The Merger

The Melbourne Business School merger with the Faculty of Economics and Commerce (FEC) at the University of Melbourne was officially called off today. The story was pretty simple: MBS has had a decades-long history of being a self-funded and independent faculty. This is a model that has been pursued by many of the most successful business schools in the world and it had considerable backing from members of the business community who had given their money and their time to the School. In the end, it was those individuals who believed that this core feature of MBS had to remain. The merger — even in its very unique proposed corporate form — did not retain that and with that it is was doomed.

I’m going to express some opinions that are my own at this time. This has been a long process and I have learned alot about what is and what is not possible in this educational space in Australia. The rationale for the merger was to improve coordination between MBS and the University and to prevent the strangeness of the situation whereby the University both had a Business School and a Graduate School of Management. That situation was, indeed, strange, but ultimately was not strong enough a rationale to change what had been a revolutionary institutional development in Australian education. Moreover, experience at the University of NSW had demonstrated that integration had not been kind to the ability for them to deliver a world-class MBA program (see the recent AFR Boss rankings that put AGSM at No.4 behind MBS, Monash and Macquarie).

While I could see that there was potential in a larger integrated entity, over the course of the year it became apparent that there were real risks from integration. In particular, the cultures of MBS and FEC are very different. MBS is necessarily a multi-disciplinary environment. To construct a successful MBA program requires very tight coordination and understanding between disciplines as to what each does and contributes. You can’t achieve that when each discipline operates in its own silo. MBS has no separate formal departments or even groups. For instance, there is no Economics Department. We have evolved a system of appointments and promotion of faculty that requires buy-in from all disciplines and we have made it work. It is why, I, as an economist can work side-by-side with marketers and organisational behaviouralists without the conflict perceived (and I guess real) elsewhere amongst disciplines. It is a politics-free environment that is unique in our academic experience. It is not something that I wanted to see go and I was worried it might not survive the merge.

The results of that culture will be something we will preserve going forward. First, it is highly research-based. It wasn’t always like that but now you will find that the vast majority of our faculty publish regularly in the top tier journals in their field. Through the merger process we learned that on any objective measure of research output our faculty out performed those of FEC (citations, journal publications and grants received per capita). And we don’t think we are done yet.

Second, the teaching culture is second-to-none. Three quarters of all subjects taught at MBS (maybe more) have averaging ratings of 4 out of 5 or above. This is a long and sustained record and it comes through even more strongly in subjective shows of support that give rise to MBS’s strong showing in broad-based surveys. Ironically, the MBS faculty — perhaps as part of a minority in the University — have always been strongly supportive of the Melbourne Model because of its potential to raise teaching outcomes. We saw ourselves as a critical part of that model with a specialist focus on graduate education. That potential is still there although I must admit to being disappointed that the University never really engaged with MBS faculty’s support and chose to enter with its own graduate school in this space. I sympathise with those members of FEC who wince at the thought of millions more dollars in marketing and advertising gracing the lift-outs in The Age.

Finally, our faculty are engaged with public debate and the business community. The University talks about knowledge transfer but it still remains a difficult affair. Almost every single MBS faculty member has appeared in the media this year and some do so regularly. Our media mentions average over 5 per day and this for a faculty of just 40 or so individuals. And that is aside from the fact that our faculty make up most of the University’s blogging pool (right here at Core Economics). No other part of the University — here or anywhere in Australia — comes close to that record.

So what of the future? MBS’s finances are sound. Yes, these are difficult times but there was never any hint that the merger was driven by finances despite the constant desire of others to couch it in those terms. Moreover, unlike other places, the University has always benefitted from the fact that MBS drew no funds from the University and contributed in the form of adding to its research contribution from the Federal Government. That will continue.

In addition, there may be concern about the issue of intra-University competition. I used to quip that the “University of Melbourne has more business schools than any other university.” That will remain but, in reality, those entities do very different things. It can be confusing from outsiders to try and work out what is different about MBS and the MGSM but if prospective students can’t work that out in two minutes, they are surely not cut out for our MBA program. MGSM may decide to compete head-on and try the market on this. But I cannot imagine how this will be anything but a costly exercise that will distract their own faculty from the important research they do and their excellent record in undergraduate education. But you can watch The Age to see where they go there.

