Transitioning Our MBA—One Year Later

• After discontinuing its two-year residential MBA, the Smeal College of Business has been able to redirect its resources to graduate programs that are in far greater demand among full-tuition-paying students.
• Launched this semester, its redesigned one-year MBA for earlier-career professionals already has reached its target enrollment and had a waiting list of prospective students.
• By gathering data to support the transformation or discontinuation of long-standing programs in decline, schools can effectively minimize opposition to substantial changes made in the long-term interests of the institution.

The number of students willing and able to pay full tuition for two-year residential MBA programs has steadily decreased over the past few years. According to the 2022 Application Trends Survey from the Graduate Management Admission Council (GMAC), 60 percent of MBA programs of all types reported receiving fewer applications than in the previous year.

On average, MBA programs responding to the survey over the last two years have experienced a 7 percent decline in their total number of applications. In many countries, softening domestic demand hit traditional MBA programs especially hard, as 70 percent of programs reported year-on-year application declines.

Application volume to U.S.-based full-time MBA programs ranked in the top 50 by U.S. News and World Report declined by 54 percent in 2021. Similarly, the number of GMAT test-takers declined by 48 percent from 2018 to 2022. GMAC attributes this drop, in part, to “the impact of COVID-19 on test center availability, candidate mobility, and uncertainty of the status of graduate programs.”

Even upper-tier schools are subsidizing significant portions of their tuition and even offering cost-of-living stipends to attract students with satisfactory credentials. But some institutions have determined that operating programs at substantial losses cannot be sustained. In the past five years, the University of Iowa, University of Illinois, and Wake Forest University have discontinued their two-year residential MBAs, deploying their resources to programs for which there is greater demand among tuition-paying students.

Together, these trends offered a compelling case for change at the Penn State Smeal College of Business in University Park. Over several years, we carefully evaluated our own two-year residential MBA program. Ultimately, in late 2021, our dean Charles Whiteman formed a committee to devise a plan and timeline for transforming Smeal’s two-year MBA into a one-year, early-career MBA with a STEM designation. We accepted the last intake of students to our two-year program in August 2022.

Our new one-year residential MBA program targets a tuition-paying audience and does not offer full-tuition fellowships and stipends. Its curriculum, which incorporates the core courses of the original two-year program, replicates and replaces our popular one-year master’s in management and organizational leadership (MOL). Historically, the MOL had been offered as a fifth-year early-career master’s degree, but market research indicated that this program could achieve even greater success if it were retooled and rebranded as a one-year MBA.

The Results One Year Later

In August 2023, the one-year MBA welcomed its first cohort across two sections. We had set an enrollment target of 55 to 60 students per section, but we did not expect to reach that goal for two to three years. Initially, we had hoped to enroll 40 students per section. But the results greatly exceeded our expectations. In its first year, the one-year MBA enrolled 120 students, representing 13 U.S. states and 17 countries, and had an initial waiting list of prospective students.

Approximately 50 percent of the cohort are women, and approximately 40 percent are international. In addition, about 55 percent of the cohort is made up of fifth-year students directly out of their undergraduate programs, and about 45 percent have one to five years of work experience.

The latter statistic is higher than we expected. We thought that, due to heavily subsidized tuition at many universities, most people with work experience would choose residential two-year MBA programs, where they can attend for free or nearly free. But we found that some students would rather pay for a one-year MBA, so that they are out of the workforce for only a year.

About one-third of the cohort in our redesigned program has indicated that they plan to “stack” a second master’s degree onto this one. We expect this number to grow.

That said, about one-third of the cohort in our redesigned program has indicated that they plan to “stack” a second master’s degree onto this one. We expect the number of students who stack a second degree onto the one-year MBA to grow in the coming years.

This class is our largest intake of full-time residential MBA students in about 20 years, and it is the first financially viable full-time residential MBA class in well over 20 years. Many of these students come from STEM and business-related backgrounds, and their average undergraduate grade point average is 3.5. Given that it typically takes around three years for a new program to attract the desired class size and composition, we are very happy with this result.

Takeaways From the Transition

Over the past three years, we have learned a great deal from this process. Here are some key takeaways that might be helpful to other schools initiating their own transformations:

Accept that past success is no guarantee of future success. In 2015, our program portfolio included our residential two-year MBA, an executive MBA, an online Master of Supply Chain Management, and a residential one-year Master of Accounting. Today, the first two have been discontinued or suspended, and enrollments in the master’s program in accounting are significantly declining. Only the master’s in supply chain management is doing well. If we had not chosen to pursue a new strategy with our professional graduate portfolio, we would be in trouble today.

Know how much your programs cost to operate. Many program directors do not know whether their programs are making or losing money. It is essential to maintain detailed profit-and-loss statements for each graduate program, so that you can have informed discussions regarding its future direction.

