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
Zeitgeist
I'm under the impression that badmouthing anything related to top-management and/or finance is fairly trendy these days. I suppose it was only a matter of time before such an article surfaced (I'm guessing we'll see more).
I'm hardly objective, indeed, having received my very expensive piece of paper (sorry, diploma) recently. However, I would like to point out that supply/demand laws led to the ballooning "production" levels of MBA holders. Moreover, it is easy (and lucrative) for any university in the world to start an MBA program and that is the reason why external rankings are so important. Since the top tier of those list hardly changes from one year to another, I tend to believe that they bring more than hot air in terms of value-added.
That being said, you can bet that most managers from the recent usual suspects did come from those B schools.
And then again, I would blame the "greed is good" etho that prevails at any level of our society more than the training they got.
Come on....
I have yet to see a masterpiece painted with such a broad brush and this article is no exception. I wonder how many of the 140,000 grads last year your "party the whole first year and job fair the second" comment applies to. Perhaps you should broaden your research pool and tighten up your stereotypes.
While the banking model might be broken today, at least the journalism/media/newspaper model is going strong... hehe
Flawed Theories
Mr. Stewart,
First, I am not sure you know enough about MBA programs. I carry an MBA and I disagree with your theories. Here is why. You assumed that all MBAs can become business managers while in fact that is not true and it greatly depends on personality and experience if one wishes to be in business management. Second, most MBA programs do require courses about ethics and the like. However, you're not going to learn morals and ethics in a 2 year program at an advanced age (let's say 22 or above on average). Instead, the program will give you general guidance. Morals and ethics go back to how the person was raised and the surroundings and culture he spends time in. That's why we have laws and regulations to prevent theft, etc. The best way to describe a general MBA program is that it gives you all the tools and basics to dive into the business world. It teaches you a lot about starting a your own business, which is very useful. And by the time you graduate, you have a different overall view about business in general. Nothing will change after this crisis is over in terms of overall business concepts. Instead, we will leave with more laws and regulations that we needed in the first place to limit theft and greed.
Biz School - Ha!
Hey, great article! I have a BS in Accounting and an MBA in Finance & IT from Univ of MD at College Park and, I have to say, the MBA is overrated. In fact, my marketing professor for the MBA was the same guy teaching marketing for my BS - we even used the same book! All they taught us was how to make money billing for consulting work and working in teams without having to actually produce anything, help anybody or organization, or acquire any real skill at doing anything. That being said, biz school is still one of the only slim chances a normal individual has to get into the "old boys club", if you're not born into the lucky-sperm club. It is also a good way to get the "cliff notes" version of the business world. However, you're gonna take it on the chin because you, yourself, don't have an MBA and, therefore, will be deemed unqualified to judge. But, take heart: the very first biz professor I had at Maryland (BMGT 101) said once, "In business, nobody knows nothin' 'bout nothin'." He's now professor emeritus and with good reason - he was right.
Business Education has its place... humanities not answer
Bernie Madoff-- BA in Political Science & some law school classes (NO MBA)
Ken Lay- BA Economics, PhD Economics (NO MBA)
Two of the poster children for financial fraud one in the 2001 downturn and one in the 2008/2009 downturn and neither one had any educational background in business (MBA or other). Looks like the humanities didn't do a good job there. In both cases the people who avoided losing money (usually other people's money) were people who had solid technical understanding of finance and accounting. The hedge funds that shorted Enron or the mutual funds that got out early or the Masters in Accounting degree holder from the University of Texas who blew the whistle on the energy giant's fraud. With Bernie Madoff it was the unsophisticated investors (celebrity actors, friends of friends, inherited wealth, etc.) who lost the most money, most professional fund of fund shops did their diligence and realized this guy was a fraud and avoided him. I worked for 2 years as an analyst at an investment bank, programs half filled with undergrads from IVY league humanities programs (economics backgrounds if they were lucky). Economics is helpful and involves critical thinking but is entirely a theoretical field. The brief training sessions at the beginning of the program on "reading financial statements" were just abbreviated cliff notes that helped them derive EBITDA from numbers in financial statements. They have no idea how to determine accounting irregularities or fraud much less tell you anything else helpful about a company (i.e. how it can improve its cost structure or its capital structure) and they couldn't use excel worth a damn. This is probably why the largest pocket of undergraduate majors in MBAs programs are people who were humanities undergraduates who are looking for a professional degree. Also, business school is not the place to teach ethics (ethics cannot be taught, if you didn't grow up with or continue to chose not to live by a value system nothing will change that), but it does create a sense of professionalism which can in itself raise standards.
