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P rofessional school is getting costlier each year. But as students confront the problem of rising tuition, uni- versities also are coping with fiscal issues that bring into question the value of pro- fessional education itself. Business schools used to be viewed as "cash cows" that our universities counted on to help under- write their programs. But since the eco- nomic downturn, the milk we are capable of providing has begun to run dry. Fortunately, business schools also are well-positioned to reverse this trend. We can draw from our research and curricula to diagnose the causes of our fiscal chal- lenges and identify remedies. We have long been teaching our students how to reach effective solutions. Now, we must apply those lessons to our own institutions. Causes & Effects At the University of Rochester's Simon Business School in New York, we believe that the reasons for the fiscal challenges business schools face are multifold: A hard-hit financial sector. Finance is the largest department—and accounts for the highest faculty salaries—at most business schools. The economic downturn hit the financial sector particularly hard, which in turn has cut into the ROI of a business degree and led to an appreciable decline in full-time MBA applications over the last five years. More suppliers and greater capacity. As the business higher education indus- try has grown over the last four decades, we have witnessed what the standard economic model predicts: heightened competition from an increasing number of suppliers and expanded capacity from existing suppliers. Nearly 700 business schools are now AACSB-accredited, com- pared to 147 in 1970. This fierce com- petition has pushed business schools to increase their competitive efforts, which has served to commoditize our MBA, EMBA, and BBA programs. This com- moditization has only further eroded our operating margins. Soaring faculty salaries. Business education is what economists term an "increasing-cost" industry. For instance, as our industry has expanded, salaries for research faculty have increased at rates that have outpaced increases in our net tuition—primarily because supply of newly minted PhDs is failing to keep pace with demand. This trend is putting us in an ever-tighter budgetary vise, so that we're shifting away from expensive research fac- ulty toward clinical faculty, who now teach as many as half the courses at a majority of accredited business schools. In some cases, they teach even more than half. The rankings. The media rankings have set in motion an arms race among busi- ness schools to attract the best students. BY MARK ZUPAN GARY WATE R S/G ETTY I MAG ES 39 BizEd July/August 2014