What good is an MBA? Isn’t a skill where you can build value a better idea?

What good is an MBA?  Aren’t MBAs the turkeys that led us into financial crisis while getting rich themselves?  Isn’t a skill where you can build value rather than devise complex money laundering schemes (like CDOs) a better idea?

The Harvard MBA says:

Since I’ve already addressed the role of Harvard MBAs in financial crisis, I’ll focus instead on the second half of the question: Does business school teach you any valuable skills?

The implicit assumption in the original question is that unlike in other fields, business education doesn’t build value.  No one wants to board an airliner designed by a college dropout, appear in court with a lawyer who learned his skills from reading popular law books, or submit to surgery by a self-taught doctor, yet when it comes to business, many people seem to have the attitude that anyone can do it, and that the MBA degree is simply an old boys’ club, much like a Ivy League secret society.

It may be that people feel this way because there are so many examples of successful self-taught businessmen; Bill Gates and Steve Jobs spring to mind immediately (somehow no one ever points out that the universally revered Warren Buffett studied at Wharton and earned an advanced degree from Columbia, along with his University of Nebraska BS).  Yet even these exemplars have benefited from the help of folks like Steve Ballmer (a Harvard MBA)  and Tim Cook (a Duke MBA).

The fact is, while business is not a hard science like medicine or engineering, it is a real discipline with a broad set of knowledge and skills, and business education does serve a purpose.

For example, how many regular folks understand accrual accounting or discounted cash flow analysis?  If you asked a man on the street to analyze why Wal-Mart is successful, would he be able to provide any insights beyond, “Low prices?”

Indeed, the very fact that MBAs were responsible for disastrous financial engineering products like CDOs (again, how many folks without an MBA really understand how these work) demonstrates the power of business knowledge.  Any tool of great power can be abused; medical knowledge can be used to devise bioweapons, engineering knowledge can be used to destroy buildings; why should business be any different?

It is also true that there are other ways to obtain these skills beyond attending an MBA program.  You could certainly find textbooks to teach you many of the same principles you might learn at HBS.  But the same applies to medicine, engineering, or any other complex field.

What an MBA does is give you a broad business education.  The fundamentals of business, if you will.  What you choose to do with that tool is ultimately up to you.  Choose wisely.

12 Comments

  1. Eu Ginn
    Posted June 28, 2009 at 6:44 pm | Permalink

    A solid perspective on the common MBA question, “to get or not to get?”. I belong to the “NO” group. However, after seeing your examples of “would you go to a pilot/lawyer/doctor” without a institute-credited background”, my perception does sway a little. I’m up for more discussion.

    What bachelor degree did you pursue?

  2. Nitty
    Posted June 29, 2009 at 3:27 pm | Permalink

    What a defensive response… you’d sound more credible if you’d acknowledge the MBA’s shortcomings along with its value. Of course you can point to accounting and finance as examples of an MBA’s value, but as an MBA grad myself, I’m well aware that an MBA also comprises marketing, strategy, entrepreneurship, and leadership – topics where you certainly CAN learn by doing rather than studying. Further, MBAs generally don’t go on to be accountants or to evaluate financial instruments – those are such specialized topics they are typically left for those with an MS in Accounting or Financial Engineering, while MBAs tend towards management. This is not to say there is no value from an MBA – of course being in a learning environment for 2 years is a positive experience – but the main benefit of an MBA is the networking and access to Fortune 500 recruiting, not some improved acumen in business.

  3. admin
    Posted June 29, 2009 at 4:29 pm | Permalink

    Eu,

    Notice that the question was not, “Should I get an MBA?” but rather, “Does an MBA have real value?”

    I do not actually recommend getting an MBA for everyone, though it is a useful education. The cost and opportunity cost of the 2 years is quite high.

    If you’re not sure you’re going to benefit from an MBA, you probably shouldn’t apply. That goes double for law school.

    I actually have two bachelor’s degrees–one in Product Design Engineering and one in Creative Writing. I never learned a thing about business in college.

  4. admin
    Posted June 29, 2009 at 4:33 pm | Permalink

    Nitty,

    Again, it’s important to consider the context of the question. It was not, “What is the value of a Harvard MBA?” but rather, “Does an MBA have any real value?”

    I’m on record many times as stating that networking and the alumni represent the majority of the value of an MBA (here is a good example: http://cli.gs/Bsd9US).

    I also didn’t suggest that an MBA is helpful for marketing, strategy, and entrepreneurship, because ultimately what an MBA provides is a grounding in the basics.

    Nonetheless, while I know many smart entrepreneurs without MBAs, few of them actually understand how to read a balance sheet or how other industries work. These may seem like basics, but a grasp of the basics is a very powerful tool.

  5. Mike
    Posted July 1, 2009 at 6:43 am | Permalink

    Thanks for taking time to answer the question. I think cost accrual accounting is a poor example of MBA value – anyone who wants to do that can do it, and you can learn it in a couple of days. No need for Harvard there :-)

    But I do think MBAs do add value – just a different type of value.

    A doctor studies medicine to learn how to bring new medicines and treatments to patients (value). An engineer studies mechanics to learn new ways to build things (value). An MBA doesn’t create or build things, but learns how to make money. This is a type of value (money has value), so it’s not nothing. But if the best MBA is measured as the one that makes the most money, you quickly find a competition between those willing to do anything to make a quick buck for themselves – unwilling to repay those that they took the money from. This is where the negative MBA perception arises.

    So a good example of an MBA, and where I believe an MBA provides good value is in optimizing an established business. For instance, figuring out how Crest Toothpaste should be optimized for its shareholders is mostly a MBA’s exercise – it’s an optimization of advertising, costs, distribution channels, understanding of competition, etc. The value added by the MBA is not in making better toothpaste, but in optimizing the business – turning the 1 dollar in profits into 1.25 dollars in profits, returned back to investors for a reasonable fee.

