RIP, MBA
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RIP, MBA
The economic crisis has exposed the myth of business-school expertise.
Posted Wednesday, March 25, 2009 - 3:57pm
Put your ear to the ground near any business school campus, and you will hear the sound of another bubble about to pop. The MBA will soon be joining equities and house titles in the museum of formerly overvalued pieces of paper.
The problem in the short term begins, like so many other fine things these days, in the financial sector. Over the past two decades, about one-third of graduates from top business schools took jobs in finance. But banking will never be what it once was (we can only hope), and consulting—the other major consumer of MBAs—is reeling, too. Couple declining demand with the fact that at the onset of a recession, the supply of students actually rises as the prospectively unemployed look for ways to fill in gaps in their CVs, and "shorting" the MBA looks like a compelling near-term trading strategy.
The really grim news for the MBA, however, is about more than short-term trends. Isn't it just a little suspicious, after all, that the sector that showed the greatest appetite for MBAs was the most grotesquely mismanaged? In fact, the economic crisis has exposed long-standing flaws not just in the modern approach to business education but in the very idea of business education.
The truth is that the relevance of the technical training allegedly offered by the MBA was always overblown. The idea that there is some body of knowledge pertaining to business management that can be packaged up and distributed to the business universe in two-year course-lets—well, it sounded good about a century ago, when it was first conceived. Maybe it still had merit when the schools were turning out only a few thousand graduates per year. But it certainly stopped making sense well before the schools achieved their current level of production of a whopping 140,000 or so graduates per year. The empirical evidence on the contribution of the MBA to individual career performance seems to bear this out—mainly because it doesn't exist. In fact, if the relevance of an M.D. to the performance of doctors were even half as unsubstantiated, we'd probably be fantasizing about tossing a few physicians in jail, too.
The other truth helpfully revealed in the throes of the crisis is that ethics and integrity and social responsibility aren't just optional extras for good business management—unless by "management," you mean "looting." Managers don't need to be trained; they need to be educated—in the sense of "civilized." Unfortunately, a business degree isn't just irrelevant to that purpose; it's positively detrimental.
Now, to be fair, people don't behave like jerks just because they spend two years in business school. After all, as many of my business school friends have pointed out, most of the first year goes into heavy partying, and the second year is really a marathon job fair. No, for the most part, people behave like jerks because nobody stops them from doing so. The charmers at AIG walked away with multimillion-dollar second homes as a reward for exposing their institution and the entire financial system to outrageous risks because it was (so far as we know) a perfectly legal way to make money. The whizzes at Goldman Sachs hedged their supersize profits with underpriced, implicitly publicly backed insurance from AIG for the same reason.
Graduation cap, books and diploma
Comments
Enlightening comments
I had one take on the original article after I read it, then an entirely different one after reading all the comments. Almost all of the comments were well-written, thoughtful, enlightening, and written by intelligent people. I learned quite a bit from reading most of them. (I don't have an MBA; I'm a scientific type.)
There were at least two comments, however, that should have been bounced back to their authors by whoever monitors these things. I think most of you know which ones they are. Instead of sticking to reason, facts, and civil discourse, they resorted to crude name calling and SHOUTING. If you're stuck in the sandbox, please keep your nasty words to yourself.
My reaction
[This post is from a friend but he was having difficulty posting using his account]
It seems to this reader that sweetlouwpcarey is a little out of touch with the rest of the world but don’t feel bad Sweet Lou you’re not the only one. It seems most MBA's with jobs are out of touch (perhaps blissfully so) and don't see the big picture. Stewart isn't suggesting that MBAs are the sole root of the problem but are members of a dysfunctional family. Virtually anyone with an advanced degree making more money than they know what to do with are probably part of the problem. I don't mean to indict all wealthy or very well off people for the collapse of the economy, for certainly we can make exceptions for those who run productive factories and provide generous rates of pay for their workers. There are those who see wealth as an opportunity to be philanthropic. One does not have to have an advanced degree to make money but being in the fraternity of MBAs certainly does have its advantages. By virtue of the connections MBAs have one has access to the most lucrative jobs around. What one does with that job is up in the air. I can tell you that I would never pay a young MBA more than 20,000 grand for a year’s worth of work. I’d reserve the bulk of my capital to pay people to do the work I personally don’t want to do myself such as lay tile or hang sheetrock on a hot summer day. Even A well connected MBA who walks into the office of small business owner asking for the sum he would receive at Goldman Sacs would be run out on a rail even if said owner had the money to spare. Why? Because what would be the sense in hiring the MBA unless he or she has a connection that would benefit the business owner to extent that it would justify the big salary. Unless an MBA was also a CPA or PE the owner’s money would be better spent elsewhere.
