By Said Djamil Werner

St Andrews is to establish a business school. In 2023, the current School of Management will be merged with the School of Economics & Finance. The new institution should be “world-leading, sustainable and socially responsible.” A eureka moment? Not necessarily, as the question arises: What are this strategic merger’s responsibilities? No cost-cutting, as the university leadership affirms. If true, this will be good news. Granted, economies of scale tend to lower marginal costs, but they do not make a good narrative for the noble Scottish institution that will soon celebrate its 610th birthday as a university.

What else can the merger be aimed at? And what does it mean to say that a business school has responsibilities? With Friedman, we could speculate. There is one and only one social responsibility of the business school – to use its resources and engage in activities designed to increase its reputation so long as it produces capable graduates that enter into profit-maximising jobs. The revision of the Friedman Doctrine fits with St Andrews’ goal of enhancing its status as a world-leading higher education institution. In fact, through the merger, the university, which is hot on its two older rivals’ heels, is likely to further fuel its race to catch up. Firstly, overlapping units might boost the business school’s performance in national and international rankings, as the economics powerhouse will undoubtedly enhance the already good reputation of management studies. Secondly, these rankings will further highlight the unique selling proposals of small study formats, demonstrating what members of the Royal Family and other discourse enthusiasts have long understood. Yet, it is another step on Stoxbridge. 

Reputation is an external effect. A higher education institution must create value from the inside. Fortunately, the research canon of economics and management studies has opened many black boxes in the last 50 years. Common good problems, sustainable use of scarce resources, global value chains, and stakeholder interest and behaviour are some keywords. Strategically navigating the evolutionary contexts of born global firms and zero marginal cost business models are further homework. Questions of ESG investments, innovation ecosystems and the dynamics of social entrepreneurship also await joint economic-managerial analysis. 

Creating an institution that trains economists, bankers and managers to address these challenges is rational. A healthy organisation’s core should be as diverse as its periphery. However, this requires more than just an eye for the big picture. The bridges between economics and management are already quite visible, even out of the windows of ivory towers. Keen foresight is needed to landscape the university roadmap and approach its changing nature. 

Time is a scarce resource. Hence, a retrospective is fertile. When St Andrews turned 546, the US knowledge industry already accounted for a third of GDP. 60 years later, tertiary and quaternary sectors have squeezed manufacturing to a rough third worldwide. For human resource managers, retaining highly skilled workers is old hat. Scientific management argues that employees own skills that employers can acquire at a specific point in time. Profit margins are calculated from the difference in labour productivity and labour costs. In the late 1970s, however, many Western managers faced diminishing marginal returns to one-time investments in skills. After t, one observed an X-shaped development between progressive wage costs and declining labour productivity. The productivity paradox confronted managers with the decision to invest further in skills or obtain fresh capital through more qualified employees. 

On the one hand, passing further education costs to consumers encouraged wage inflation. On the other hand, replacing older workers with more skilled ones affected unemployment rates. Share- and stakeholder economies solved this problem differently but equally painfully. For both, the increasing use of information technologies partially compensated further increases in wage costs. Back then, a weak signal of contemporary automation debates. 

In the meantime, market saturation in the primary and secondary sectors has mostly exhausted the demand determination by market supplies of a classical sales economy. The boom in e-commerce underlines the heterogeneity of the knowledge-driven quaternary sector. Knowledge industries have created an excess demand for individualised services with a high willingness to pay. The extent to which this surplus demand is an effect of rising needs for highly skilled workers or a product of their actual labour market supply is a chicken-and-egg problem that arises if economic and business research are divorced.

In the digital economy, many professions, including data scientists, biotech specialists, investment bankers and corporate managers, demand constantly updating skills. In terms of the economics of education, this means that marginal costs of educational contracts, i.e. higher education degrees obtained at a specific time, are rising fast. Very fast. Once again, companies face the challenge of retaining adequate human capital to navigate diversified, dynamic markets with ever more innovative services. Intelligent human resource managers formulate relational employment contracts that create opportunities and freedom for employees to continue their education journeys through periods of practice or study. Their factor specificity no longer results merely from an undercutting competition of wage costs.

A canny world-leading business school must react to this to not merely bridge a bit of biz. If it does not, it might be entangled in a marginal reputation contest, which it will surely lose to Oxbridge because of atomistic higher endowments. The design fault it has to avoid is merely jumping on trends in t=1. Digitisation and sustainability are important fields of application for economists, bankers, managers and entrepreneurs, which must undoubtedly be reflected in curricula. These should also benefit from expert knowledge at other STEM schools. Of course, supply creates its own demand, especially for a business school. But another truth, according to Amara’s Law, is that change is happening much faster than a university’s ability to keep pace. Therefore, intelligent business schools internalise lifelong learning concepts and a growth mindset. De facto, this is the universal-university responsibility of higher education; activist scholars might call it purpose. 