    Bad examples of MBAs are like the CDO manufacturing that you mentioned.

    For me, I work in Silicon Valley as an entrepreneur, founding and participating in several successful startups. I don’t believe MBAs offer value here, and I will not likely hire an MBA within the first 100 employees again. Why? Because while an MBA can help you make more money, an MBA is uniquely unqualified to help build a business of long-term value. Why? Because intrinsic to the MBA is how to make money right now, regardless of whether you’re building long term value. History has shown us the results of this pursuit time and time again, and it is never pretty.

    Like those that created the CDOs, the MBAs that flocked to Silicon Valley in the 90’s were the cause of our two recent tech bubbles. They were merely chasing those who create real value (entrepreneurs), and offering their own MBA secret sauce – “money making”. Of course, everyone wants money and entrepreneurs eagerly enlisted their help. But at the end of the day, what was left? Like with the CDOs, when the dust settles and the money has been extracted, the MBAs scurry and a lot of people who bought into the hype are left holding the bag.

    I think entrepreneurs need to be very cautious about hiring an MBA. The longevity of any business depends on making money in a healthy and profitable way. As you point out, an MBA “gives you a broad business education”. But startups don’t need “broad” – startups are almost always hinged vertically. Startups need deep, focused understanding of specific attributes of a small business – skills you can’t possibly get at Harvard. And this is why most tech startups were not founded by MBAs (Microsoft, Apple, Cisco, Netscape, Google, HP, SGI, Yahoo, etc).

    What you can get at Harvard or Stanford, however, is learning how to make money for the here and now. This is what drove the the Housing bubble, the Tech bubble(s), and will drive the next bubble. Unfortuantely for the entrepreneur, you never know if you’ll get a good MBA or a bad MBA when you hire one. The best course of action is to only hire an MBA once the business is established and you really need someone to optimize the money. That is what an MBA should be able to add value at.

  6. JP
    Posted September 11, 2009 at 8:32 pm | Permalink

    In response to Mike’s comments I understand his point of view. However, one should not place all MBAs under one category. You have to analyze the backgrounds of MBAs – some were engineers, others lawyers, analysts, etc. – which will provide the depth or lack of depth that one seeks in recruiting.

    I have been an engineer for 7 yrs in telecom product development, but want to expand my soft skills and develop my business acumen to work in management in high-tech companies. My depth would come from that experience and would be balanced by an MBA.

  7. C
    Posted January 21, 2010 at 6:30 am | Permalink

    Steve Ballmer is actually a dropout from Stanford GSB, not a Harvard MBA.

  8. Edwin
    Posted May 28, 2010 at 11:26 pm | Permalink

    hello, im an msc at a top BS. in the uk. my question no Nitty is where did u do ur MBA? since MBA can differ widely.. and also.. if you did do it at the likes of harvard, ur opinion truly makes on think again about the value of an mba.. if the core reason, which is learning superhero business skills is not really there. personally i don’t see THAT much in academia and the mba program here is 2nd in uk, however it doesn’t seem worth leaving a top industry position for. and only seems worth leaving in order to get the certificate, and leverage it to get a better job!! no exceptional added skills value!

    Anyways, i would like to go for an MBA in the future for status, and to open doors, and bust the myths i may have and see for myself. however my second question is: how could one country such as the US have a 2 year course, whilst the UK manage to condense the course in half!!! on one hand i would rather save a whole year of my life!! and on the other hand, i have met US MBA alumni from bschools such as berkley, stanford etc. and was quite in awe of their brilliance!!!!!!

  9. Edwin
    Posted May 28, 2010 at 11:32 pm | Permalink

    i just wanted to add: regarding the brilliance, i was wondering whether it was due to their extensive industry experience, or their MBA training. and i believe it is both! you cannot get the job, or have a deep enough understanding of it to do well without the MBA training. and you can barely get any use out of the MBA if you do not combine it with allot of working experience both pre and post!!

  10. KC
    Posted June 15, 2011 at 3:37 am | Permalink

    “You can get a degree in business?” This was a statement I occasionally encountered when attending business school. “Yes”, I replied, “you can even get a doctorate in the subject”. The point is the business degree is unlike a professional degree that requires a state board exam and licensing such as a doctor or lawyer although it can be just as complex.

    There are many who feel that MBAs should complete a board exam, have continuing education and become licensed.

  11. kate
    Posted April 26, 2012 at 4:53 pm | Permalink

    I am a PR expert and was hired by the dean of what is now considered one of the most ‘innovative’ business schools in the world to put the school on the map and build his profile. I don’t have and MBA nor have I ever run a corporation. I just sat at my desk making up intellectual property and ghost writing moronic soundbites for him to say. I was so horrified that there was nobody home in that place that it became a game for me. At one point, I reframed the basic curriculum for kindergarten teachers and it was dubbed “integrative thinking”. The students and most of the ‘leaders’ who came to the school had no ability to discern whther this kind of discourse for simpletons could have value or whether it was original and measurable in a real world environment. In fact, they generally met everything with thunderous applause, even though these are ideas a grade 5 student should be well familiar with. I can tell you: MBA schools are selling pure snake oil. The kindergarten teacher curriculum recently earned 6th place in Thinkers 50. It is tragic what is happening to our leading institutions of higher learning.

  12. Posted May 8, 2012 at 5:10 pm | Permalink

    I don’t know much about the value of an MBA in society, but I can tell you that MBA graduates are some of the smartest and hardest working people I know. I would disagree with the statement that businessmen with MBAs suck all the money away from business owners and leave with all the profits. I think people with MBAs influence and stimulate growth in our capitalist economy.

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