Those who had lots of life experience prior to getting there MBA's are exempt from the belittling Stewart gives them because the MBA probably had minimal bearing on their ability to find a job. They are the ones who find that the MBA doesn't land them a job at a large firm pulling in six figures. They will find that the young MBAs are the ones finding all the jobs. That is companies want those whose minds are a clean slate. At least that may have been the case before the crash.
Sweet Lou, Stewart is merely suggesting that it may be the MBA's that should go back to school to learn new skills, enrich themselves and make themselves relevant in the oncoming job market. In the years to come if the US economy shifts from finance and service to manufacturing then the current widening of the Panama Canal becomes all the more important to the welfare of this nation. Perhaps Sweet Lue, You can go back to school and become a civil engineer and help direct the project or short of that you can just go to panama on a whim and get a job as a mega-machine operator. Maybe a tall crane or dredging boat. After all, if you indeed have and work with an MBA you should have plenty of experience at the controls of a vast complex apparatus you do not fully understand. Just make sure this time your charge doesn't come crashing to the ground.
Relax. I'm just having some fun with you. Go ahead and tell your friend with deposable income soon to be disposed of to not read Slate because some writer doesn't share your opinion. You will only be drying out your own well of resources.
Lastly, Sweet Lou, I'd like point out that your use of all caps at the end of your post is a misguided attempt to make your post stand out amongst all the others. All you really did is make your sentences harder to read. The people who write warranties and disclaimers use all caps for that very reason.
MBA's
"In fact, if the relevance of an M.D. to the performance of doctors were even half as unsubstantiated, we'd probably be fantasizing about tossing a few physicians in jail, too."
Newsflash: the relevance of an M.D. to the performance of doctors IS frequently unsubstantiated, and we should be doing more than just fantasizing about tossing a few physicians in jail.
The fact is - many advanced degrees are more hot air than they are advanced learning, and doctors, lawyers, and MBA's top the list.
my reply - not what you think
in fact I am unemployed...I relish that I made the very wise decision to get a MBA...so I am pretty indicative of some of the worst of what's going on...lot of school debt, a house that's been on the market in city for over a year, renting another one in a different city where I found a job, having a family to feed, and going further into the hole on a monthly basis...that is the truth...and I'm curious - how does that change anything?
This should be
sent to Nassim Taleb. He'd jump for joy. PS He's not attacking education in and of itself. Michigan, please do not go to that accountant.
Hostility
I am amazed at the hostility shown by the pro-MBA'ers.
The MBA is a classic case.
The education industry sells expensive degrees by the thousands. The businesses get to hire outside consultants at outrageous sums who can be blamed if/when things go wrong (or be applauded for a great hire if things go right) and the MBA'ers get a nice salary.
The only problem is that the MBA'ers know sweet FA.
I know too many of them and would trust none of them to run a shoe shine stand. They excel at taking tests and having very little real experience behind them.
Sorry, the second the MBA became mainstream, it became a sham.
ARE YOU SERIOUS?!?!? THIS IS IDIOCY...
First, let's assume that this article was not written solely to stir controversy and drive cheap messageboard page views in order to provide lift to slate's ad business...such a tactic and how to manage one you could definitely learn in business school if you had no previous experience, were going through a career transition, for example, and wanted to forge a new career in the exciting field of online marketing...but let's not get distracted by the relationship of this sample set (and its relationship with the broader MBA student set) and then to those on Wall Street who either were culpable or not in the precipitating the current financial crisis.
You seem to offer a overly simplistic supply/demand argument for devaluing a MBA education, and then you also appear to connect MBA education loosely with the current financial crisis. I'd like to examine a few of your supporting claims.
"The problem in the short term begins, like so many other fine things these days, in the financial sector. Over the past two decades, about one-third of graduates from top business schools took jobs in finance. But banking will never be what it once was (we can only hope), and consulting—the other major consumer of MBAs—is reeling, too."
So maybe demand for finance specializations, especially from the "top business schools", will be down in the short-term compared to the other MBA specialities (but we also must keep this in relative perspective with the broader shrinking job market).