More technically, the mission of universities is to integrate, synthesise and produce knowledge. Knowledge production, thus, make-or-buy and domestic use, promotes the shortening of its half-life, specifically in degree programmes. Knowledge is an immaterial resource, but study programmes can only colloquially be defined as goods. At universities, one aims to pass through an educational process. Educational processes are dynamic because they are subject to individual forms of acquisition. Education begins neither with attending nor with leaving a university. As formalised services, degree programmes can only exert limited influence on this process. In contract theory, a service whose fulfilment cannot be fully specified by one transaction party is a relational contract. They tend to become fruitful further along the line. As a critical process, education must therefore remain open and incomplete. Only in this way can it help respond to dynamic environmental demands and individualise learning journeys to develop skills. 

A world-leading business school must meet these demands didactically at an early stage. This favours cooperative case studies with real practice partners over paperwork, which intelligent tools like Open AI’s ChatGPT do autonomously. Moreover, it should develop dynamic degree programmes. So less focus on degrees acquired after T equals 1, precise credit targets within non-flexible timeframes, but on bonds to further learning journeys equaling 1+xy. Let’s assume this journey doesnot end with a first degree (1), but continues: Credits (x) achieved through practical work and ongoing remote or in-class completed units could be exchanged for new degrees after a specified sum over a career (y). In education, relational bonds are no ideal of lifelong learning between French existentialism and sex, drugs and rock’n’roll. They simply reassemble the platform economics of a biz school subscription: increasing marginal utility binds customers, which increases reputation signals and perhaps even legacy gifting. Compared to Oxbridge’s expensive brands but static executive programmes, the new St Andrews Business School could become famous for its educational innovations. 

Observations from the peripheral driving range are amateurish to argue potential strategies, especially if one’s handicap is -54. After all, M&A is for professionals, isn’t it? The thing with professionals is that they always rely on networks, and so do institutions. Constitutionally, only contractual claims give them, business schools included, an actual cause to form as corporate citizens against but for their environment. UK universities are no private organisations; even their few private funding bodies do not pursue private purposes. Their responsibility is to serve a community. The social activities of knowledge integration, synthesis and production that take effect inside organisational boundaries resist linear directorates. Therefore, schools and institutes also follow a relational function. They are teams to which multiple stakeholders contribute intangible and tangible resources and agree to formal and informal contracts. With their stake, team members, as a network of stakeholders from academia, practice, studies or civil society, contribute to the shared value creation process, e.g. through study programmes, research services or the third mission. Trusting networks are not easy to establish. However, behavioural economics offers good incentives, e.g., coffee and cake at roundtables. St Andrews leadership seems to be aware: “Engagement and planning with staff, students and other key stakeholders will continue through spring 2023, before a period of transition to the single structure begins next summer.”

Designing this atypical, at least multiple-agency relationship, architects of the new business school should not only relate stakeholder interests but also incorporate external perspectives. This includes topics of economics, finance and management, data science and entrepreneurship, such as the venture creation programme at the Vinson Centre in Buckingham, where students learn how to scale their startups as part of the curriculum. Furthermore, one should establish ties with biotechnology or science and technology studies. Given the close neighbourhood of the already world-leading School of International Relations at St Andrews’ New College, pressing geopolitics and cyber security issues should be easy. In a nutshell, bridging disciplines within optional modules and overall curricula will be crucial for the new school as “design is how it works.” Maybe that is why the university leadership hired WilkinsonEyre to design the New College, an architect highly renowned for bridge construction. Regardless, prospective postgraduate students worldwide will also measure the new school’s international competitiveness by the diversity of its student body. After Brexit, a simple way to produce signalling effects here is to open the doors for European and other exchange students. Filter systems are necessary, but given the location advantages of direct competitors in London, banning oneself from word of mouth produces high opportunity costs. 

Wrapping it up, these are only little thoughts for an overall big tee-off. Again: There will be a business school at the home of golf. About time, some corporate executive Old Course fanciers might think. But this is not entirely consistent. When it is time is decided by the organisational environment, which exerts pressure. At St Andrews, stakeholders do well to recognise this pressure but to use its power in the interest of its unique culture. Few higher education institutions have gone through multiple cultural revolutions like the small Scottish university: The printing press at 27, the steam engine at 356 and the internet at a proud 556. Starting a business school is far less dramatic if one gets it right. The youngest of the three ancient universities has always reserved its right to associate management, economics, and finance with the faculty of arts. The art of building bridges out of ivory towers is what matters now. Quod erit demonstrandum.

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.

Illustration by stableboost.ai