The sorry waste of MBA programs
Well I’ve wasted the last decade getting an MBA and then making my way through a career in commodity markets that wasn’t fulfilling. I’ve revisited often over the years the assumptions and mis-impressions that premised my entry into MBA. I’ve done my best to talk logically to anyone who has approached me about the wisdom of doing an MBA in a top flight program and to dissuade them from pursuing the MBA – I’ve never deterred anyone to date. Perhaps no one could have deterred me from doing MBA either. But I must write my best reasoning here and leave it for google to carry my memes to new crops of MBA hopefuls.
So here are the myths and poor assumptions I held – if I had a different view on these factors perhaps I wouldn’t have taken the fork in the road that led me to the MBA.
Surely something so expensive is very scarce
The top 10 programs put out ~ 600 grads per year – that’s about 6,000/yr put together. If you add in their executive MBA, part time and other gimmicks they use to boost their revenue these top10s put out ~10k grads/year jointly. So what? In a work force of 130 MM people 10k is still a rarified circle you might think. But consider that there are the yesteryear vintages still trawling the job markets also plying their top10 brand and also that the number of GoldKinsey jobs are very finite (more below on this). Sadly in all the smoke-and-mirrors of the MBA application process the facts were available to me that the school I went to accepted 25% of the applicants and that they would put out 500+ graduates along with me from whom I would be distinguishable only in unflattering ways. Doldrum U. you think? – no this school has been consistently near the top of the businessweek top10 full time programs in the last decade (and much longer in fact). There was nothing scarce about the opportunity I was paying dearly for, and the facts were there to be evaluated though buried in heavy marketing hype. But if you knew the right questions to ask, the answers would have been apparent.
MBA will help me make a career transition
Somewhat so. In a good economy when labor supply is scarce employers are more willing to take chances on a career changer who thinks he has metamorphosed into something else. But you cant guarantee what the shape of the economy will be in the 12 months from your entry point into an MBA which is when the career benefits get locked in for you in the typical 2 year program – and if you are prescient about the state of the economy 12 months hence, you have better ways to make money than taking an MBA education. My experience was that employers saw me as a fat-dumb-happy 7 years experienced engineer who had grown lazy -- and they were mostly on the mark. I wasn’t hungry and hence wouldn’t make the sacrifices in their nearly correct reckoning. But it begs the higher question: if you have the hunger for a career transition do you think the MBA enables you to make it? Moderately so, I think, with some retraining and putting you in front of employers. But if 80% of getting there is your hunger and 20% is the MBA, is that 20% boost worth $100k+ in outlays + foregoing 2 years of the surplus you would have generated staying in your job?
It’s the natural progression for the desi engineer
Where I come from, it was drilled in me from my earliest career discussions with my father that the path to nirvana was the IIT BS + IIM MBA. That was the golden combination. But I’m not holding this on my parents – its not my point at all. This was the orthodoxy of the times. _Everyone_ drilled this into their children. As it worked out, I went to neither. But the mindset was there that if you had the means you went for the top10 MBA. But the facts around us are that there are plenty of desi engineers who do pretty well with their BS or MS in engineering. Those who got MBAs are on expectation only a little better paid (expectation here means average value) – the vast majority of the MBAs are just 2 years older, with only few of them being fabulously better paid because they got to GoldKinsey. The people who get ahead in their careers typically do so, in my observation, by a combination of better technical skills and better management of people, not because of an MBA. Orthodoxy eventually becomes obsolete – if enough people over successive generations follow the same conventional wisdom it ceases to hold value. This is not controversial in the abstract, but somehow does not find resonance in the context of the desi engineer + mba track – so many people are doing it that its really not that scarce / special to command a rent. The IIT + IIM combo or the MIT BS + Harvard MBA will have cachet for a long time probably, but please don’t delude yourself into thinking that the school that is 80% of MIT + 80% of Harvard will get you anywhere as far – the power law applies here. If you are 80% of the way to the stratosphere there still a lot of birds flying at your level.
