Excerpt From rethinking The Mba: Business Education At A Crossroads
By Srikant M. Datar, David A. Garvin, and Patrick G. Cullen
Voices from the Field: How Deans and Recruiters View the MBA Degree:
Immediately after graduation, a significant majority of the graduates of the leading two-year, full-time MBA programs take jobs in financial services and consulting, driven in part by financial rewards that make it very difficult for companies in other sectors to compete for graduates.
The numbers—at least before the recent financial crisis—have remained consistently high. In 2006, for example, 52 percent of Chicago Booth graduates took jobs in financial services and 22 percent took jobs in consulting; 42 percent of Harvard graduates took jobs in financial services and 22 percent took jobs in consulting; and 46 percent of Yale graduates took jobs in financial services and 15 percent took jobs in consulting.13 The boom in jobs in financial services and consulting during the last ten years made obtaining a prestigious MBA degree—long viewed as essential to gaining entry to these careers—a very attractive option. Even if one had previously worked in the industry, an MBA from a high-ranking school was, for many years, a de facto requirement for climbing the ladder.
The deans we interviewed from higher-ranking schools were clear on the value that they believed accrued to those armed with an MBA: it ensured access to these (as well as other) attractive, otherwise inaccessible careers. In their eyes—as well as those of many students—the full-time MBA is increasingly aimed at "career switchers." For those wishing to change fields—to enter investment banking, private equity, hedge funds, or strategy consulting from a prior position in industry, government, or the nonprofit world—the MBA has long been viewed as absolutely essential. One dean, for example, noted that nearly 80 percent of students at his prior institution had switched careers upon graduation.
The problem for the higher-ranking business schools is that there are a number of forces at work that threaten to undermine or reduce the opportunities for employment in financial services and consulting. Post-crisis, many lucrative jobs in financial services, and to a lesser extent in consulting, have simply disappeared. Each day brings new reports of hedge fund closings and the scaling back of private equity investments. Not surprisingly, the enormously high compensation packages in these fields are shrinking as well, making jobs in these sectors far less attractive.
These changes threaten one of the key selling points of the top U.S. business schools. A further challenge comes from the fact that companies in these industries have increasingly been promoting from within.14 In part, this is because technical work, such as sales and trading, now contributes a large share of the firm's profits relative to activities such as investment banking. Consequently, many companies are actively discouraging their best young people from leaving lower-level positions for business school, arguing that their odds of success are actually better if they stay at the firm. This theme can be heard, with minor variations, from executives at two financial services firms:
Previously the Wall Street tradition was to send Analysts for the MBA. That's no longer the case. We do not want to show these people the door because they are valuable to us. Now, a third of the Analyst class is offered full-time Associate positions without doing an MBA. For technical work, the training an Analyst gets from a Wall Street firm is better than the training they would receive at business school. […]
The same point was made by a senior partner in a consulting firm, who, when asked pointedly if he would advise a highly successful junior person with several years at the firm who was intent on a career in consulting whether an MBA would be valuable for his future, answered, "Definitely not."
IN THE PAST, DEANS AND BUSINESS SCHOOL FACULTY HAD A READY RESPONSE TO QUESTIONS ABOUT THE VALUE OF THE MBA DEGREE.
At the same time, financial services and consulting firms are increasingly substituting non-MBAs for MBAs. The numbers are small but growing. Before the crisis, a managing director at one large investment bank noted that his firm still hired 300 to 400 MBAs per year but only about fifty technical experts with PhDs or comparable degrees, even though it set out each year to hire twice as many. These latter individuals are viewed as essential because the fields of finance and strategy have become increasingly analytical and because leading financial services firms are, as one experienced financial executive put it, "increasingly dominated by traders, who believe business school is a waste of time." According to a senior manager at a leading investment bank:
The investment banking industry needs to recruit more technically competent people than it did in the past because our products, and the industry as a whole, are more complex. The requirements are higher than even the most quantitative MBA programs can deliver. As a result, we are aggressively pursuing PhDs in business, finance, mathematics, physics, and operations. The common thread is that all are people who are highly analytical and can translate complex situations into mathematical models. The percentage of MBAs that we hire will go down in the next ten years.
