Two newspaper stories made headlines in the world of business education recently. In an interview with TheWall Street Journal in Hong Kong, Nitin Nohria, the first Indian-born dean of Harvard Business School, stressed that the US business schools’ golden era is over because an MBA degree is no longer essential for a career at Goldman Sachs or McKinsey. “The biggest challenge [we face]”, Nohria said, “is [that] a lot of people are asking if they need to go to business school at all.”
Eight time zones away, in London, the Financial Times published a report that showed that almost a third (31 per cent) of the world’s 500 largest companies are led by an MBA graduate. This wouldn’t ordinarily make news because this share has largely remained the same for decades. The analysis about Harvard, however, raised eyebrows because it was so diabolically contradictory to Nohria’s assertion. The Harvard brand was found to be so dominant that more HBS alumni now occupy the corner office than MBAs from all of the non-US business schools combined; 28 CEOs to 19.
The golden age of the MBA is over? Really?
Not quite. Nohria is taking a rather siloed, outcome-based approach to the value of an MBA education. Business schools generally require incoming students to have work experience.
The total cost of an MBA is not only what one spends attending B-school but also the opportunity cost of lost compensation during the two years. For the average Indian student, a top-minted B-school education could cost more than one crore.
Is this kind of investment worth it?Cost-benefit analysis
To answer this, one needs to look at the expected jump in the post-MBA compensation. If the jump isn’t too high – because pre-MBA salaries are already high or the quality of the MBA education isn’t strong enough to demand a huge increase – the time to recover the investment can be long. But this is a static view. MBAs are like anyone else – they go where the jobs are. At Carnegie Mellon University’s Tepper School of Business, the number of MBAs switching to tech careers doubled, from 16 per cent in 2010 to 33 per cent in 2014; 17 per cent of the 2014 Stanford MBA class chose the Private Equity or Venture Capital industries with the highest salaries topping $225,000. It doesn’t matter, therefore, that Goldman and McKinsey aren’t hiring as many MBA grads. Drawing major conclusions from FT’s analysis is also incomplete. While it is impressive that 150 MBAs occupy the top jobs at 500 of the world’s top companies, what one needs to ask is: Of the hundreds of thousands of MBAs produced globally during this time, is it stellar that only 150 MBAs made it to the very top? And why is FT looking only at the top job?
Is it the only one that matters? The real value of an MBA education cannot be ascertained based on considerations of either the post-MBA compensation package or if the graduate ultimately made it to the corner suite.
Its value is more subtle, as good business school training helps sharpen one’s intellectual curiosity and makes the MBA mindset a part of the person’s DNA.
An MBA education is general enough to challenge a graduate in all nine disciplines of a company’s value chain (as defined by Michael Porter) – from support activities like IT to primary activities like production, supply chain and marketing.
Companies typically rotate promising MBA graduates across the enterprise because they are better equipped to analyse dependencies and understand the effects of their decision-making.
These skills lead to growth and an overall sense of accomplishment, subjective measures that are difficult to quantify but vital to the individuals and the stakeholders of an enterprise.Breadth of knowledge
Companies, large and small, have always sought breadth of knowledge in their leaders, with mixed results. John Sculley and Lou Gerstner represent extreme examples of MBA leaders brought in to right troubled companies.
Sculley, a Wharton MBA, was specifically asked to lead Apple owing to his marketing experience at Pepsi. The irony here was that the request came from Steve Jobs, the best corporate marketer the world has known.
Sculley failed and Jobs returned as CEO to make Apple what it is today. Gerstner, HBS grad and a former CEO of American Express, was an odd choice to lead IBM because he was known to loathe all things tech until he joined the company.
But he not only helped prevent IBM from bankruptcy but also propelled it into the world of IT services, a decision that changed the company’s future forever.
As with any career decision, there are costs and benefits to pursuing an MBA. One has to remember that subjective factors that are difficult to quantify may ultimately matter a lot more than objective considerations used by Nohria and the Financial Times .
The writer is Managing Director, Rao Advisors LLC, an education consulting firm