On the other hand, maybe many of them them will find opportunities with the government as we know a major FTE rampup is coming and qualified candidates will be high demand. FYI, as a someone who checks job boards regularly, MBA, especially with scientific or engineering related backgrounds remain in high demand though salary may fall due to competition. Still, NPV of MBA education proves a viable and worthy investment.
But I am curious to know if you've run the numbers, since you appear to be making a connection between the value of a finance MBA to the overall value of a of MBA which, as stated, and as you should know, would include other specialties: marketing, accounting, management, supply chain & logistics/operations. Oh, and please include more than just the "top business schools" since they by definition do not comprise the majority of MBAs. What percentage of Finance MBAs make up the entire MBA population, much less MBAs on wall street. It would also be interesting to know of all the finance specializations out there, how many went into banking or a financial service in connection with the current financial crisis? Of the many people who pursued finance specializations in my full-time class, I know 1 who went into anything closely related to the current mess. Others went into corporate finance and are helping to keep companies afloat.
In any event, I remain confident that I could more easily and authoritatively prove that education, in this case MBA education (but probably for any vocation, and the ability to be adaptive, in fact have a very positive effect on one's prospects both for their careers and earning potential. In fact, I dare you to challenge that assumption which is what you appear to be doing in this paragraph. Or, maybe you were just forcing a contrived and cheap, not to be punny, metaphor?
"The really grim news for the MBA, however, is about more than short-term trends. Isn't it just a little suspicious, after all, that the sector that showed the greatest appetite for MBAs was the most grotesquely mismanaged?
Here, you directly connect MBA education with our current financial crisis. Also, since this is a pretty bold point, I'd like to see a bonfide and cited ratio describing the number of people with MBAs who were complicit in the current crisis compared to the total MBA population. I suspect that the complicit represent a fraction, perhaps even a rounding error of all those in business today who have MBAs. As a side note, it WOULD be interesting to discover, however, whether or not those MBAs complicit in the crisis came from the same "top schools" you mentioned earlier. I'd like to see that on a nice scatter plot.
Just to be clear..as we move on in this para and continue the supply/demand devaluation...you reference MBA student production at 140K. Is this the same 140K as in the previous para in which you used a sample from only "the top schools"? I just want to be clear if we're switching sample data sets here...in any event, I would argue that as economies have grown and competition increased and we have a witnessed a swift move into a world dominated by data and process that MBAs, especially during a tight job market, will retain an advantage, relative to a competing, non-MBA candidate with a similar (and in some cases not so similar) background. This also excludes the less common cases where highly specialized technical knowledge or seniority/experience are concerned. But all things constant, with two equivalent applicants in front of you and one has a MBA...who would you hire? Seriously...
"But it certainly stopped making sense well before the schools achieved their current level of production of a whopping 140,000 or so graduates per year. The empirical evidence on the contribution of the MBA to individual career performance seems to bear this out—mainly because it doesn't exist."
Please provide a proper citation...Also, I think MBA professors who teach organization behavior would agree and then go on to offer you a much more complex framework with which to analyze and improve employee productivity. Now, I've read those data driven reports which are available in any good OB textbook or in a variety of research produced by consulting and research firms.... Please provide yours.
"And it was the shareholder-value model from Business 101 that said all you need to do is load up managers with tons of stock options and they'll be sure to do the right thing."
In my MBA Organizational Behavior class, for instance, (since you want to keep things on a overview class scope)...OB 501...we talk about many more incentives than just options (which provide only an extrinsic motivation and therefore are generally inferior as a long-term strategic employee incentive strategy). Varying job duties, perceived equity, dominant power structures, creating a culture to direct behavior, and much more all have something to do with performance..but more than that, your conclusion in this para suggests that the point of an MBA is to create workers who are "capable of forming an ideal, self-regulating market" I disagree and suggest that a MBA prepares prospective managers from whatever vocational, cultural or experiential background to manage business risk in a very uncertain world by teaching a good mix of proven and diverse methods and techniques from a variety of related disciplines...In that manner precisely it does help to optimize and self-regulate markets as most humanly possible. That you have chosen erroneously to correlate, again, MBA education with the current financial crisis, is you're own mistake.