The doors to GoldKinsey will be wide open to me
This too is is a variant of the ‘there is no scarcity you are generating’ argument. The brochures of the top10 are replete with the cases and pictures of people who look just like you (only a little more scrubbed) who made it to GoldKinsey. You tie that with the notion that your 700+ gmat and willingness to fork over $100k+ entitles you to the coveted place in the GoldKinsey associate pool. Your wishful thinking is reinforced by the brochures and the mutual congratulation of MBA forums, which obscures the facts that there will be 500+ people vying for the 50 spots at GoldKinsey, that whatever your distinct qualities were coming into MBA, almost everyone in your cohort now looks the same to the GoldKinsey recruiting team, everyone except the 50 or so who do have the material.
And what is your radar cross-section to the GoldKinsey recruiting team you might ask? – hastily scrubbed and newly versed in the cynicism of the Nash equilibrium but ego already well inflated with a sense of entitlement nurtured in an incestuous cauldron of self-congratulation. You come across as an imprudent risk taker, one with a poor valuation of money and just plain dumb on expectation. On _expecation_; GoldKinsey knows there are some diamonds scattered about, not least because GoldKinsey put many of them there in the 1st place (these are the GoldKinsey former analysts). These are the ones who have a fully paid 2 year vacation biding their time before they return to a plum PE assignment and resume their ordained track to becoming masters of the universe. These are the ones who will be called up to speak at the recruiting receptions ‘impromptu’ while you hang on to their every word over brie and baba ganoush and crackers and you will at that watershed moment catch a glimpse of the eclipse of your post MBA prospects by these obviously better developed individuals who will smile at your over the wine just as surely as they will brush past you in the hallways tomorrow. You are to a first approximation only worth to them the points you will bid for an interview on the open list – don’t know what I am talking about? I hope you don’t get far enough along to find out. For that is sadly one of the dubious pieces of development one acquires in MBA: the crass appraisal of another’s utility.
To my observation, the 50 or so worth ones were indeed my betters, they had the goods, but guess what? – they had the goods when they arrived. The MBA didn’t transform them, and couldn’t have; with the mad dash to launch summer recruiting, brush up your case frameworks or practice your schmooze before you receive any substantial education makes the place take on more of an air of the anteroom in a debutante ball (how would I really know? -- but this writes good). To my eye, the MBA program allowed the diamonds in the rough the opportunity to present themselves in a relatively rarified showing – stay tuned for signaling theory.
The training is scarce, arcane and valuable
The professors are rock stars, they are the ‘thought-leaders’ such as it is. But there is not a lot thought here. Economics thinking is still fairly superficial compared to what you see in the natural sciences. These professors hobble themselves with dogmas like market efficiency, rational actors, risk neutrality – the odd behaviorist academic will do only a little to redress these punishingly childish assumptions. I sat dumbfounded through a labor economics class which spent much of its treatment on the ‘ceo salary as a trophy challenge’ apology for executive compensation, the ‘stock options align the risk appetite of the cXo with the shareholders interests’ apology and other matters of pertinence in the plush gulfstream jet sailing through the rarified upper reaches of the atmosphere, but this class would not condescend to talk about what makes the working-stiff show up to his blue collar job most days and be sober enough to turn the wrench.
The theory of marketing is doubly nebulous only served up with a stronger dose of rhetoric and unjustified conviction. The finance theory is a little more anchored in ground, and the naïve assumptions are honestly laid out but render the analysis of little use nonetheless – though atleast the finance discipline gets points for admitting its tenuous link to reality. But perhaps the most immutable words are from Andrew Lo: “In physics it takes three laws to explain 99% of the data; in finance it takes more than 99 laws to explain about 3%.”
As unimpressed as I am about the value of what is proferred as theory, let us take for argument that it is valuable. You can get 80-90% of the theory from lesser MBA programs where the professors wont be stars though with not quite the flourish and the theatrical delivery, but nonetheless on an objective measure it will be nearly as good. Is the cost delta of getting the material from the top10 MBA worthwhile? I don’t think it is.
The wisdom of the professors
In the classes I gleaned 3 pearls from the brilliant (I’m not kidding) professors who ambivalently viewed us as both the source of their ample rent and also as their gullible charges. Skilled in the delicate art of being indelicate with the stooges (that’s you the MBA aspirant) they made 3 points over and over.