Finally, what of MBS’s position? Might this all undermine our ability to continue to hire the best faculty? Interestingly, we discovered through the merger process that one thing we were not doing was attracting faculty on the basis of pay. FEC contained the highest paid faculty members amongst the two entities. However, our junior faculty faired better — as well they should. It takes time to learn how to teach demanding MBA students and they deserve some compensation for the difficulty they face in building a research profile under those conditions. That said, even amidst the uncertainty of the proposed merger we managed to hire Jill Klein, Etty Jehn, Andrew John, Bob Wood and Sally Wood; all leaders in their fields. They were all attracted by their own personal observations of our academic culture. If we can do that during the past year, think about what we can do outside of that uncertainty.

MBS goes into the next couple of years with Jenny George at the helm who has the support of the Board and the overwhelming support of the faculty to lead us through this. I am hopeful she will soon be confirmed as MBS’s first woman Dean. I recruited Jenny to the school about 10 years ago and couldn’t be more proud of how things have turned out in her career.

32 thoughts on “The Merger”

  1. The arguments for the merger have mainly been around “brand synergy”.  What this demonstrates is that it isn’t just different brands at stake, but that each relies upon distinct strategies and incentives within the organization.
    While some brands can easily coexist within the same organization (e.g., Toyota Camry + Corolla), others need a different organization with its own culture and incentives (Lexus? Maserati?).
    Shoehorning MBS into the Unimelb structure would have been workable, but it would have been like making Leica part of Canon. Both are great companies, but each operates differently: different focus on the market, different team structures within, different incentives for employees, different culture. If Leica were to became part of Canon, I fear something at Leica would be lost in the larger entity.
    Personally I don’t think Glyn Davis needs full control of MBS to make the Melbourne Model work. Unimelb already a 45% stake and while we compete in major parts of the market, there is much room for specialization (as described in your pot), and there are lots of other competitors out there. There is ample opportunity to cooperate while competing where necessary, without compromising the Melbourne Model

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  2. Is it possible to build an Econ PhD student exchanging network among Australian top departments, just like those in Europe.  It will benefit student a lot. One problem may be that the duration of PhD study in Australia is so short! Only 3 years!

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  3. from my naive observations, MBS is streets ahead of any other business school in Australia. there is simply no comparison. it is just a pity that it has such a limited profile here in NSW. perhaps that is something you could think about addressing. high quality MBAs really seem to be a missing market in Australia. why doesn’t MBS undertake a big private equity raising via a large number of financial and industrial corporations and thereby get them all further invested in the School’s success? (you guys may have already done this.)

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  4. It is intriguing to finally hear an MBS perspective on the failed move.
    From the FEC side of things, the synergies and intended implementation has seem muddled all along.
    A detente where FEC and MBS cooperate rather than clash in the “post-experience” Masters space would be very sensible (by increasing the international business component within the MBA program, for example, or be offering some greater specialisations from FEC programs – e.g. in HRM ).
    There is a large directly-post-undergrad market that should be MGSM’s focus (especially within the context of the Melbourne Model).
    Of course, all of this gets muddled by the jack-of-all-trades hangover from FEC teaching what is predominantly an accounting undergrad course.  Such a programme would have looked very out of place in a Business School.
    On the research side, you claim “we learned that on any objective measure of research output our faculty out performed those of FEC (citations, journal publications and grants received per capita).” Did you make those comparisons at a Department-by-Department level or on  a Faculty-wide basis?  There is considerable disparity on that front.  I presume your “per capita” measures exclude teaching-only and adjunct staff.

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  5. I may be missing the point, but from the point of view of the people applying to the Grad Sch of Man does it really matter what the publication rate of the staff or, indeed, the public profile of the staff is?  What they want to know, as businesspeople, is what value is added to their management; whether, say, in a double-blind trial their companies do better than other companies. Has this been done? [Crickets chirping]
    Well, actually, of course, that’s nonsense: that’s what we the public would want, while the executives on the course want whatever will give them a leg up in internal company infighting. Still…

    The only actual data point on the real-world track record of the GBSM staff I can remember comes from a fair few years back now, but I do remember when the GSBM actually owned that motel a little way up on Swanston Street and, despite having a captive audience of residential management course students, consistently lost money on it until the University made them sell it.

    In general terms, of course, that’s part of the general University pattern where the Architecture building is the one with pieces falling off the front, the Computer Science department is the office using 1990 computers, and the Business Management School is losing money on the canteen. But still.

