Wednesday, September 30, 2015

Early Indications September 2015: The MBA at 100 (or so)

It’s mostly coincidence, but the MBA degree is at something of a crossroads entering its second century. A short list of big questions might begin as follows:

-What is the place (pun intended) of a two-year resident MBA in a global, Internet era?

-What is the market need for general managers versus specialists in finance, supply chains, accounting, or HR, for example? How does market supply align with this need?

-What is the cost and revenue structure for an MBA program outside the elite tier? 

-How can business degrees prepare graduates for a highly dynamic, uncertain commercial environment?

-What do and should MBAs know about the regulatory environments in which their businesses are situated?

-What is and should be the relationship between managerial scholarship and commercial practice?

-What is the relationship of functional silos to modern business practice? Marketers need to know a fair bit of technology to do mobile ad targeting, for example, as do equities traders in the age of algorithmic bots. Navigating the aforementioned regulatory landscape, meanwhile, draws on an entirely different range of skills generally not covered in management or negotiation classes. Is the MBA/JD the degree of choice here?

-How can and should U.S. business schools teach ethics, which are highly culture-specific, to students from many home countries who will likely work in still another country/culture soon after graduation?

2015 is not happening in a vacuum, of course. The first graduate school of business, Tuck, offered the Master of Science in Commerce after its founding in 1900. (Recall that the functionally organized corporation was at the time a fairly recent phenomenon: railroads split ownership from management in part because of the huge capital requirements, and the vast distances involved meant that managers often lacked direct visibility of workers. Thus, in broad strokes, the late 19th century began the age of policies and procedures, and the idea of a middle manager.) Harvard launched its MBA program eight years after Dartmouth, with significant help from such scientific management exponents as Frederick Winslow Taylor. Enrollments surged: Harvard alone grew from 80 students to nearly 1100 in 22 years. Unsurprisingly, other universities began offering the degree: Northwestern in 1920, Michigan in 1924, Stanford in the late 1920s, Chicago in 1935, UNC in 1952. According to the office of the university archivist, Penn State began offering the MBA in 1959.

1959 was also the year two different reports, commissioned by industrialists’ foundations — Ford and Carnegie — reoriented American graduate business education. The more strongly worded of the two, by Robert Aaron Gordon and James Edwin Howell, systematically attacked the entire institution of the MBA as it then stood: students were weak, curricula were sloppily constructed, and faculty taught with little academic rigor at many schools.

The Gordon-Howell report quickly influenced accreditation and related discussions. New courses on many campuses covering strategy were at the forefront of a larger emphasis on quantitative methods and theory. What was not well addressed, according to many critics, was the practice of management itself. Balancing theory and practice has never been simple in business — as compared to medicine, companies do not conduct clinical trials parallel to those of drugs or procedures. 

Entrepreneurship has proven particularly hard to teach: on any list of great business-launchers, few hold the MBA. None of the following hold the degree: Paul Allen, Jeff Bezos, Sergei Brin, Warren Buffett, Michael Dell, Larry Ellison, Bill Gates, Jim Goodnight (SAS Institute), Bill Hewlett and David Packard, Steve Jobs, Elon Musk, Ken Olsen (Digital Equipment), Pierre Omidyar (eBay), Larry Page,   Sam Walton, and Mark Zuckerberg. 

MBAs can of course do quite well for themselves, as Michael Bloomberg and Nike’s Phil Knight (a 4:10 miler at Oregon 50 years ago) prove. Still, there appears to be a negative correlation between academic achievement, particularly in the MBA, and entrepreneurial accomplishment. Ten of the top sixteen richest self-made people in the world did not finish college or dropped out of grad school: Gates, Ellison, Zuckerberg, Sheldon Adelson (casinos), Page and Brin, Carl Icahn, Steve Ballmer, Harold Hamm (oil and gas at Continental Resources), and Dell.

Apart from not being able to produce mega-entrepreneurs, what of the more real-world challenges to MBA programs noted above? In reverse order, a few notes on each:

-Ethics has never been an easy topic to include in a business curriculum, but as the world’s top schools continue to get more global, trying to say anything stringent encounters the reality of cultural diversity. Sanctions against bribery, greed, ostentation, money-lending (with interest), and constraints on the role of women and ethic minorities are impossible to align; even the U.S., Canada, and England do some things very differently despite many similarities. The ethical lapses of the early 2000s — at Waste Management, Enron, Adelphia, and HealthSouth, among many others — put some focus on business schools (along with accounting firms) as agents of better behavior. In light of recent scandals at Toyota, Volkswagen, and GM, to name only the automakers, the challenge for MBA curricula does not appear to be any less daunting than in the crisis years of 2002 or thereabouts.

-Teaching students to work across functions and to deal with regulatory bounds and procedures continues to stymie MBA programs. We teach an integrative consulting-project exercise in the 4th semester; Harvard teaches something similar across the whole first year. Numerous programs have moved the project-based course back and forth, with equally compelling logic for early and late inclusion. Seeing how messy real problems are prepares students for the functional courses, while having some base of knowledge before being turned loose on a client also has merit. No one approach has emerged as a winner from the many variations being used.