But as an investment any deal has a cost and a benefit. If you are setting aside the intellectual benefits (more on this) and looking at MBA as an investment, fine, do the analysis. I am lazy so I will give a simple and vulnerable calculation. But I think you will atleast grant me that it is not mischievously tweaked. I am assuming on expectation for all numbers below. He will incur $150k in expenses over 2 years ($90k in tuition, 40k in living expenses, 20k in forgone surplus of 2 years of working). He will get $10k of increased surplus each year after MBA on expectation – a few will get $200k jobs for five years, most will get $100k jobs, a small fraction <1% will get millions. At 5% discount rate (since I am taking expected cash flows I am just going risk free on the discount rate, if I were to use a lottery ticket cash flow I would use a high discount rate) and assuming a 30 year work span post MBA I get npv of -$13k. Before you whip out your HP12C in a preppie wall street strut please pause to note the moving parts above and that you could get any answer you want, but I feel my inputs are fairly uncontroversial and arrive at this result. This near-zero NPV is why your corporation finance professor in a passing sleight of hand will allude to the real-option value of the MBA. A lot of break-even / moderately value losing propositions are couched in the logic of real options.
In all of this diatribe of I haven’t had the chance to expose the intellectual vacuum that is the MBA program. I went to a program that prided itself as being rigorous and quantitative. But schooled in engineering I understood immediately that the curriculum and expectations of the professors were extremely unchallenging in both aspects; the tone was to dumb it down and the atmosphere did nothing to prod the already incurious MBA mind. There was little rigor in developing the theoretical under-pinnings, no one cared anyway, inquisitive questions I posed to professors without a ready motivation of how will this help me make more money (especially when asked of the performing star type professors) were treated with ridicule which was well received by a mirthful and mocking student body, provocative case write-ups invited the TF/prof to bleed all over them while trite, equivocating prose brought praise.
So could the MBA be good for anything? I can see some people who might actually get something good from it.
Some nuggets I got from it included an exposure to the social sciences. In the coursework I saw a window into another world where people talked about political science and international relations, Coase’s theory of the firm, network externalities and other neat ideas. I also got to take a picture with some Nobel laureates. I got a handle on the literature to make inroads into lines of individual inquiry (I got a reading list). I learned to parse the finance media and cut through a lot of BS in making investing decisions – ultimately I lost more in 2008 in investments than the tuition I paid for the MBA, but I don’t know the counter-factual; I could’ve lost more.
I didn’t have google or blogs 10 years ago when I was looking into MBA. Perhaps the facts / logic even if they were served on a platter wouldn’t have made a difference to me. But perhaps you could be a little more open-minded than I and evaluate the situation for your individual self and not conform to an obsolete orthodoxy. Whatever you do, don’t feel motivated to get an MBA if you saw something here that you didn’t quite understand and want to learn more about it – that’s what Wikipedia is for.
So here are the myths and poor assumptions I held – if I had a different view on these factors perhaps I wouldn’t have taken the fork in the road that led me to the MBA.
Surely something so expensive is very scarce
The top 10 programs put out ~ 600 grads per year – that’s about 6,000/yr put together. If you add in their executive MBA, part time and other gimmicks they use to boost their revenue these top10s put out ~10k grads/year jointly. So what? In a work force of 130 MM people 10k is still a rarified circle you might think. But consider that there are the yesteryear vintages still trawling the job markets also plying their top10 brand and also that the number of GoldKinsey jobs are very finite (more below on this). Sadly in all the smoke-and-mirrors of the MBA application process the facts were available to me that the school I went to accepted 25% of the applicants and that they would put out 500+ graduates along with me from whom I would be distinguishable only in unflattering ways. Doldrum U. you think? – no this school has been consistently near the top of the businessweek top10 full time programs in the last decade (and much longer in fact). There was nothing scarce about the opportunity I was paying dearly for, and the facts were there to be evaluated though buried in heavy marketing hype. But if you knew the right questions to ask, the answers would have been apparent.
