03 May 2010  Research & Ideas

What Is the Future of MBA Education?

Why get an MBA degree? Transformations in business and society make this question increasingly urgent for executives, business school deans, students, faculty, and the public. In a new book, Rethinking the MBA: Business Education at a Crossroads, Harvard Business School's Srikant M. Datar, David A. Garvin, and Patrick G. Cullen suggest opportunities for innovation. Q&A with Datar and Garvin plus book excerpt. Key concepts include:

  • Executives and business school deans raised multiple concerns about the MBA landscape when the authors interviewed them for an HBS Centennial colloquium in 2008 on the future of MBA education.
  • The challenges: Stakeholders question the value-added of MBA degrees. And MBAs lack sufficient leadership development, a "global mindset," and skill in navigating organizational realities.
  • Rethinking the MBA examines each challenge in turn, and provides six case studies of schools that demonstrate flexibility and innovation in MBA education.

 

Business schools are positioned on increasingly unsteady—and unpopular—ground. MBA enrollments fluctuate or decline; recruiters voice skepticism about the value of newly-minted MBA degrees; and deans, faculty, students, executives, and a concerned public wonder what business schools can or should do to train knowledgeable, principled, and skilled leaders.

Against this backdrop of problems, business schools are poised to take advantage of exciting opportunities to cooperate and innovate, argue HBS professors Srikant M. Datar and David A. Garvin and research associate Patrick G. Cullen in their new book, Rethinking the MBA: Business Education at a Crossroads. Employing a wealth of interviews and quantitative data, their book takes the first comprehensive approach in decades to examine the evolving MBA marketplace and its threats as well as possibilities for improvement and growth.

"Rebalancing must occur." -Srikant Datar

"Increasingly, we believe, business schools are at a crossroads and will have to take a hard look at their value propositions," the authors write in the introduction. "This was true before the economic crisis, but is even truer in its aftermath. The world has changed, and with it the security that used to come almost automatically with an MBA degree. [] High-paying jobs are no longer guaranteed to graduates, and the opportunity costs of two years of training—especially for those who still hold jobs and are not looking to change fields—loom ever larger. To remain relevant, business schools will have to rethink many of their most cherished assumptions."

In an interview, we asked Datar and Garvin to explain more. Datar, the Arthur Lowes Dickinson Professor of Accounting at Harvard University, is the Harvard Business School senior associate dean and director of research. Garvin, the C. Roland Christensen Professor of Business Administration, teaches courses for MBAs and executives on leadership, general management, and operations. Garvin is also faculty chair of the School's Christensen Center for Teaching and Learning, which promotes and supports teaching excellence and innovation.

Also visit the book's Web site.

Martha Lagace: What led you to identify and study gaps and opportunities in MBA education?

David Garvin: To celebrate the 100th anniversary of Harvard Business School in 2008, we convened a number of colloquia and workshops. One was entitled "The Future of MBA Education," and Srikant and I were responsible for preparing and leading it. Our initial goal was simply to gather enough material to conduct a day-long conversation with our faculty drawing on interviews with executives and business school deans.

As we began to conduct initial interviews, however, we kept hearing the same concern: "Thank goodness you folks are doing this. All of us collectively need to take a hard look at the state of business education."

Srikant Datar: With that prompting, we expanded our efforts. We collected comprehensive data on business schools, including the yield rates at various schools; how many applicants they accept of those who apply; of those who accept, how many actually attend; and what is happening to the total enrollments. It was a big surprise to see a hollowing out of the MBA marketplace: in full-time programs, declines in the order of 25-, 30-, even 50-percent at highly-ranked schools outside the top 15 or so schools.

The schools were, by and large, unaware of how widespread the problem was. Each thought the problem of declining enrolments was unique to them. In the course of our research, we learned that prospective applicants were being discouraged by many employers from going to full-time MBA programs, that part-time MBA, executive MBA, and other masters programs were seen as attractive substitutes, and that the students who came were not as engaged with the academic curriculum.

Garvin: The common question we heard was about the value added of an MBA degree. In every interview, deans and executives returned repeatedly to that question, as well as to a large set of unmet needs that they identified in areas such as leadership development, skill at critical, creative, and integrative thinking, and understanding organizational realities.

Q: Were they deeply worried?

Garvin: Among deans, there was widespread acceptance and recognition of the same set of missed opportunities and unmet needs. Some schools, however, had already launched change programs that incorporated flexible curriculums, courses in creative or integrative thinking, or experiential learning and project work. A few schools were cutting-edge in one or more of these areas. Other schools felt that the business school community as a whole had a long way to go. So while there was a uniform degree of acceptance of opportunities and needs, the extent to which they were being met revealed disparity.

Q: Why is MBA education at a crossroads?

Garvin: We are approaching the end of an era. Since 1959, business schools have taken a more analytical and discipline-based approach than before. For the last 50 years, then, business schools have emphasized analytics, models, and statistics.

Yet MBA graduates increasingly need to be more effective: they need to have a global mindset, for example, develop leadership skills of self-awareness and self-reflection; and develop an understanding of the roles and responsibilities of business, and the limitations of models and markets.