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  6. Frankly I am surprised by the article is today’s Australian calling the canned merger a failed opportunity for MBS. The bashing of the three John’s is without any merit. If anything, we should thank these gentlemen for believing in and standing up for what’s right. In addition to Joshua Ganns’ points, the unique MBS ‘culture’ derives from customized faculty contracts- and the concomitant alignment of goals. In contast, the University utilizes standardized contracts that generally reward average performance. To some extent, the great hires of the past years (Peter Danaher, Jill Klein, Ian Williamson)  have been possible because of these flexible contracts. The ‘failure’ of the merger is an opportunity for MBS to build on the strengths of the past. I have been associated with MBS for 14 years now and am relieved that the uncertainty is over. I greatly  value my relationship with MBS. I agree with Joshua that Jenny will do a terrific job. I have also known Jenny since she joined the school. She is bright, smart, and conscientious. Good Luck Jenny.

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  7. Just a quick query(not snark, just genuine curiosity) to the anti-merger folks: what purpose is served by continuing to associate MBS with Melbourne Uni at all? Why would you want to co-brand with them at all, given the problems you’ve outlined?

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  8. Excellent point Jeremy. Given that MBS can easily stand for Monash Business School, can I suggest that Melbourne uni considers passing on its stake to an alternative institution? Bringing together the first and second ranked (by the recent AFR Boss Survey) MBAs in Australia would be a real opportunity.

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  9. Joshua,

    From an outsider’s perspective your comparison still makes no sense – my understanding is that the MBS has only a single finance academic – are you saying that his performance is greater than the average performance of the entire department of finance within the faculty?

    I think  any comparison between the performance of the two is necessarily biased on a discipline by discipline basis. I had also heard that the MBS had lost quite a few staff since the merger talks began. Why no mention of that in your analysis?

    Cheers,

    An outsider

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  10. One other question josh, you suggested that financially all is well yet I had heard that the MBS was funding its recurrent expnditure from its (shrinking) endownment. Do you think this is sustainable in the long-run, and if not, how long do you think the MBS might be able to continue to attract quality junior staff if its not able to pay premium wages?

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  11. Don’t believe what you read in the press or in the rumour mill. The finances are operating as they always have. Yes, there is a GFC hit to the endowment but that doesn’t create a long, or it turns out, a short-run issue.

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  12. Hi Josh,

    Not to be argumentative, but you didn’t  reply to the question. The first sentence whilst fair is irrelevant to the question asked., and as to the second – perhaps the endownment has always partially funded salaries ….

    Just to confirm … are you saying that the MBS is running an operating surplus?

    Cheers,

    Outsider

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  13. I don’t run the School nor are part of its leadership but as I understand it our financial situation is sustainable and the profile is similar to that of the past twenty years; accounting definitions of profit aside.

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  14. Wearing my MBS alumnus hat and looking at it from a cost-benefit perspective, there wasn’t much to gain, for the risk of diluting both the brand, and the quality of the education (through a perceived or real ‘different’ agenda). In fact, the merger proposal seemed more circumstantial than deliberate, especially after the announcement that Melb Uni was starting its own MBA programme.
    As for Jenny George becoming Dean – personally, having come from a non-quant (marketing) background and now having a role which is mostly quant-driven, I hope there’ll be a succession plan that still allows her to impart her no-nonsense attitude that was so intensely appropriate for statistics.

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  15. I take issue with the following assertion in your piece:
    “Through the merger process we learned that on any objective measure of research output our faculty out performed those of FEC (citations, journal publications and grants received per capita).” 

    If you look at the University of Melbourne’s website, and the research statistics contained therein
    http://www.research.unimelb.edu.au/performance/published/researchperformance
    you will find that the FEC has systematically out-performed the MBS in terms of refereed journal articles (weighted by number of authors) per staff member. For example, in 2008, on average, each FEC staff member produced approximately61% more than each MBS one.

    This highlights the importance of using the data-led approach to analysis, favored by the FEC, rather than the alternative approach apparently favored at the MBS. Students seeking to learn analytical techniques that peer beyond salesmanship should choose the FEC for their graduate studies.