MBA will help me make a career transition
Somewhat so. In a good economy when labor supply is scarce employers are more willing to take chances on a career changer who thinks he has metamorphosed into something else. But you cant guarantee what the shape of the economy will be in the 12 months from your entry point into an MBA which is when the career benefits get locked in for you in the typical 2 year program – and if you are prescient about the state of the economy 12 months hence, you have better ways to make money than taking an MBA education. My experience was that employers saw me as a fat-dumb-happy 7 years experienced engineer who had grown lazy -- and they were mostly on the mark. I wasn’t hungry and hence wouldn’t make the sacrifices in their nearly correct reckoning. But it begs the higher question: if you have the hunger for a career transition do you think the MBA enables you to make it? Moderately so, I think, with some retraining and putting you in front of employers. But if 80% of getting there is your hunger and 20% is the MBA, is that 20% boost worth $100k+ in outlays + foregoing 2 years of the surplus you would have generated staying in your job?
It’s the natural progression for the desi engineer
Where I come from, it was drilled in me from my earliest career discussions with my father that the path to nirvana was the IIT BS + IIM MBA. That was the golden combination. But I’m not holding this on my parents – its not my point at all. This was the orthodoxy of the times. _Everyone_ drilled this into their children. As it worked out, I went to neither. But the mindset was there that if you had the means you went for the top10 MBA. But the facts around us are that there are plenty of desi engineers who do pretty well with their BS or MS in engineering. Those who got MBAs are on expectation only a little better paid (expectation here means average value) – the vast majority of the MBAs are just 2 years older, with only few of them being fabulously better paid because they got to GoldKinsey. The people who get ahead in their careers typically do so, in my observation, by a combination of better technical skills and better management of people, not because of an MBA. Orthodoxy eventually becomes obsolete – if enough people over successive generations follow the same conventional wisdom it ceases to hold value. This is not controversial in the abstract, but somehow does not find resonance in the context of the desi engineer + mba track – so many people are doing it that its really not that scarce / special to command a rent. The IIT + IIM combo or the MIT BS + Harvard MBA will have cachet for a long time probably, but please don’t delude yourself into thinking that the school that is 80% of MIT + 80% of Harvard will get you anywhere as far – the power law applies here. If you are 80% of the way to the stratosphere there still a lot of birds flying at your level.
The doors to GoldKinsey will be wide open to me
This too is is a variant of the ‘there is no scarcity you are generating’ argument. The brochures of the top10 are replete with the cases and pictures of people who look just like you (only a little more scrubbed) who made it to GoldKinsey. You tie that with the notion that your 700+ gmat and willingness to fork over $100k+ entitles you to the coveted place in the GoldKinsey associate pool. Your wishful thinking is reinforced by the brochures and the mutual congratulation of MBA forums, which obscures the facts that there will be 500+ people vying for the 50 spots at GoldKinsey, that whatever your distinct qualities were coming into MBA, almost everyone in your cohort now looks the same to the GoldKinsey recruiting team, everyone except the 50 or so who do have the material.
And what is your radar cross-section to the GoldKinsey recruiting team you might ask? – hastily scrubbed and newly versed in the cynicism of the Nash equilibrium but ego already well inflated with a sense of entitlement nurtured in an incestuous cauldron of self-congratulation. You come across as an imprudent risk taker, one with a poor valuation of money and just plain dumb on expectation. On _expecation_; GoldKinsey knows there are some diamonds scattered about, not least because GoldKinsey put many of them there in the 1st place (these are the GoldKinsey former analysts). These are the ones who have a fully paid 2 year vacation biding their time before they return to a plum PE assignment and resume their ordained track to becoming masters of the universe. These are the ones who will be called up to speak at the recruiting receptions ‘impromptu’ while you hang on to their every word over brie and baba ganoush and crackers and you will at that watershed moment catch a glimpse of the eclipse of your post MBA prospects by these obviously better developed individuals who will smile at your over the wine just as surely as they will brush past you in the hallways tomorrow. You are to a first approximation only worth to them the points you will bid for an interview on the open list – don’t know what I am talking about? I hope you don’t get far enough along to find out. For that is sadly one of the dubious pieces of development one acquires in MBA: the crass appraisal of another’s utility.
