London Business School: Victim of its own success?

October 14, 2011, 12:37 PM UTC

London Business School

(Poets&Quants) — London Business School is seeking to dramatically expand its size by acquiring a new building within walking distance of its campus near St. Regent’s Park in London, according to Sir Andrew Likierman, the school’s dean. The new building is expected to be the centerpiece of a major fundraising campaign as the school attempts to move closer toward a U.S. model of funding with far more significant support from alumni.

Sir Andrew, an accounting professor who became dean in January 2009, made clear that the school’s single biggest challenge is that it has run out of space and currently has little money to fund expansion.

“We are absolutely full. We would like to be bigger, have more faculty, and do more as an institution,” he says. “That means we need more money. That is a familiar cry. But we operate in the middle of London, and London is not cheap as a place.”

London’s current endowment is under 20 million pounds, or less than $31.5 million. By comparison, the endowment at Harvard Business School tops $2 billion. Even Babson College, a second-tier school primarily known for its entrepreneurship MBA program, has an endowment that is nearly eight times London’s — some $243 million. London’s comparatively small endowment limits its ability to compete for the best students and faculty and to provide world-class facilities.

Sir Andrew concedes that convincing alumni to more consistently ante up won’t be easy. “A lot of the people who came through here are from the early years when the state provided funds,” he says. “There was no sense that people had to put their hands in their pockets for that.”

At London Business School, for example, only 14% of the school’s alumni give back to the school on an annual basis. That is a sharp contrast to the numbers at major American schools where there is a tradition of giving. Dartmouth’s Tuck School of Business set a new record for participation by alumni in its annual giving campaign with 70.5% of all living alumni making a contribution last year. At Yale University’s School of Management, 46% of its MBA alums reached into their pockets to donate money to the school; the University of Virginia’s Darden School was the beneficiary of a 43% alumni giving rate, while Stanford Graduate School of Business reported a 41% participation rate by MBA alums.

“We are moving away from the European model and closer to the U.S. model,” says Sir Andrew. “We are at the moment setting up a campaign, which we will announce next year. The new building will be a centerpiece of that campaign.”

Unlike many top business schools, which are often housed in relatively new and spacious quarters, London Business School occupies a magnificent domed and arched building officially owned by the Queen and set across the street from the lovely green rounds of Regent’s Park. But the hallways are narrow and there are few places for students to gather and work in teams. Most students have to cross a busy street and walk down a residential block to find a place for their team meetings. With the addition of more students and programs over the years, the school has outstripped the capacity of its buildings.

How to address growing pains

Sir Andrew says that London Business School has asked for planning permission to construct a huge lecture hall under the front lawn, among other capital improvements aimed at lessening the crowded conditions. Within three years, Sir Andrew expects to enroll one more stream of 75 students in its full-time MBA program, which just took in 404 students. “It won’t be a dramatic increase, but we plan increases in other programs as well,” he says.

Sir Andrew, who first began teaching at London Business School in 1974 and has been founding director of its executive MBA program, does not want to move the school from its present location. “We have this wonderful campus,” Sir Andrew says. “It’s small enough where people feel at home here, but when I first came here the campus was operating for 30 weeks a year. We now operate for 48 weeks a year. We now have four sessions a day, versus three. We’ve gone into the roof and the cellars.”

London now has three full-time master’s degree programs: its flagship full-time MBA program with 404 entering students; a one-year masters of management program with some 140 students, and a master of finance program with 120 students. The school also boasts a part-time, masters-of-finance program with 73 students, and two executive MBA programs — one in London with 75 students and another based in Dubai with 60 students. The school also has a large complement of executive education courses.

“The total is a record intake this year,” says Sir Andrew. “We’re not seeking at the moment to increase the numbers because we have no space.”

The down side of top rankings?

The demand can be partly attributed to the school’s performance in several major MBA rankings that has significantly raised its global profile in recent years. London Business School has been ranked No. 1 by The Financial Times for the past three years. London tied with Wharton for first-place honors in 2009, the first time it received a top ranking, then took sole possession of first place in 2010, only to win a tie with Wharton this year. Forbes also ranks London Business School first in an international category of two-year MBA programs.

“Of course, it’s very nice to come out on top of rankings,” Sir Andrew says. “But for us, what we do is we look at the component elements of rankings and ask what can we do better? Even if you are number one, you would be very foolish to ignore any area of weakness. Complacency is reprehensible.”

He is, however, concerned that some schools may be under pressure to manipulate data to improve their rankings. “If the senior management of a school is under a huge amount of pressure and that is the way a dean is judged, that leads one in any field into dangerous territory,” Sir Andrew says. “There are lots of ways in which numbers can be manipulated. I guess there will always be problems if leadership measures its success by rankings. We don’t and I make clear for people coming into the school we’re doing really well in the rankings but we don’t regard this as permanent.”

Keeping the MBA valuable

Sir Andrew says the school has no intention to launch a one-year MBA program, which is a popular alternative at many European schools. “Ever since the school started, it has had a two-year program. You can get through here in 15 months if you really kill yourself to do it and some people do. The revealed preference of a lot of people is they do value the extra time.”

Despite rising concern over the declining value of the degree as steady increases in the costs of getting an MBA have outpaced gains in starting salaries, Sir Andrew maintains that there is no major concern over return on investment. “The people who come here are not illogical in looking at this,” he says. “On the whole, people come here because they have personal agendas rather than a calculation on return. I have had very few people say, ‘This is a really lousy return on investment and I regret coming here.’”

A recent review of London’s full-time MBA program brought one new major change. “Every few years we look at each degree program and last year we looked at the full-time program to see what we could do better,” Sir Andrew says. “We removed one of the things — the compulsory individual project. It is now optional as an elective. Instead, each class now does an international assignment, going away together. One group went to Buenos Aires and another one to Shanghai. It isn’t just a travel experience or holiday. It has real content.”

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