"in essence, whatever is legal is ethical;"
I know a very fine MBA Ethics professor and respected attorney who would be showing a lot of outrage over such an overly simplistic summary of what defines ethical behavior. I suggest you take a MBA Ethics class wherein you might learn how to manage the Social Regulatory Cycle or discover many of the red flags for an organization at risk of ethical breech or discover in the end that the Newspaper test goes a long way in providing a decent moral management compass.
"For the benefit of beleaguered business school academics, it's worth pointing out that a world with fewer MBAs is not necessarily a world without business studies. On the contrary, once researchers dispense with the idea that they have to package their material for the purported benefit of junior managers everywhere, they could actually study business. Maybe they could even learn to criticize it. Maybe they and their students could even learn to report on it, the way that journalists used to do."
In addition to raising barriers around education, not sure why you want to do that unless you just are an elitist through and through, what are you saying here? Instead of using business knowledge we should just study for intellectual or research purposes only? Do you really think MBA professors, over the course of a tenured career, really have sacrificed that much productivity and value because they have to teach relative to those who do only research and never teach a thing. That's not even a human thought. And you end your article on an awkward almost non-sequitir note...so we should all become students of Business, not MBA students, and then become activist journalists in order to report on the business world...yeah i just don't know what to make of this...but it's just not good...especially when you consider the way you ended the next to last para...instead of being profit driven, and learning how to create the billions of dollars that helps modernize and make a safer africa, for instance (just to name one positive exeternality of the enterprise known as BUSINESS) - why not do the opposite, if profit is so bad, let's all be loss driven...that's a great idea...
Quite often what you learn in a MBA program, after spending some time studying the details, nuances and history of business - hint, hint - is that throughout the business world, the answers to today's most pressing business problems often are not quite so simple. In addition to requiring the technical knowledge that a MBA program can offer, business problems demand attention from PEOPLE who exercise JUDGMENT. Hopefully good judgment, but unfortunately, as is the case throughout the history of mankind, there will be bad judgment too. If nothing else, B Schools offer a chance to become informed and to develop or refine applied business wisdom.
And now a word about customers, since your article has highly offended me and therefore greatly reduced the Slate brand in my opinion you will now lose a very vocal customer...one who will be dedicated to exposing the cowardice, idiocy and lack of vision writers such as this convey. And remember, since the data does prove the positive impact of a MBA education on at least earning potential, you are a losing a high LTV customer who is educated (MBA) and has disposable income, just the type of customer premium advertisers want. Maybe I should cancel my Washington-Post and Newsweek subscription as well. Knowingly or not, Mr. Stewart, you have precipitated something we learned about in a MBA class: consumer schadenfreude. here it comes...lol
Matthew Stewart's background
Based on a little Googling, Matthew Stewart has been plying this "MBA is useless" message for at least 3-4 years. Evidently, he was trained as an Oxford philosopher who joined/founded a mid-low tier management consulting firm, and who subsequently tried to sue his partners--said Firm then went under in the dot-com crash. It's entirely unclear what his activities in his 4/7/10 years as a management consultant consisted of--other than, presumably at some point, realizing that MBAs, but not management consultants, were useless.
Nonetheless, surely even Mr. Stewart must realize that the Goldman Sachs leadership, of which he mentions, is lead by a man without an MBA. Nor, of course, was "Hank" Greenberg of AIG. Perhaps it would shock Mr. Stewart to learn just how many of the "Financial Crisis" actors have undergraduate degrees from the Ivy's. Maybe next time, we'll get to read about how all higher education should be banned. Well, maybe except Oxford Philosphy.
http://paul.kedrosky.com/archives/2006/05/12/the_myth_of_the_5.html
matthew stewart
we should start a "get matthew stewart fired or unpublished" campaign, maybe on facebook, not only could we use that to our own benefit, but we'd be doing everyone else a favor by getting rid of a guy who adds no value to the business or economic community during a time when we really need leadership and judgment if not outright knowledge...contact getmatthewstewartfired@gmail.com if interested
Ridiculous.
Several men became caught up in unethical business practices. Some were had business degrees.
Logically, the public should become distrustful of education in general, right? Nothing in the behavior of these men depended on anything but education. These were not inherently bad men; the degree made them so! These were not inherently greedy men; the degree made them so! These were not inherently stupid men; the degree made them so!
Gosh, Mr. Stewart! Thanks for doing your part to open the eyes of America to the dangers of education! Educating the population sure is a dumb idea! I'll make sure to discourage my children from working toward a business degree too! Wouldn't want them to end up like one of those phoney-baloney businessmen with a degree!