The Economist is wrong about MBAs

I came across an article in the Economist today called “Think twice” which makes the argument that it may no longer be worth it to get an MBA. It’s written by a Harvard MBA and frankly, I think Philip Delves Broughton is only out to try to sell more of his book “What They Teach you at Harvard Business School”. He sounds fairly bitter and his argument is roughly as follows:

  1. Supposedly more and more students are finding the promise of Business Schools to get you ahead “hollow”, meaning they’re not fast-tracking you into careers, networks, money, etc. Duh, you have to work for it especially in a global economy with lots of motivated students who weren’t born with a silver spoon.
  2. B-Schools are desperate for money and professors are after your money to fund their “threadbare” research. Sure, for some it’s just bodies in the door, but in the end all that’s doing is setting market-clearing prices for a good which people want.
  3. Some companies don’t have MBAs in their leadership rank have been successful, e.g. Apple., and companies are no longer looking for MBAs who just come with spreadsheets. Wrong, we come with Powerpoint, because we only do strategy. 🙂
  4. Overall the financial ROI of all MBA programs is bad. It’s only good at the top ones. More on this later.
  5. There’s no point to getting a disparate network of friends since you like have singular focus on a career. I don’t like people either.

Since I’m writing this, I obviously disagree. On the highest of levels, I disagree with the notion that an MBA should be embarked upon solely for financial gain and thus distilled down to ROI (return on investment), unless investment includes many other subjective factors like fun, network, brand, inspiration, knowledge, etc.

I don’t disagree because I have an MBA myself and I don’t plan to disagree line by line further, since hat would be fun for me to write, but I’d bore you and it leads to tons of anecdotal argumentation. Instead, I want to debunk a couple things and then provide some advice on setting goals and using metrics to measure them, i.e. not just financial ROI.

Debunk #1: Business School ROI is going down overall. That’s a great headline showcasing “how to lie with statistics”. Yes, overall it’s going down, but that’s due to dilution by crappy programs that really don’t give a return to students. The ROI of top-tier programs may actually be going up instead since there’s global demand for their skills these days.

Debunk #2: You don’t learn anything through an MBA. Maybe, but it really depends on what you try to get out of it. If you’re coming from one specialized profession or skill set, let’s say engineering for example, then you learn a lot about how the rest of a company does what it does. If you come from the middle of nowhere Kansas, then you learn how the world works outside the Midwest (sorry, cheapshot). Or you learn to drink and make friends, one of the parts I excelled at. But seriously, you also can learn some pretty serious finance , negotiation tactics, accounting / tax code, risks of international business, etc. Lastly, and maybe most importantly, you learn what it takes to get into the job you want, which can be humbling.

Debunk #3: You can boil the value of an MBA down to ROI via pre/post salaries. Seems like a fair stat on the surface, but I disagree. If that were the case, then we all should have gone into investment banking. But who would want that, especially given the author’s distain of the industry? I made  conscious choice to join a startup for career, personal fulfillment and sheer pleasure reasons, make little more salary than I made before B-School.

I could go on, but that’s enough and it brings me to my real argument: set your goals for an MBA, use the right metrics to measure them and execute. Don’t rest on any laurels and execute the crap out of getting where you want to go. I actually don’t look down on someone going to a “lesser” school, but I do criticize someone that complains about it afterwards because they didn’t get their money’s worth. So here’s the goal setting / metrics advice in the form of 6 broad buckets into which applicants fall along with what they should do:

  1. I want to just get ahead in my current job, don’t plan to switch anytime soon and I’m under 30. You’re a lock for a nighttime program if you’re close to one. There’s also a good chance that your employer pays for your tuition, so the only cost you incur is time at nights and on weekends to do the work. Financially, this is a guaranteed return investment.
  2. I’m really smart and successful, but would like to work in a different career, and I’m under 30. You definitely should go to a fulltime program, but look at where the program’s graduates are going and how much money they make. Know the probability that you’ll have the drive to get there too. Alternatively, don’t use ROI as a metric and assume the people met, knowledge earned and two years of academic and social fun as the return.
  3. I’m really smart and successful, but would like to work in a different career, and I’m under 30 and I want to get a good job in industries that hire almost exclusively MBAs. Run-on sentence, I know. This one is easy. You need to go to a top-tier fulltime MBA with on-campus recruiting for those firms. To be clear, that’s < 10 schools if you’re looking for for top-3 consulting, top-X banking, best brand management, best rotational leadership programs. It gets much much harder at tier-2 schools, because the firms don’t recruit on campus and you don’t get that benefit of the doubt.
  4. I’m over 30, a successful middle manager on an upward trajectory at a great firm, but I want to take it to the next level. Wait long enough to get into an Executive MBA program where everyone is “older”. It’s fundamentally different in that it’s geared at solving the problems you already have and not the ones you’ll be looking at in a brand new industry/job. And you won’t get babied as much.
  5. I wanna take 2 years off, meet lots of cool people, have a good time, travel and then get a decent job. Get into the best fulltime program you can and take the experience as your return.
  6. I plan to stick around where I currently live, more or less stay in the industry, but can afford to take a couple years off. There are some pretty decent local/regional MBA programs that are geared at local students and specific industries. I’d argue that NYU Stern for example is an ok business school, but it’s really good for finance if you’re in New York. You’ll get way more cred for it there than outside of New York or finance. Santa Clara is another one for people want to just stick in tech. You’re in the middle of Silicon Valley and lots of smart tech-oriented folks go there. There generally is a program for every industry that has a specific city/region as its hub.

Figuring out the situation a prospective student is in and then picking the right path will allow him/her to frame ROI according to their specific situation and in largely non-financial terms. Their metrics will be aligned with achievable goals based on appropriate assumptions, not misguided promises set forth by societal expectations.

My last advice is always to go to the best program you can get into, irrespective of cost. You have a long time to pay it off and especially nowadays, just get a fixed rate loan. Associate yourself with the best possible brand, give yourself the chance to learn from the best possible classmates (note I didn’t say instructors because best school does not equal best teaching necessarily) and give yourself the best shot at the career goals you went into the program with.

This does leave out one group of people near and dear to my heart: entrepreneurs. The entrepreneur yes/no on MBA is a topic for another time though. 🙂

And as a final final thought, read this related article from The Atlantic on hiring practices into finance out of undergrad. It’ll give you an idea of what it seems to take nowadays and the reasons for it (broadly stated: recruiting time). It’s a bit overstated, because schools like MIT, Stanford, the rest of the Ivies, Duke, UChicago do just fine in undergrad finance placement, but this attitude (and sometimes unfortunate reality) is basically the same for MBAs in highly desirable professions.

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