The MBA's last gasp

Business schools sell an outdated product. It's time for a reinvention.

After 25 years of recruiting and talent development for strategy consulting, I now see clear signs that the traditional MBA is approaching the last phase of its product life cycle, the phase of decline. As is often the case in the late stages of product life cycles, the proponents of the product are so busy defending it that they are missing the opportunity to reinvent it.

When the master of business administration was introduced in the 1940s, it filled a specific educational and vocational void. Up until then, while there were graduate degrees in fields related to business, such as accounting and economics, business was to be learned by doing business. The school of hard knocks remained a staunch competitor, and the MBA initially grew slowly.

The high-growth phase of the MBA was in the 1970s, ’80s and ’90s, when many of the top graduates of MBA programs were drawn to management consulting and investment banking. They were recognized as accredited experts in business; companies paid high fees for their advice and often recruited these advisers into senior corporate roles.

This apparent fast track to lucrative professions and powerful positions buoyed demand for the MBA, and drove up tuition fees and program profitability. Most major universities soon launched MBA programs.

Now, with a multitude of programs offered, any qualified candidate who wants an MBA can find a school with a place available. Most corporations now have plenty of MBAs among their ranks. On top of this, the Internet gives everyone access to more and better information about markets and competition, and PowerPoint provides widespread access to the means to express it. As a former McKinsey & Co. colleague puts it: “Managers no longer need to go to experts to get data and write sideways on the page.”

This past decade signalled the top of the product “S-curve,” as the traditional MBA moved from a period of growth to maturity. In both the 2002 and 2008 market slowdowns, demand for strategy consulting and investment banking dropped, and so did the starting salaries of MBA graduates. Much of the remaining enrolment growth comes from developing markets. Business schools find themselves in a highly competitive market, chasing ratings and spending more and more on marketing.

So the traditional product is mature at best, with the following signs of decline.

1. The market doesn’t want more of the same. The financial crisis revealed the fallacy of the single-point objective function of traditional business education. Profit maximization in the absence of global understanding, community responsibility and leadership is dangerous. I interviewed Wall Street “graduates” for SECOR’s New York office in 2009. (There were many available.) Each said they knew they were contributing to a bubble; their bosses had told them to rake in as much as they could before it burst. We can’t blame the MBA for the crisis, but we can’t expect these same people to know how to fix it, either.

2. Students want more from a graduate degree than the traditional MBA offers. Undergraduate business programs have grown and strengthened in the past 25 years and many of my firm’s best hires in recent years came from the leading undergraduate programs. These programs attract some of the best students and teach them most of the content they would learn in a traditional MBA. Of those that then choose to go back for a graduate degree, more and more choose other disciplines rather than pursuing a largely redundant MBA.

3. Traditional program delivery will not meet the needs of the students of the next decade. Most MBA programs have benefited to at least some degree from the case approach, where discussion of real-world examples drives learning. A few years ago, I audited one of my daughter’s MBA classes at Harvard and was impressed with the expert use of the case method. However, consider the approaching generation’s experience with social media. Using the case method in the classroom, students can expect to contribute in about every second class and hear from about half the class on each case. That level of exchange ranks poorly relative to the pace and scope of dialogue to which the coming MBA students have become accustomed with social media.

In the heat of the battle for ratings and students, the traditional programs are making changes. Some have added courses in corporate social responsibility; others offer a fast-track 12-month program; some prescribe readings beyond the textbook, including blogs and other new media.

Such modifications remind me of the four- and five-masted sailing ships that were developed in the late 1800s to stave off the threat of the steamship — a little better, but a distraction from the needed reinvention.

Graduate business education needs to deal not just with business but also with leadership in a more complex world. Tomorrow’s market will expect leaders to understand the relationship between industry, economy and community, because the world now expects more responsible leadership and sustainable commerce. Tomorrow’s fast-track leaders will be less inclined to set aside their jobs for a traditional MBA. They will expect business schools to offer education that is truly advanced from an undergraduate degree. Tomorrow’s students will expect to learn more quickly, given the pedagogy and program delivery possible with technology and to which they are accustomed.

Moreover, the graduate degree in business is ripe for reinvention. For example, master’s programs in leadership, not just business, will better advance the experienced graduates of commerce programs for leadership roles. Such programs will also help develop leadership capacity in other sectors, such as government and the professions.

MBA programs that can be completed in-career are more likely to have a return on investment that makes sense to the student even after the finance class. In addition, corporate sponsors are tired of paying for general MBAs that have simply prepared their employees to leave. Industry-focused programs will better prepare employees to move up, rather than out.

Finally, the broader community post-crisis sees the MBA as an advanced degree in “greed.” If that reputation is to change, programs are needed that give something back.

As they teach in business school, true innovation is unlikely to come from the incumbents. So don’t just look to the leading business schools for change, but look to the schools that lead.

Ken Smith, PhD, MBA, ICD.D, is associate dean, executive programs, at the College of Management and Economics, University of Guelph