MBA- What is it worth?

by Koon Mei Ching

A valid question, don’t you think? A typical cost of a good to excellent MBA in the USA, UK or even Australia would cost you two years of your life and about USD100,000 of your life savings (assuming you didn’t manage to swing your company to foot the bill). This, on top of the two years’ worth of income you would forgo pursuing the pinnacle of education, as some might view the MBA. It might serve one well to look into whether this is all worth it.

I had kicked around with the idea of an MBA years ago, fresh out of university and getting "jaded" with my one year of work experience. I looked through a mountain of material from all the top universities around the world. I sat for the GMAT test. I looked into scholarships. I wrote bogus essays. I chatted on online MBA forums. You name it; I did it. But in the end, I didn’t go. Why? Firstly, I discovered that I didn’t really want an education, more than a chance to get overseas to do something else than work. Secondly, I got a job offer that allowed me to explore what I really wanted to do … only, I’d get paid for it and gain some valuable real-life experience.

There have been many debates on the merits of doing an MBA. Certain studies have shown that the MBA is at risk of becoming irrelevant. Most potential MBA-ites view it as an instant recipe to a high-flying career and a fat paycheck. There are definitely questions that are worth exploring before you make this leap.

The first graduate business degree was instituted by Amos Tuck School of Administration and Finance back in 1900. Over the next 50 years, the modern version of the MBA developed. Yet, in those early days, the focus was more vocational rather than professional. Former businessmen constituted the faculty, and their classes were more about learning from their war stories rather than scientific theories. As the economy grew more complex and the demands on business corporations increased, there was a push towards gearing MBAs with more "science" believed locked in theories and models. Conversely today, there is criticism that professors teaching MBA courses lack real-world experience in their field of teaching – that their theorems and scientific hypotheses fail to reflect what’s demanded in today’s hiring market. Evidence of this was during the dot com peak – no one without an MBA was hired – yet, there was no marked increase in the level of business wisdom as revealed during the era’s implosion.

MBA schools are also being chastened from within the B-school establishment. In this day and age where students choose which school they will go to (and which bank account their parents’ money goes into) based upon national and global rankings, B-schools are displaying a scary obsession on where they place, instead of focusing on updating their curriculum and keeping themselves aligned to the IT curve of development.

Some MBA programmes are being amended to move with the times. Others are remaining very still. Knowing which is doing what would be a good idea for any potential enrollee.

Obviously, this is a key concern to those planning to or undertaking an MBA at the moment. History shows that there have been many highly successful business owners who have achieved their lofty goals sans MBA. Think Michael Dell or even Bill Gates. Says George, a senior consultant: "During my decade as a consultant, I met numerous freshly minted MBA’s who hadn’t been introduced to organisational and operational strategies developed over 30 years ago. Many reported that they learned more in four days with me than in the years it took to complete their MBA." Another MBA taker, Lisa, is in agreement. "Like others who analysed the cost/benefit of an MBA, I have concluded that it is not worth it,” she says. “I already had a Master’s degree and after spending a term in one of the leading business schools I decided that the value of the degree is exaggerated. Maybe it is the wrong values being taught where the ultimate goal is getting a high salary. Entrepreneurship involves risk-taking, timing and a feel for the market. You learn these by doing, not by analysing. You can have all the analytical tools in the world but the key ingredients of decision-making and commitment to act on issues are still missing. Some get bogged down with detail while others get stuck with lofty strategies that cannot be implemented."

It is clear that it is not the intimate knowledge of capital asset pricing that guarantees career success. Rather, the true value an individual can deliver lies in his or her ability to apply such knowledge in real life situations. We might be too ready to praise professors should we think they would be able to teach us this.

As Karen, a 48-year old in a fast-track MBA programme, observes philosophically: "A square-dance fiddler has no need of a Stradivarius. Students enrolling in a top-tier programme need to be prepared, both in terms of academics, and in their personal approach to life and learning. The tool doesn’t make an apprentice an artisan, but an artisan can utilise the most rudimentary tools to produce works of art."

Spending a lifetime’s worth of savings on an MBA would seem rational to people who believe that their post-MBA career will reap them the glorious rewards propounded by B-schools. So, can an MBA holder really expect to earn a ludicrous salary that will pay off their initial investment (unless they are lucky enough to be company-sponsored)? In the current scenario, there is a horde of people attending B-school for an MBA. But with drum-tight hiring budgets and a tanking economy, there will likely be a global MBA glut. Many of the graduates will find themselves jobless upon graduation burdened by debt. The real problem is that the majority of MBAs (although not all by any means) want to go into strategy consulting or investment banking. There simply isn’t enough of that kind of work being done to support the crowds of MBAs that are clamouring to get in. Long term, it’s probably much better for the economy as a whole that all these trained managers find their way into real industry. It’s up to MBAs and MBA students to adopt a more pragmatic, realistic worldview.