A director of a leading consulting firm made much the same point:
We now hire a very large number of non-MBAs into our Associate roles. In fact, our incoming mix is 50 percent MBA and 50 percent non-MBA. The non-MBAs mostly come from medical schools, medical school residency programs, law schools, and a variety of PhD programs in economics, applied math, physics, life sciences, and computer science. The non-MBA portion of the mix is growing, and we are actively seeking to expand into these sources.
In the past, deans and business school faculty had a ready response to questions about the value of the MBA degree: graduate business training was a way of getting ahead of the pack and igniting one's career. MBAs, the argument ran, were a breed apart and were more likely to be placed on the fast track. They might not be the best technicians, but their breadth of training and skills would win out over the long haul. Although this may still be true in some fields, it appears to be less true in others. At least before the crisis, for those in financial services wishing to accelerate their careers (i.e., who hoped to stay in the same function or area and get promoted more rapidly or frequently at the same company), the two-year, full-time MBA was no longer viewed as necessary. Both the head of a leading hedge fund and a senior executive at a leading investment bank made much the same point:
Something has changed in the last few years. We've always hired young people from elite colleges and universities and started them as Analysts. For many years we found that after six or seven years with us and one or more promotions, they would hit a wall—we had to send them to business school to get the grounding and perspective necessary to make it to the upper rungs of the firm. But recently, we've found that our young people have been able to make the jump without leaving for an MBA. Those two years of training just aren't needed. […]
Whether the financial crisis will alter these views about obtaining an MBA is still unclear.
Taken together, the threats identified throughout this chapter suggest challenges for all MBA programs, including the most highly ranked programs. Enrollments are under pressure, and questions are being raised about the value-added of the degree, especially the two-year, full-time version, when compared with alternatives.--
-- By Srikant M. Datar, David A. Garvin, and Patrick G. Cullen
Voices from the Field: How Deans and Recruiters View the MBA Degree:
Immediately after graduation, a significant majority of the graduates of the leading two-year, full-time MBA programs take jobs in financial services and consulting, driven in part by financial rewards that make it very difficult for companies in other sectors to compete for graduates.
The numbers—at least before the recent financial crisis—have remained consistently high. In 2006, for example, 52 percent of Chicago Booth graduates took jobs in financial services and 22 percent took jobs in consulting; 42 percent of Harvard graduates took jobs in financial services and 22 percent took jobs in consulting; and 46 percent of Yale graduates took jobs in financial services and 15 percent took jobs in consulting.13 The boom in jobs in financial services and consulting during the last ten years made obtaining a prestigious MBA degree—long viewed as essential to gaining entry to these careers—a very attractive option. Even if one had previously worked in the industry, an MBA from a high-ranking school was, for many years, a de facto requirement for climbing the ladder.
The deans we interviewed from higher-ranking schools were clear on the value that they believed accrued to those armed with an MBA: it ensured access to these (as well as other) attractive, otherwise inaccessible careers. In their eyes—as well as those of many students—the full-time MBA is increasingly aimed at "career switchers." For those wishing to change fields—to enter investment banking, private equity, hedge funds, or strategy consulting from a prior position in industry, government, or the nonprofit world—the MBA has long been viewed as absolutely essential. One dean, for example, noted that nearly 80 percent of students at his prior institution had switched careers upon graduation.
The problem for the higher-ranking business schools is that there are a number of forces at work that threaten to undermine or reduce the opportunities for employment in financial services and consulting. Post-crisis, many lucrative jobs in financial services, and to a lesser extent in consulting, have simply disappeared. Each day brings new reports of hedge fund closings and the scaling back of private equity investments. Not surprisingly, the enormously high compensation packages in these fields are shrinking as well, making jobs in these sectors far less attractive.