-Managerial theory and practice remain difficult both to do and to convey more than a half-century after Gordon and Howell. Scholarship that gets published tends not to come from practitioners (Clayton Christensen is a notable exception, having run a company before earning his doctorate at Harvard), while managers and executives remain understandably wary of controlled experiments on live business units. Professors’ contributions to the semi-academic journals that practicing businesspeople might read — Harvard Business Review, Sloan Management Review, California Management Review, and the like — usually do not count heavily (if at all) toward tenure or promotion. For their part, many managers tell me they find little of value in the A-list journals held in academic esteem. Suffice it to say there remain many opportunities to improve the dialogue between the factory or office and the academy. 

-How can MBA programs teach resiliency, creativity, willingness to challenge convention, and the other traits required in a particularly turbulent business landscape? Marc Benioff, the CEO of, is far from a disinterested observer, but it is difficult to disagree with his recent contention that essentially every industry is in the midst of or about to confront fundamental change. Whether from fracking, Uber, mobile platforms, Amazon, or demographics, every business (and governmental) unit I can see is hard-pressed to do things “the way we’ve always done it around here.”

An entrepreneur (whose masters was in arts management) told me a cautionary tale back in the dot-com boom. “We’re a startup,” he said. “Strategy for us isn’t chess, it’s poker: we have to bluff because we can’t compete with the big guys at scale, with equal playing pieces on a defined board with agreed-upon rules. We faked features in the demo we couldn’t deliver. We have had months where we couldn’t make payroll. We’ve reinvented our business model three times. That’s the reality. We hired a bunch of top-school MBAs to try to compete better, and had to let them all go. Why? These men and women all had good grades in high school. They cleared the next hurdle and got into a good college, then positioned themselves to deliver the right answers, earn As, and get into Ivy League b-schools. There it was more of the same: high achievers got the top internships at the I-banks and consulting firms. They’ve always been rewarded for getting the right answer. Now we have all this chaos and instability. None of them can handle it; they keep wanting to know the answer and there isn’t one.”

Fifteen years later, I can’t see that the incentive structure has changed all that much. Doing well in controlled environments seems to be counter-intuitive preparation for radical reinvention, new rules, unconventional insurgencies, and broken profit models.

-This atmosphere of disruption is affecting MBA programs themselves. Getting the costs, revenues, and rankings to acceptable levels has never been more challenging. Last year Wake Forest shut down its two-year resident MBA program, ranked in the top 50 in the US, as did Thunderbird, a pioneer in the internationally-oriented masters. In the past 5 years, however, 30 new schools earned AACSB accreditation in the U.S.; 96 others had joined the club in the preceding decade. Thus competition for students, faculty, and resources is intense, and the international nature of the MBA means that foreign competition is accelerating even faster than those 126 newly-accredited U.S. institutions would suggest: Poets & Quants states in a recent article that there are 50% more MBAs being earned today than ten years ago, so filling those classes is a challenging job. Marketing efforts to reach prospective MBA students are in something of an arms race, so many schools are cheered by a reported uptick in applications. Unfortunately, nobody can know if more applications is a result of more applications per student or more students jumping into the pool. Amid both increased competition and rising costs (health care continues to outpace other expenses), increasing tuition is a non-starter in most circumstances, so schools are confronting the need for creative alternatives if they are to avoid the approach taken at Wake Forest.

-An MBA is by definition something of a generalist, even with a curricular focus area in one or two functions. Meanwhile specialized business masters, in finance, accounting, marketing, or whatever, are on the rise. I have undergrads ask me about the relative merits, and each has its place. For many mid-career professionals, having an alternative to the generalist approach is attractive. Our supply-chain masters students, for example, never take courses in HR, real estate, finance, or general management: all the courses presuppose one business area rather than a variety. With years or decades already invested in that function, these students did the career calculus and concluded that the generalist approach did not make sense for them. They are far from alone, given the national trends.

-Thus we end where we began: what is the place of a 2-year, resident MBA? Each of those variables is getting interesting. Duration: INSEAD offers a 10-month program; one-year options are not uncommon. Locus: On-line MBAs are being offered all over the world, executive (weekend) MBAs allow students to keep their jobs and their lodging stable, and hybrids like the program at Carnegie Mellon combine multiple delivery methods. Content: As we have seen, different masters degrees in business are being offered in response to market needs, including for more depth of coverage: if one considers the complexity of contemporary finance, or supply chains, or accounting, having only a handful of courses within a generalist curriculum may not provide adequate preparation for the job’s primary duties, while the breadth of coverage has minimal compensatory value.

Numerous observers, including The Economist, predict major changes to the MBA market, particularly outside the top 20 or so schools. Today’s junior faculty joining the ranks will be in for a wild ride in the coming decades. As with so many other areas, as Ray Kurzweil argues, the rate of change is accelerating: the world is changing faster, faster, and business education will likely change more in the next 20 years than in the first century. Happy 100th birthday, indeed.