At these crossroads, how should business education proceed? We wrote the book to outline the needs and to explain how schools are addressing them in surprisingly innovative ways. We include in-depth case studies of six programs: the University of Chicago Booth School of Business, INSEAD, the Center for Creative Leadership, Harvard Business School, Yale School of Management, and Stanford Graduate School of Business. Each is exemplary in some way—largely in their efforts to address one or more of the unmet needs.

Q: How should schools close these gaps? You say your book offers a compass, not a roadmap: it points readers in a direction but doesn't tell them exactly which path to take.

Datar: The right answer for each school depends on that school's strategy, challenges, constraints, and skill sets. Yet rebalancing from the current focus on "knowing" or analytical knowledge to more of what we call "doing" (skills) and "being" (a sense of purpose and identity) must occur. Business schools need to think innovatively about how best to use the resources available to them. For example, there are many exciting opportunities to engage alumni in the learning process.

Garvin: Faculty could be expanded in creative ways. Think of Harvard Medical School. It has incoming classes of 165 students and 10,000 faculty! It's an astonishing number that makes sense only after you realize Harvard has 17 affiliated hospitals and many of the doctors in those hospitals teach tutorials and lead clinical rotations, and in that sense are considered faculty. The same notion of an extended faculty could apply to business schools, where the 10,000 might include alumni such as local business leaders, who with suitable oversight and training by core faculty could help with team projects and experiential learning. Training might come initially through the collective work of multiple business schools, with cohorts of alumni who receive a short dose of either functional knowledge or research skills or teaching training, or some combination of the three. Schools need to experiment to see what works best for them.

Datar: We also believe that it is important for schools to broaden the types of research that faculty conduct at business schools. The discipline-based research of the last 50 years has certainly advanced our understanding of management, and needs to continue. At the same time, as a recent report by the Association to Advance Collegiate Schools of Business points out, we need research that is more practice-oriented and interdisciplinary.

Q: Could you discuss gaps you identified, such as leadership development?

Garvin: The single strongest theme we heard in our interviews was the need for MBA students to cultivate greater self-awareness. Executives said, "The more an MBA understands his or her impact on others and vice-versa, the more effective he or she will be."

The second theme we heard was the need for practical skills: how to run a meeting, make a presentation, and give performance feedback. The third theme was the need for MBAs to develop a better sense of the realities of organizations within which leaders operate. Politics—issues of power, coalitions, and hidden agendas—are part of that reality. Yet MBAs, with their analytical focus, always try to find the "right" answer. Organizations often prefer a "good enough" answer, providing it can be implemented effectively. Future leaders need to better understand the nuances of how to get things done and what they can actually accomplish in organizational settings.

Datar: The landscape of business is shifting from leaders who had high authority and faced low conflict to leaders who have lower authority and face greater conflict. Leadership skills that worked in the old model are unlikely to work today. MBAs need to understand how to work "through" people, how to motivate and inspire. That takes skill and practice. MBAs need to ask themselves, "How do I engage people to accomplish a task while I remain in the background?" At HBS, the Authentic Leadership Development course aims to teach these skills in small groups and reflective exercises.

Garvin: In addition, the required course Leadership and Corporate Accountability includes personal development exercises. Students discuss examples from their own past when they failed to rise to a moral challenge, as well as examples when someone led them to be their very best selves. As a class we try to draw general lessons from these discussions.

Q: Another gap you identified was that MBA students were not developing a global mindset. How can MBA programs better prepare students for an increasingly globalized business world?

Garvin: Executives and deans told us that MBAs need to develop cultural intelligence, specifically a better understanding of which practices, strategies, and behaviors are universal and which are contingent. When an MBA works with a person or group from another culture, how can he or she be most effective? Students need to develop a skill set rather than just knowledge about a country's economics and political system.

Datar: MBAs need to understand what it means to be a general manager in a global world and the differences in institutions, norms, cultures, and legal frameworks. It would be fascinating, for example, to have student teams work on an issue such as global branding in different countries; and share their learning with the class when they return. The reflection piece is crucial. It is important to build leadership skills in the context of a global world.

Q: What are you working on now?

Garvin: I am on sabbatical and have been travelling to interview general managers in countries such as India, Japan, China, and Mexico, to ask about the distinctive challenges of their markets and organizations. I am developing several cases based on this research for my second-year course General Management: Processes and Action. I certainly think differently about leadership and management than I did since we began researching and writing this book.

Datar: I am looking at how implementation and execution strategies vary across countries. I'm also continuing my research in microfinance. I am particularly interested in understanding how microfinance helps alleviate poverty. I am also looking at how incentive systems can be designed to promote long-run performance.

Excerpt from Rethinking the MBA: Business Education at a Crossroads

By Srikant M. Datar, David A. Garvin, and Patrick G. Cullen

Rethinking the MBA: Business Education at a Crossroads

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.

Footnotes:

13. All data on job placements have been drawn from the case studies that appear in this book.

14. Louise Story, "Bye, Bye B-School," New York Times, Sunday Business Section, September 16, 2007, 1, 9.

About the author

Martha Lagace is the senior editor of HBS Working Knowledge.

Excerpt reprinted with the permission of Harvard Business Press from Rethinking the MBA: Business Education at a Crossroads. Copyright 2010 Srikant M. Datar, David A. Garvin, and Patrick G. Cullen. All rights reserved.

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