These changes threaten one of the key selling points of the top U.S. business schools. A further challenge comes from the fact that companies in these industries have increasingly been promoting from within.14 In part, this is because technical work, such as sales and trading, now contributes a large share of the firm's profits relative to activities such as investment banking. Consequently, many companies are actively discouraging their best young people from leaving lower-level positions for business school, arguing that their odds of success are actually better if they stay at the firm. This theme can be heard, with minor variations, from executives at two financial services firms:
Previously the Wall Street tradition was to send Analysts for the MBA. That's no longer the case. We do not want to show these people the door because they are valuable to us. Now, a third of the Analyst class is offered full-time Associate positions without doing an MBA. For technical work, the training an Analyst gets from a Wall Street firm is better than the training they would receive at business school. […]
The same point was made by a senior partner in a consulting firm, who, when asked pointedly if he would advise a highly successful junior person with several years at the firm who was intent on a career in consulting whether an MBA would be valuable for his future, answered, "Definitely not."
IN THE PAST, DEANS AND BUSINESS SCHOOL FACULTY HAD A READY RESPONSE TO QUESTIONS ABOUT THE VALUE OF THE MBA DEGREE.
At the same time, financial services and consulting firms are increasingly substituting non-MBAs for MBAs. The numbers are small but growing. Before the crisis, a managing director at one large investment bank noted that his firm still hired 300 to 400 MBAs per year but only about fifty technical experts with PhDs or comparable degrees, even though it set out each year to hire twice as many. These latter individuals are viewed as essential because the fields of finance and strategy have become increasingly analytical and because leading financial services firms are, as one experienced financial executive put it, "increasingly dominated by traders, who believe business school is a waste of time." According to a senior manager at a leading investment bank:
The investment banking industry needs to recruit more technically competent people than it did in the past because our products, and the industry as a whole, are more complex. The requirements are higher than even the most quantitative MBA programs can deliver. As a result, we are aggressively pursuing PhDs in business, finance, mathematics, physics, and operations. The common thread is that all are people who are highly analytical and can translate complex situations into mathematical models. The percentage of MBAs that we hire will go down in the next ten years.
A director of a leading consulting firm made much the same point:
We now hire a very large number of non-MBAs into our Associate roles. In fact, our incoming mix is 50 percent MBA and 50 percent non-MBA. The non-MBAs mostly come from medical schools, medical school residency programs, law schools, and a variety of PhD programs in economics, applied math, physics, life sciences, and computer science. The non-MBA portion of the mix is growing, and we are actively seeking to expand into these sources.
In the past, deans and business school faculty had a ready response to questions about the value of the MBA degree: graduate business training was a way of getting ahead of the pack and igniting one's career. MBAs, the argument ran, were a breed apart and were more likely to be placed on the fast track. They might not be the best technicians, but their breadth of training and skills would win out over the long haul. Although this may still be true in some fields, it appears to be less true in others. At least before the crisis, for those in financial services wishing to accelerate their careers (i.e., who hoped to stay in the same function or area and get promoted more rapidly or frequently at the same company), the two-year, full-time MBA was no longer viewed as necessary. Both the head of a leading hedge fund and a senior executive at a leading investment bank made much the same point:
Something has changed in the last few years. We've always hired young people from elite colleges and universities and started them as Analysts. For many years we found that after six or seven years with us and one or more promotions, they would hit a wall—we had to send them to business school to get the grounding and perspective necessary to make it to the upper rungs of the firm. But recently, we've found that our young people have been able to make the jump without leaving for an MBA. Those two years of training just aren't needed. […]
Whether the financial crisis will alter these views about obtaining an MBA is still unclear.
Taken together, the threats identified throughout this chapter suggest challenges for all MBA programs, including the most highly ranked programs. Enrollments are under pressure, and questions are being raised about the value-added of the degree, especially the two-year, full-time version, when compared with alternatives.--
EDUCATE, EMPOWER, ELEVATE
Prof. Bholanath Dutta
Founder & President
MTC Global: A Global Think Tank in
Higher Education, ISO 9001: 2008
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