public and they are not all private.
The debate should be over what fraction of the cost students should bear and how large society’s subsidy to them should be.
MBA students are the of the privilege of the privileged. To demonstrate this fact, let’s swiftly look at the results of the recent 2016 Financial Mail MBA survey.[4] Twelve of the 18 business schools surveyed, indicate that they require a minimum of 3 years working experience and the other six institution require more than 3 years working experience. Regarding applications, 6 401 students applied to the MBA in 2016. Nonetheless, only 2 993 students were enrolled, thus indicating the exclusivity of the MBA. Of those surveyed, 85% and 91% respectively, indicated that a long-term financial reward and long-term career opportunities are the result of holding an MBA-qualification. To this end, 34% of employers nationally, are prepared to pay an MBA employee more than its peers.
This is further supported with the recent MBA.co.za Salary Survey [5]. According to the survey, the average MBA currently earns an annual salary of R560 285 and the maximum reported salary is R3 000 000. Interestingly, the average pre-MBA salary earned is R297 731 and the average salary earned at the first job post-MBA is R393 783. The survey indicates that the average annual salary increased by 32% between the periods before obtaining an MBA and the first job after obtaining the degree, which equates to a real annual increase of almost 20%. What may be more noteworthy is that the average annual salary increased by 42% between the first job after obtaining an MBA and the current job. One of the key indicators tracked by Financial Times (FT) is MBA holders’ salaries, which range from $88,345 for alumni from Canada’s McGill University, to $185,939 for Stanford Graduate Business School alumni. Not to be left out of this advantaged group, University of Cape Town Graduate School of Business holders earn the 26th highest average salaries worldwide. 
In summary then, with the new CHE admission requirements, the MBA would be done after students first postgraduate degree, like a postgraduate diploma or an honours degree. Further to the admission requirements, MBA students would have extensive work experience, most of them employed in the formal sector in high paying jobs.
That’s why the writer argues that the MBA is predominantly a private good, and refute any claim to the so called Fees Must Fall, as embarking on an MBA is mostly done out self-interest.
In its extreme, it would mean the solution is to have those who demand the good life, pay for it themselves; and government only subsidize education that clearly fall within the public good category.
There exist a commonly held belief that price equate quality. A better gauge for the quality of MBA programmes is rankings, though. The globally respected FT ranking [6] is based on surveys of the business school graduates, career progression of alumni, idea generation and diversity of students and faculty. However, to contextualize the cost of a MBA and reputation per business school, we shall use the widely known Professional Management Review (PMR), annual national survey on Accredited Business Schools offering MBA degrees in South Africa.
The respondents (employers) rate the MBA graduates and students in the workplace representing accredited Business Schools across 19 attributes/criteria (on a scale of 0.00 â€" 10.00; where 0.00 = poor, 5.00 = average and 10.00 = outstanding). If we plot the 2016 PMR mean scores of each business school against their 2016 MBA fees, we notice a distinct upward-sloping trend line â€" the closer a business school move to the outstanding category of the PMR ranking system, the higher the MBA cost and inversely so.

From a business school point of view, market segmentation and pricing strategies should be high on management’s agenda to take advantage of these correlations. But, for the prospective MBA student or their sponsor looking for value-for-money, clearly some trade-offs can be made between ranking and cost. Take the University of KwaZulu-Natal, Graduate School of Business & Leadership (GSB&L) for example; MBA fees of R120 000 and a PMR ranking of 5th overall. The GSB&L is on the same PMR ranking as University of Cape Town, Graduate School of Business (mean score 7.80), but a whopping R64 450 cheaper!
You may have heard the old saying, "For want of a nail, the shoe is lost; for want of a shoe, the horse is lost; for want of a horse, the king is lost; and for want of a king, the kingdom is lost." It is a clever way of saying that little things matter. Little things lead to larger things â€" often with disastrous consequences. So instead of demanding lower MBA fees, we should appreciate the fact that South Africa Business Schools cater for different segments in the market.
As public and private stakeholders we should avoid propagating the destruction of an international brand.
References:
[1] https://www.linkedin.com/hp/update/6216831645220245504
[2] https://businesstech.co.za/news/business/139253/these-are-the-best-business-schools-in-south-africa-and-how-much-they-cost/
[3] Baum, S. and McPherson, M. 2011. Is Education a Public Good or a Private Good? The Chronicle of Higher Education: 18 January.
[4] Jones, S. MBA 2016 Survey Results â€" Financial Mail. Lodestar Marketing Research (Pty) Ltd.
[5] http://www.mba.co.za/article.aspx?s=50&a=2205
[6] http://rankings.ft.com/exportranking/global-mba-ranking-2016/pdf
 




What Must Fall: MBA Fees or the Fallists? - Prof Theuns Pelser

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