by Ulrich Hommel

The University Financial Squeeze and Business School Targeting

Universities worldwide are facing unprecedented financial pressures, compelling them to make significant restructuring decisions. Declining state funding, heightened competition from online and alternative education providers, rising operational costs, and shifting student demographics have led many administrators to describe this situation as an existential financial crisis. Consider student demographics: Falling birth rates in numerous developed countries are reducing the traditional college-age population, while adult learners increasingly seek flexible, shorter programs that generate less revenue per student. In recent years, the COVID-19 pandemic and geopolitical conflicts, which triggered unusually high inflation, have intensified these trends. International student enrollments, which are often essential revenue sources for universities, also dropped sharply due to travel restrictions and more restrictive visa requirements. 

Rising operational costs intensify revenue challenges. Infrastructure maintenance, technology upgrades to support remote learning, and resource needs to maintain regulatory compliance have escalated more quickly than inflation. Simultaneously, universities face pressure to invest in new facilities and programs to remain competitive.

Business Schools and the Cash Cow Dilemma

Business schools often find themselves as primary targets for restructuring, despite being significant revenue generators for their universities. This counterintuitive targeting arises from several factors that make business schools both appealing and vulnerable to administrative cost-cutting measures. Business schools typically generate substantial revenue through high-enrollment undergraduate programs, executive education, and premium-priced MBA programs. However, this financial success fosters a perception among university administrators that business schools have excess resources that can be redirected to support struggling departments or institutional priorities. 

This paradox arises from several intersecting institutional dynamics. University administrators often assume that high-revenue units have a greater capacity to absorb cuts while maintaining operations. This “robbing Peter to pay Paul” approach treats business schools as internal banks rather than as academic units with their own operational requirements and strategic needs. The reasoning assumes that successful units can simply “tighten their belts” without considering the specific investments necessary to preserve their competitive position. The assumption is that business students are primarily career-focused and will tolerate larger classes, reduced services, or faculty changes as long as the degree retains its market value. The rationale suggests that if a business school can generate significant revenue, it should be able to maintain quality while operating more efficiently.

Business schools also face unique vulnerabilities due to their perceived separation from the university’s academic “core.” Liberal arts faculty and administrators sometimes view business education as fundamentally distinct from traditional academic disciplines, more akin to professional training than to scholarly pursuits. This perception makes business schools easier targets for cost-cutting because their reduction is seen as less damaging to the university’s academic mission and reputation.

Where University Leaders Are Getting It Wrong

University administrators often underestimate the delicate ecosystem needed to maintain the quality and reputation of a business school. They may not fully recognize how accreditation requirements, faculty research expectations, and industry partnerships create inflexible cost structures that cannot be easily reduced without serious repercussions. The revenue-generating capacity that makes business schools attractive targets for cost-cutting also depends on preserving the very elements that restructuring efforts often endanger. This creates a dangerous cycle where short-term cost reductions can weaken the long-term revenue generation that initially justified the targeting. When restructuring efforts threaten accreditation status or rankings, enrollment declines follow. Reduced program appeal can erase the financial advantages that prompted the restructuring in the first place.

The transformation of business schools into internal profit centers represents a fundamental flaw in university financial strategy, creating dangerous pitfalls for academic governance. Universities expect business schools to generate surplus funds that not only support their own operations but also subsidize less profitable academic programs, research initiatives, and institutional infrastructure projects. The “implicit tax” creates perverse incentives throughout the university system. Other academic units feel less motivated to improve their financial performance when they know that business school revenues will cover shortfalls. Meanwhile, business schools face pressure to maximize revenue generation at the cost of academic quality, faculty development, or long-term strategic positioning.

This dynamic becomes particularly problematic during tough times (meaning: now). When business school revenues decline due to market conditions, the entire university financial model becomes vulnerable. The units that have depended on business school success lack the infrastructure or capability to become self-sufficient, resulting in a cascading financial crisis that can threaten the viability of the entire institution.

When University Restructuring Becomes Toxic

University administrators often approach the restructuring of business schools with assumptions derived from other academic disciplines, which can be unsuitable for contexts involving professional education. The belief that business education can better withstand quality declines stems from a misunderstanding of how program quality, market perception, and revenue generation interrelate within professional education.

Business education functions within a reputational ecosystem where minor quality disruptions can result in disproportionate market outcomes. While ranking systems have their flaws, they significantly affect student choices and employer perceptions. A decrease in faculty-to-student ratios, a reduction in career services, or cuts to experiential learning opportunities can trigger rankings to decline, which diminishes both the quality and number of applications, creating a downward spiral that undermines the revenue generation that the cost-cutting measures were intended to support.

The professional nature of business education also means that employer perceptions directly impact program value. Corporate recruiters who observe decreased career services support, fewer networking opportunities, or lower student quality will modify their hiring practices, which in turn diminishes the employment outcomes that attract prospective students. This market feedback loop functions much more swiftly in professional education than in traditional academic disciplines.

University leaders often underestimate the time lag between restructuring decisions and their full impact on business school performance. While cost savings show up immediately in budget reports, the damage to reputation that influences future enrollment and revenue may not become apparent for another couple of years. By the time declining performance is noticeable, the damage may be challenging to reverse, especially in competitive markets where other schools have either maintained or increased their investments.

