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Ulrich Hommel, Roger King, and Anna Pastwa open the debate on risk management in the business school community.
As companies around the globe are bracing themselves for a recessionary fall-out from Europe’s sovereign debt crisis, business schools have also begun searching for ways to cushion the negative budgetary impact of such a downturn.
A report in the Financial Times (Delivering more with less, 4 December 2011) suggests that deans primarily target traditional drivers of financial performance such as CRM systems, cautious cost management or operational efficiency gains. This begs the question to what extent business schools – and for that matter higher education institutions in general – have established sound risk management systems, which move them credibly beyond the ex-post management of risk exposures turned bad.
One of the very basic principles of risk management is that “it is too late to lock the barn when the horse has already bolted”. It means that business schools should actively manage (and ideally reduce) their dependency on risk factors outside of their area of core competence and they should do so well ahead of risk-related losses actually materialising. Globalisation has led many business schools to adopt entrepreneurial internationalisation strategies ranging from cross-border marketing of degree programmes to the establishment of offshore campus operations. Additionally, the growing importance of accreditations and rankings has fostered tournament-style competition as seen in professional sports– costs are hiked up in an effort to improve competitive positioning, while subsequent revenue gains are often negligible due to competitors pursuing similar strategies.
Evidence from EFMD accreditations indicates that many business schools still operate in an environment dominated by short-term cash-basis accounting. The sector has seen the emergence of a risk taking culture, without a corresponding risk management culture.
A prolonged recessionary downturn in Europe promises to change market dynamics in fundamental ways. Governments are less likely to act as ‘lenders of last resort’ and university parents will no longer be able to cross-subsidise failing schools. Above all, we will see a rising number of defensive mergers, coupled with for-profit institutions significantly extending their mainstream market coverage. The on-going process of Asian business schools developing a global presence will gain speed as well. Faculty mobility will increasingly be directed toward the Far East, and the U.S. trend of shifting faculty resources from tenured researchers to temporary adjuncts will spill over to Europe.
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