What’s the Value of an MBA?
Where and when an MBA has value in the corporate world
Out of all of the questions I have received throughout my career there is one question that comes up all the time, namely: should I get an MBA? The answer to this question (like all sufficiently complex questions) is: it depends. There is a lot of advice on how to address this question but I find most of it lacking. Before you can even decide whether or not you should pursue an MBA you need to ask a more important question: what is the value of an MBA to begin with?
The corporate world generally falls into two camps: those with MBAs and those without. Depending upon what camp you fall into, your thoughts and advice are likely to differ. For purposes of full disclosure, it only makes sense to share my personal educational background. As you will soon see, I have a rather unorthodox background in the corporate world. I have an undergraduate degree (Bachelor or Arts, or BA) with honors in English Literature and Economics from Georgetown University. As my studies were coming to an end, I was pretty sure I wanted to be a professor so I applied to PhD programs in both Economics and English Literature at multiple graduate programs before deciding to pursue graduate work in English Literature at the University of Oxford in England (MPhil, St. Catherine’s college, for anyone who cares). I quickly learned that although I have an immense passion for learning and teaching, I did not want to spend my life being an academic. (Largely due to the prospect of 8–10 years of minimum wage graduate student pay followed by about a 20% chance of even finding a college level teaching job for slightly more than graduate student pay.) I quickly needed to figure out what to do with my life.
Like many people in my situation, I found myself ending up returning to small, Midwestern city where I grew up. After some networking and family connections I found an entry level job in a private equity/boutique consulting firm focused on the unique needs of small to mid-sized businesses. Although this experience was immensely valuable (especially for a business-naïve humanities and economics student) long-term career growth was limited so any next step would require a move to a larger city and business community. As such, after only one year, I applied to three very strong but “sub-top 10” full-time MBA programs (Georgetown, Washington University in St. Louis, and the University of Minnesota) and expected to be roundly rejected by all three. Much to my surprise, I was accepted to all three. My initial thought was to continue to work for 1–2 more years then reapply to a top 5 program. I was shocked when after declining Minnesota’s offer, they responded with a full scholarship. This, of course, is difficult to turn down so I didn’t turn it down; my MBA is from the U of MN.
Why am I telling you this? Because even though I have an MBA and didn’t pay out of pocket for it, I still am VERY conflicted about having an MBA and coach my employees and mentees to think long and hard about getting an MBA. Why? Consider the following:
MBAs are expensive
Very expensive. Worse, they are getting more expensive every year. I am just talking tuition. (See below for opportunity cost…)
MBAs are not rare and are becoming more common everyday
MBAs for most colleges and Universities are “cash cows.” To be more blunt, few academic programs actually make money for the university so more and more universities are spinning up MBA programs to cover the cost of other programs. Even a basic understanding of supply and demand will tell you that this will drive down the value of an MBA, which is definitely true.
MBAs vary wildly in quality
Even within the same university, the quality of the full-time, part-time, and executive programs can vary. For example, although the U of MN was consistently ranked as a top 25 program when I was there (early 2000’s) the flagship program was the part-time MBA… this is where all of the resources went.
MBAs have a high “opportunity cost”
Anyone who has studied economics will know that an opportunity cost is the “next best use” of your time and money. Full-time programs are very expensive but more importantly they take you out of the work force for 2 years. That is not only two years of tuition, but two years you could have spent getting paid and gaining valuable work skills. Because of this, many people look at part-time or executive programs, which are often paid for by their employers. Be careful. A part-time MBA can easily take 4–5 years. If you have a demanding job (who doesn’t?) and have or want something resembling a family or social life, the time commitment can be crushing. This is why part-time and executive programs tend to have low graduation rates.
Financial benefits are questionable
I see this all the time: students in part-time and executive programs tend to think: “Once I get my MBA, my company will give me a big raise/promotion/MBA level pay, so it will all be worth it.” To see why this is a problem, you need to think like an executive. We want to invest in the development of our employees so they can be more productive and drive results. Often, we are also paying for you to get your MBA. As you can see, the understanding and incentives are misaligned: You are getting an MBA to get more pay, but the company is paying for your MBA so you can drive results. From a corporate perspective, your reward is the MBA. Don’t expect more pay and/or a promotion when you are done.
So, knowing all of this, what is the point of an MBA? I have given this a LOT of thought lately and I think the value of the MBA boils down to only four things:
1. Identifying highly motivated talent
Note that I didn’t say “quality” talent but “motivated” talent. Identifying high quality, management level talent is very difficult and it is a skill that many executives lack or do not have the time to engage in fully. Hiring MBAs is a way to outsource this activity. From the outside perspective, everyone wants the pay and prestige (?) of being a senior leader, but few people are willing to demonstrate they are willing to sacrifice and invest in themselves to make this a reality. By applying for an MBA, you are basically putting your hand up and saying “I want to go beyond being an individual contributor and am willing to invest in my own development.” This alone is valuable to companies. Better yet there is an admission process and grading process to (theoretically) separate low quality from high quality talent so companies don’t have to potentially waste valuable resources on people who cannot or will not make it to the next level.*
2. Providing functional perspective
Most entry level positions within an organization are highly specialized and have limited (if any) connection to other functions. Objectives are narrowly defined and individually focused. Even if cross-functional collaboration is required, it tends to be transactional. What is missing is a deeper understanding of the purpose and broader objectives of other functions and how functions need to interact to achieve business objectives. The MBA is a useful tool for gaining this perspective.