Business School Deans: Beware of Your Accreditations

International accreditation bodies, such as AACSB, EQUIS, and AMBA, operate under rigorous standards frameworks developed during times of educational expansion and institutional stability. These standards assume certain baseline resources, faculty structures, and operational capacities that may directly conflict with the cost-reduction imperatives driving university restructuring efforts. This resulting tension creates multiple vulnerability points where well-intentioned efficiency measures can inadvertently trigger accreditation violations.

Faculty composition represents one of the most critical and complex accreditation vulnerabilities in business school restructuring. The economic pressure to reduce faculty costs creates numerous pathways to accreditation violations. Early retirement packages, while seemingly voluntary, often lead to the departure of senior faculty members who manage heavy teaching loads and possess extensive institutional knowledge. These faculty members are difficult to replace with junior hires, who typically require lighter teaching loads and increased research support during their establishment periods. The net result can be higher per-credit costs instead of the savings that restructuring efforts aim to achieve. Increased reliance on adjunct faculty introduces even more complex challenges. While adjuncts can lower immediate salary and benefit costs, maintaining their professional qualifications necessitates continuous monitoring and development support. 

Accreditors assess whether the school has sufficient faculty resources to provide quality education across all degree programs. This assessment considers faculty-to-student ratios and also reviews teaching load distribution, research productivity expectations, and service obligations. Restructuring efforts that increase teaching loads beyond accreditation guidelines can lead to violations of faculty sufficiency, even if qualification standards remain intact. The relationship between faculty workload and research productivity is not straightforward. Increased teaching loads beyond certain limits result in disproportionate declines in scholarly productivity, which may jeopardize faculty members’ ability to uphold their academic qualifications. Likewise, increased administrative service obligations, often a result of staff reductions during restructuring, can drain research time and hinder long-term faculty development.

Restructuring efforts that eliminate sabbatical programs, reduce conference travel support, or cut research funding can have cascading effects on faculty qualification maintenance. These cost-saving measures may seem minor in terms of the annual budget but can accumulate to threaten the sustained scholarly productivity required by accreditation standards. The delayed impact of these cuts means that accreditation issues may not manifest until several years after the restructuring decisions, when faculty research pipelines begin to dry up and qualification renewals become problematic.

Avoid Harming the Goose Laying the Golden Eggs

Business school restructuring often involves decisions about consolidating or eliminating programs that may appear financially sound but can lead to significant accreditation vulnerabilities. Accreditors evaluate curriculum design for coherence, integration, and alignment with the various degree programs offered. Rushed program mergers without proper curriculum integration can result in degree programs that do not meet accreditation standards for educational coherence. The elimination of specialized programs or concentrations can present specific challenges, especially when these programs fulfill accreditation requirements for breadth and diversity in educational offerings. Program changes can also disrupt the ongoing improvement processes that accreditors require. These processes rely on longitudinal data collection, alumni tracking, and employer feedback systems that may be compromised when programs are eliminated or significantly modified. 

Real Present Danger: Slipping Infrastructure Quality

International accreditation bodies maintain high expectations for institutional resources that support the quality of business education. These standards include library resources, technology infrastructure, physical facilities, and student support services, which restructuring efforts often target for cost reduction. However, the relationship between these resources and accreditation compliance is often more complex than university administrators tend to realize. For instance, student support services (career services, academic advising, international student support, and disability services) may be compromised due to staff reductions or service consolidations. The impact of these service reductions can negatively affect employment placement rates and student satisfaction measures.

Technology infrastructure requirements have become increasingly sophisticated as business education integrates more digital learning tools, simulation software, and data analytics capabilities. Delaying technology upgrades or reducing IT support can lead to compliance issues when classroom technology fails to meet the standards expected by accreditors for contemporary business education delivery. Physical facility standards include not only classroom space but also requirements for collaboration areas, technology access, faculty research space, and student service facilities. Efforts to consolidate facilities that reduce space below accreditation thresholds can result in compliance problems, especially when reductions impact the collaborative learning environments that modern business education demands.

Accreditation compliance relies heavily on ongoing documentation of educational processes, student learning outcomes, and institutional improvement efforts. These documentation requirements present significant challenges during restructuring periods, when staff changes, system modifications, and process disruptions can undermine the data collection and analysis systems expected by accreditors (and ranking providers). Alumni tracking and employer feedback systems, in particular, require continuous maintenance and development as they provide essential data regarding employment outcomes, salary progression, and employer satisfaction with graduates.

How to Avoid the Abyss of Accreditation Downgrades?

The path forward requires business schools and their parent universities to reframe restructuring as strategic repositioning rather than mere cost-cutting. Successfully navigating financial pressures while maintaining accreditation and rankings demands transparent communication about institutional challenges and restructuring plans that explicitly address accreditation requirements (and the impact on ranking indicators) at each decision point. Business schools must resist the temptation for quick fixes that compromise long-term financial viability. The stakes are too high for improvisation since a single negative event can destroy many years of reputation-building and, consequently, eliminate the revenue streams that restructuring efforts sought to preserve. 

In my next article, I will present a comprehensive framework and practical strategies for how business school leaders can responsibly restructure their institutions while remaining reasonably aligned with university needs.