It’s critical to possess a lifecycle mindset. Academic administrators tend to believe that once we launch a program, it will continue indefinitely. But in today’s world, markets are changing rapidly and dramatically, and competition is intensifying. As a result, you should adopt the opposite and more pragmatic mindset, in which you assume that you will need to subject your professional graduate programs to continuous improvement as markets change and evolve. If a program is not financially viable after three to four years of operation, it likely should be discontinued.  

It’s difficult being the first to do something—it’s easier to follow. Academia is typically risk-averse, which leads academic leaders to hesitate to strike out in new directions. But if you have good market data in hand, you can minimize the number of naysayers who will cite the fact that no other schools are adopting similar changes as a reason for inaction. This leads to the next takeaway:

Do your research. By conducting solid market research, you can develop a strong business case for making a necessary strategic shift. For example, at Smeal, we had not seen another business school transition its traditional two-year MBA to a one-year model as we did. However, we carefully surveyed our market to establish that this strategy was right for our school. We often engage external market research firms to provide data that will inform our approach to change.

You cannot make everyone happy. When the business case is solid, leaders must move forward. They must not let the keepers of the status quo derail what is in the best long-term interests of the institution.

Communication Is Essential

One last takeaway is this: While you can’t make everyone happy, effective communication can keep unhappiness to a minimum. Once school leadership has announced the decision, keep stakeholders well-informed.

For example, administrators at Smeal announced the impending shift of the two-year residential MBA program to a one-year format to alumni, students, faculty, and staff on August 22, 2022. But the need to make this decision was not a surprise to most of our faculty and staff, since we had been discussing the problems surrounding traditional residential two-year MBA programs for many years.  

From that point on, the school implemented a carefully sequenced communications plan to explain the need for this change. Initially, the school surveyed members of each stakeholder group to identify their core concerns. Then, our communications team issued focused responses that addressed those concerns. Our leadership also opened two-way dialogues with stakeholders via one-on-one and group meetings, email communications, and open forums. Finally, college leaders engaged with several key stakeholders and subject matter experts to amplify and lend credibility to its messages and counteract resistance.

After the Smeal College announced that it would convert its two-year full-time MBA to a one-year format, the portion of stakeholders who had positive reactions to the news ranged from 45 percent among faculty and staff to 90 percent among hiring managers and recruiters.

One month after the August 2022 announcement, Smeal’s marketing department contracted with an external firm to conduct a comprehensive brand survey. We were pleased to discover that stakeholder groups largely had either a positive or neutral reaction to the MBA program transition (see graphic above). Even among our faculty and staff, only about a third had a negative reaction to the decision—far less than we anticipated.

It’s important to note that we did not widely share details of the plan until after we had formally announced the decision to discontinue the two-year MBA. Early on, our committee studied how other business schools had successfully implemented similar decisions. In every case, school leadership limited communication about the decision to a small group until after a formal announcement had been made. In one case where school leadership attempted to engage in a broader discussion prior to the formal announcement, it did not end well.

Exceeded Expectations

This decision has led to two significant logistical changes. First, Smeal College has exited the two-year MBA rankings. We believe that the importance and relevancy of these rankings have decreased over time while the cost to chase them has increased significantly over time. Second, we have had to reassign faculty who had been teaching electives in the two-year program to teach similar courses elsewhere in the college.

However, in return, this shift has enabled us to expand the school’s programs into a customizable and stackable graduate program portfolio that not only has increased enrollments (to about 2,300 at present), but also contributes significant financial resources to the college and the university. This portfolio now includes 18 professional master’s programs, including our one-year residential MBA; Online MBA; new Executive Doctorate in Business Administration (DBA); and 15 online graduate certificates.

Representatives from the university’s law and medical schools tell us that the changes we have made will make our JD/MBA and MD/MBA joint degree programs much more attractive to their audiences.

Our admissions and recruiting staff believe that this transition will make our residential master’s portfolio more attractive to the growing number of prospective students who are interested in stacking specialized one-year master’s degrees onto the one-year MBA. Moreover, representatives from Penn State’s law and medical schools tell us that the changes we have made to our graduate program portfolio will make our JD/MBA and MD/MBA joint degree programs much more attractive to their audiences.

Over the coming year, our marketing and communications team will share frequent updates with stakeholders regarding the initial response to the new Executive DBA and one-year MBA programs. But, overall, we anticipate that our brand and reputation will be enhanced by these programs and our overall strategy.

Transforming Smeal’s residential two-year MBA into a one-year early-career MBA was a controversial decision. Many people worried that the results would not be favorable. However, so far, the negative outcomes that some had feared have not materialized. On the contrary, the plan has far exceeded our initial projections, and we foresee a bright future ahead.