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  16. Ian,
    Thanks for you comment. I had not seen the 2008 figures.
    You claim you want a data-led approach but you pick one measure in one year. Let me paint a broader picture.
    In 2007 (2007) they were as follows:
    Type MBS FEC
    DEEWR 2 1.55
    Non-DEEWR 1.2 1.2
    TOTAL 3.2 2.8
    Looking at 2008 they are now:

    Type MBS FEC
    DIISR 1.78 1.32
    Non-DIISR 1.09 0.96
    TOTAL 2.87 2.28
    Now if you look at refereed publications (C1) as your chosen criteria:
    Org 2005 2006 2007 2008
    FEC 1.33 1.07 1.09 1.09
    MBS 1.44 1.03 1.05 0.98
    There is an argument that 2008 might be blip for MBS but I guess some people are happy to compare the variance of research performance for a faculty of 36 to one of 168 more casually than I am.
    On research income, the University reports do not contain all of MBS’s research income but the internal merger documents do if anyone would care to release them.

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  17. My apologies on the formatting:
    Type        MBS   FEC
    DEEWR     2       1.55
    Non-DEEWR  1.2   1.2
    TOTAL    3.2     2.8
    For 2008:
     
    Type        MBS   FEC
    DIISR     1.78      1.32
    Non-DIISR  1.09   0.96
    TOTAL    2.87   2.28
    And for C1:
    Org   2005   2006   2007   2008
    FEC   1.33   1.07     1.09     1.09
    MBS 1.44 1.03 1.05 0.98
     

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  18. Dear Joshua,

    Thank you for your prompt response.  Here at the FEC, we also use logic to inform our analysis. For example, the statement “… on any objective measure of research output our faculty out performed those of FEC (citations, journal publications and grants received per capita).” requires only one objective measure, inconsistent with this, to disprove. The publicly-available data on refereed journal articles (weighted by number of authors) per staff memberin 2008  is one such measure.

    Beyond that simple lesson in logic, let me also point out that this measure also has FEC ahead of MBS, on the same measure, in both 2006 and 2007, by roughly 20% and 14% respectively.

    I’m not quite sure where you’re getting your figures from, but mine are from Tables 6.02a and  6.02b. Let me give you a hand. For example, in 2007, the weighted number of refereed journal articles (row C1 in Table 6.02a) was 18.7. Dividing this by the “Total Lev B & Above Staff FTE” in 2007 for the MBS, from Table 6.02b, ( 29.5) gives the approximate number 0.63. Computing the analogous figure for the FEC in (2007) (I’ll leave this as an exercise), we get: 0.72. Computing the percentage increment of the FEC’s score over the MBS’s (let me know if you need help with this) gives us roughly 14%.

    As far as I can tell, the figures you are using are the unweighted scores. That is, they do not correct for the number of authors. Thus, if 5 people in the MBS all co-author on one paper, this counts as 5 papers!  This problem, once again, underlines the differences in the approaches used at the FEC and MBS, and the relative training that students can expect to get at the different institutions.

    I could go on, but I really must get back to my research. This has been a distraction that has pulled me away from it. I’d advise that you do the same.

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  19. “I could go on, but I really must get back to my research. This has been a distraction that has pulled me away from it. I’d advise that you do the same.”
    LOL… You seem to take a lot of time preparing for your rebuttal.
    I am glad that the merger did not happen.

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  20. Dr. King:
    By the way, your rebuttal captures the essence of why professional students do not prefer FEC. The manner, penmanship and not seeing blog as public media are childish at best (I am much, much younger than you by the way). It’s also sticky with pre-mature anger. Got to grow up Boy!
    Your post does not help to increase the prestige of FEC and I am sure some undergrads have seen your post. It’s embarrassing, in my opinion.
    I feel sorry for the other FEC faculties who is really doing research…
    I saw Josh’s new post with the numbers. Come on…. man…. there is not much of a difference to brag about.

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  21. Some people can’t take a joke!

    Of course I’m not really saying that the MBS doesn’t do solid research, or uses data or logic. They certainly do.

    If the skin is really that thin, then I’ll apologize for the tone, which was meant to be ironic, not angry.

    However, the facts remain…

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  22. Dr. Ian King:
    You are lucky that I am not a troll.
    But hey, your reaction is alike a bad high school movie! Too funny man! Hahahaha.
    I warn you that its like high school here on the web. There are too many bullies here.  But you can’t be one. You are just too funny!
    By the way, there must be a better author weighting method…

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