3. The MBA is a useful catalyst to switch industries/functions
When most people (myself included) enter the workforce, they generally just “want a job.” Thinking about a career comes later. Not surprisingly, many people realize the job they have is either not the job they want, doesn’t provide a satisfactory career progression, or is in an industry that is not interesting or challenging. The result is the same: they want to do something else! Being “pigeon-holed” into a function/company/industry is a common issue and can be very difficult to solve. Corporate HR departments often have dedicated recruiting processes for MBAs so pursuing an MBA is an opportunity to switch careers and have recruiters come to you.
4. Creating a network
A network is the connections you build with other current and future corporate leaders. There are three types of networks to be aware of:
- Global: If you are willing to relocate, want to move far away, or want to live and work abroad, there are a handful of programs that will help you (top 10 schools, INSEAD, Thunderbird, Oxford/Cambridge, etc.).
- Local: If you have a narrow target geography (single city, state, region) look for a program with strong local presence. If you know where you want to work, an MBA from a school with a strong local network can be more powerful than a big 10 degree. For example, if you want to live and work in the Twin Cities (home to a large number of fortune 100 companies including Target, Cargill, 3M, UnitedHealth, etc.) an MBA from the University of Minnesota would be a major asset. If you want to work in Texas, an MBA from the University of Texas would be powerful.
- Functional/Industrial: Many MBA programs have particular strength in a certain function or industry. If you want to work in Oil and Gas, the University of Houston is hard to beat. Finance? Harvard and Wharton (U Penn) are very strong. Silicon Valley? MIT or Stanford. Marketing? Kellogg (Northwestern) and Indiana are leaders.
That’s it. Stop a second, re-read the four points, and understand that these are the ONLY four reasons I think an MBA has value. It’s worth pointing out what I don’t think MBAs are good at:
- Entrepreneurship. If you want to start a company, forget an MBA. Start your own company, join a start-up, or move to Silicon Valley. MBA programs love to tell you how they focus on entrepreneurship, but they don’t. Their bread and butter is landing people in the corporate world and they know it.
- Becoming a functional/industrial expert. Except for very few industrial examples, the MBA is designed to be a generalist degree. It is designed to teach you just enough about each function to be conversant. If you want to become an expert in finance, marketing or whatever, get a masters degree or some other advanced degree in that function.
- Actually being a leader. You can take as many negotiation, conflict resolution, or team leadership courses you want. Until you are actually faced with these situations, assume you know nothing.
- Discipline and work ethic. This is probably the biggest failing of MBA programs in my mind. Perhaps I set my standards too high given my educational background (and contrary to what 99% of MBAs will tell you) the MBA program is not hard. It is not nearly hard enough. This is highly problematic for a number of reasons, but the primary issue is that it instills the following mindset: “I was accepted to a top MBA program, therefore I must be smart/good at business, so once I get a job it will be smooth sailing.” This mindset kills MBAs once they join the corporate world where they are forced to work hard to drive results, not study for two hours to pass some bullshit test that has nothing to do with the real world. As you know from my previous posts, I am adamant that the number one factor for success in the corporate world is discipline followed by a strong work ethic. Just don’t expect to get this from an MBA program. At the end of the day, I will always hire someone with discipline and a strong work ethic over someone who has an MBA. Virtually every senior leader/executive I know will say the same thing.**
- How to manage complex businesses. MBAs are taught by academics. Academics focus on theory. The real world is a very messy place. Take for example my current business: A Quebec, Canada and France based global company with a majority of its sales in US owned by a publicly traded company focused on a different industry. If I want to hire/fire someone in France, I need to engage two different HR teams operating under three different corporate policies and labor laws…and that’s just one function!
Given the above, am I saying MBAs do not have value? No. What I am saying is that MBAs have a very narrow value in the corporate world so if you are thinking of pursuing an MBA (or hiring an MBA) it’s worth spending some time knowing what you are getting yourself into. In a future post I will be more specific into decision criteria you can use if you are considering pursuing an MBA.
* The explosion of MBA programs and the associated degradation of admission standards not only harms potential and current MBAs, it also does a major disservice to management as a profession which, in my mind, is an issue that doesn’t get nearly enough press.
** One crucial exception: Industries who “sell” expertise (consulting, fund management). These industries either attract clients and/or charge higher rates due to the educational background of their employees.
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