Were there too many people who wanted to be bankers, yes (and a lot of them were humanities majors). Maybe MBA programs should turn out a few more operational oriented or marketing oriented people (esp. with fewer banking jobs around), and they are moving in that direction. Are MBA programs some great academic & intellectual experience, no (they are professional degrees), and much of what one learns is actually on the job not in school. However, the socratic method like case based classes and problem solving oriented framework do provide critical thinking skills, in addition to technical skills. They also impart soft skills on how to get a job and how to network. Humanities programs have their place but if someone wants to work in finance they should get some kind of educational background (undergrad or at least MBA) so they actually know what the hell they are talking about and can avoid the people mentioned at the begining of this post.
Be reasonable
Despite what you may think, you can learn basic business principles in B school, and those principles are relevant in the business world. Is the Harvard Case Study you just read in Marketing specifically relevant? Probably not, but what a solid B school curriculum leaves you with is the ability to think, to use the skills you learned to make decisions based on sound business principles. The MBA gets a bad rap because of the perception that everyone that goes to grad school is a greedy rat bastard. While I have to admit those folks exist, you can't lay blame for the current financial crisis at the feet of graduate business schools. B school doesn't teach you to be greedy---that personality trait existed long before matriculation. Are there too many MBAs? Probably, but dig deeper and ask why so many choose to go to B school. In order to be competitive in the job market, to land the higher paying job, to be able to network at a higher level; these are the reasons people choose to go to B school. Believe it or not, some folks are just interested in the academics. The law of supply and demand tells us that the greater the supply the less demand exists, so an MBA may not have the same intrinsic value it had in the past---but it still has significant value-and in some cases you won't get an interview without an MBA. Again, the main thing that I learned in B school is how to think about both the large and small business decisions I make on a daily basis. I believe my B school education has helped me be a better business person. You don't need an MBA to be successul, but in my opinion it damn sure helps.
Although I'm with you on
Although I'm with you on certain points: namely that market theory has been trumped up to a god when it should remain a natural process to be understood and respected; I've gotta say that your reasoning has a hole. If MBAs are responsible, as you imply, then the devastation to the financial industry should be proportionally visible in the other industries into which MBAs go. You admit that the degree provides little actual training, and yet you fail to consider that the unethical, profit-driven behaviour witnessed is learned on the job...Surely you can't overlook the corporate culture of the very sectors that are at the centre of this mess in pointing fingers? university education is often less about the curriculum and more about getting the work done, with an MBA especially so - the process of applying and the networking that takes part during the studies is far more important, and much better retained then the courses on introductory macroeconomics (though of course, it would help if they got into this a bit more). How many times have you spoken to a recent graduate to hear them say "man, once you start working you can forget everything you learned in uni"? I never hear someone say "thank christ i took that course in regulatory economics, it's so relevant to and useful for what I'm doing at work at the moment." MBAs have caught a lot of flak lately, Philip Delves Broughton leading the charge - but come on, can you REALLY slam all the blame on business schools and completely ignore the fact that financial services and consulting have messed up corporate cultures that REQUIRE the worst/most unethical professional practices to succeed? Thankfully, at least, this crisis may just help to get corporate agendas in line with the values of wider society. R. Vaughn http://blog.careermee.com
MBA RIP
Maybe if the people on the other side of the risk (there must be two to tango) had MBA's you'd not be singing this tune. But really I'm with you, let's dumb it all down.
Hmmm....
I assume you have your MBA, and you are speaking from experience and not merely from envy. Otherwise, what position are you in to judge the unknown?
I would argue that there is no value in "management" education, but the fundamentals of accounting and finance that accompany the management aspects are not worthless. They are not made irrelevant or less valuable as a result of the banking crisis. If anything, having a sound knowledge of why things work the way they do, fundamentally, is extremely valuable.