Should you be lucky enough to get hired overseas by a consultancy or banking firm fresh out of a top 10 ranked MBA programme, starting pay packages can average about USD $120,000-$160,000, depending on the MBA school (e.g. $80K base salary + $20K signing bonus + $20K 1st year bonus). Some of these jobs (eg, finance) balloon to $200-$300k+ within 2-3 years out of school. The potential, however slim, seem enough to compel many to take the chance. But one must be aware of how reality can bite too. John, a 2000 MBA graduate from University of San Francisco, has been lumbered by MBA debt and been living off unemployment since he was laid off in August 2001. For him and others like him, it has been a real eye-opener. "We never thought we’d be in this situation. When things got bad, the degree didn’t seem to matter."

Yet many are aiming to attend expensive top 20 schools. Adrian, a 28 year-old MBA holder says this in support of the MBA investment, "An MBA is an investment like any other investment. When it’s within budget (or the cost of getting the money is acceptable), you look at the risk you run and the run you can expect. If MBA’s are still a highly attractive path for so many people, it’s simply because they can afford it (with payments deferred), their risk is minimal (because no-one goes down after his MBA), and return is positive. The extent of the investment shouldn’t bother you. It’s a timely risk-return ratio assessment that matters. For me, it makes sense."

And so the debate rages on. Consensus seems to indicate that a top MBA programme does matter is you are intending to launch into a management consulting or investment banking career, where the competition for MBA’s is most heated. To be frank, the main reason to go to a top ranked school isn’t necessarily the strength of the curriculum. Funny that. While I’m sure that the top 10 programs are arguably tougher than say the 50 – 60 ranked programs, I’d venture to say not by a whole lot. So what’s all the fuss?

The true value is brand name and connections.

The social and business networks you gain from these top schools are easily worth the tuition. After two years of shared project angst and coffee-filled all-nighters, it’s often easy to reconnect with good friends or even acquaintances from your MBA days with a simple email or phone call. The bond created through an alumnus is a strange, mystical thing, especially at top tier schools where the sense of belonging to an elite group is strong.

Employers these days do give more weight to your experience than to your degree, but they’re still more likely to favour people they know. Sorry, folks. The Harvard MBA network is a very impressive example of how productive a branded network can be for graduates. Come resume screening time, it proves to be a huge leg up if the recruiter recognises you as an alumnus. Employers assume, with some justification, that someone who managed to get into an elite school (and pay the tuition, to boot) is ambitious, intelligent, and motivated. Further to this, many of your old buddies would probably be at senior positions in major companies 10-15 years post graduation. Now, you are both in the situation to "scratch my back, and I’ll scratch yours."

It tends to be situational.

Some of you may not even know that the MBA was designed to help engineers to move out of technical positions and into management positions. People with business or finance backgrounds may find the programme redundant to a degree as it merely reinforces (and enhances, no doubt) their current knowledge. For them, the question is whether sacrificing two years of relevant experience is worth more than achieving an MBA. It is the group of individuals with more technical backgrounds that tend to benefit more by this broadening experience. This credential gives them the option to learn a vast amount of new concepts and make that career switch into the business or management arena.

Another point, if you are already destined for greatness on a good job trajectory, the experience gained in the real world may be far more valuable to you than pursuing an MBA.

Apart from social and business networks, you can also gain adept group communication skills from the MBA experience. At most business schools, the case method and class participation make up an important part of the curriculum. In a business school setting, you learn when to interject, when to keep silent and listen, when to be serious, and when to use humor to break the ice. This same group power dynamic exists in many business situations, from board meetings to team projects. Mastering the art of communicating in a group setting is one of the things that distinguish successful people from the rest, and it is learned very powerfully in B-school.

One should examine the pros and cons of attending an MBA programme against his/her longer-term goals and the relevance of the MBA in achieving those goals. Often, many lose sight of the real intent of higher education – racing more towards the finish line (and the purported dollar signs) and forget to maximise the experience right in front of them. It is an opportunity to grow professionally and personally. You will likely be tested in ways you never imagined undergoing a tough MBA programme. The MBA is worth it if you know what you can gain out of it. It is not an automatic passport to success; it won’t bring you instant fame and fortune. For that, my friend, you’re going to have to use the grey matter in between your ears. You’ll just have some MBA leverage to help you along, that’s all.

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