To my observation, the 50 or so worth ones were indeed my betters, they had the goods, but guess what? – they had the goods when they arrived. The MBA didn’t transform them, and couldn’t have; with the mad dash to launch summer recruiting, brush up your case frameworks or practice your schmooze before you receive any substantial education makes the place take on more of an air of the anteroom in a debutante ball (how would I really know? -- but this writes good). To my eye, the MBA program allowed the diamonds in the rough the opportunity to present themselves in a relatively rarified showing – stay tuned for signaling theory.
The training is scarce, arcane and valuable
The professors are rock stars, they are the ‘thought-leaders’ such as it is. But there is not a lot thought here. Economics thinking is still fairly superficial compared to what you see in the natural sciences. These professors hobble themselves with dogmas like market efficiency, rational actors, risk neutrality – the odd behaviorist academic will do only a little to redress these punishingly childish assumptions. I sat dumbfounded through a labor economics class which spent much of its treatment on the ‘ceo salary as a trophy challenge’ apology for executive compensation, the ‘stock options align the risk appetite of the cXo with the shareholders interests’ apology and other matters of pertinence in the plush gulfstream jet sailing through the rarified upper reaches of the atmosphere, but this class would not condescend to talk about what makes the working-stiff show up to his blue collar job most days and be sober enough to turn the wrench.
The theory of marketing is doubly nebulous only served up with a stronger dose of rhetoric and unjustified conviction. The finance theory is a little more anchored in ground, and the naïve assumptions are honestly laid out but render the analysis of little use nonetheless – though atleast the finance discipline gets points for admitting its tenuous link to reality. But perhaps the most immutable words are from Andrew Lo: “In physics it takes three laws to explain 99% of the data; in finance it takes more than 99 laws to explain about 3%.”
As unimpressed as I am about the value of what is proferred as theory, let us take for argument that it is valuable. You can get 80-90% of the theory from lesser MBA programs where the professors wont be stars though with not quite the flourish and the theatrical delivery, but nonetheless on an objective measure it will be nearly as good. Is the cost delta of getting the material from the top10 MBA worthwhile? I don’t think it is.
The wisdom of the professors
In the classes I gleaned 3 pearls from the brilliant (I’m not kidding) professors who ambivalently viewed us as both the source of their ample rent and also as their gullible charges. Skilled in the delicate art of being indelicate with the stooges (that’s you the MBA aspirant) they made 3 points over and over.
- Econometric research shows that the only statistical outcome of getting an MBA is a 2 year increase in age. The research couldn’t show a change in salary, job satisfaction, or any of the other fleeting promises of the MBA but it did unequivocally show that people who get MBAs get to be 2 years older.
- Signaling: this is the finest idea you will read in this article IMO. The NPV on expectation is going to be –ve for getting a full time MBA (simple calcs later), but the ridiculous expenses are a signal. What makes an effective signal? – something that is absurdly expensive for a phony to display, but for a candidate with the legit package it is profitable to incur the expense. The implication is that the higher the expense of the MBA education, the better it becomes as a legitimate signal since the individuals with private information of their superior fitness will be more credible in displaying their qualities by incurring the handicap of the MBA expense “here I am $100k lighter, take me I am worthwhile and I know I will be able to make it back; if I was a faker I’d be ruining myself for I’d be found out in < 3 months”; the tacit admission the professors make here is “we know our classes and program wont transform you, but you get to hang out with the smartest profs here and get the chance to demonstrate your fitness by taking on the handicap”. Beautiful, elegant, marvelous theory I resort to banal praises here; it is at the confluence of evolutionary psychology and the economics of information and inverts the concept of adverse selection in a brilliant tour-de-force. Signalling theory finds it inspiration in the work of people like Amotz Zahavi reviewed adequately in Wikipedia: http://en.wikipedia.org/wiki/Signalling_theory, but magnificently in the books ‘The Selfish Gene’ and ‘The Mating Mind’ which invoke examples of male birds developing costly displays of colorful plumage to demonstrate their fitness to the female.
- Real options: a grand application of the theory of options to business flexibility a simple illustration is the option to operate a gold mine which has marginal cost of $1,100/oz. If the price of gold was $500/oz when the opportunity to invest was presented to you, you would say this mine is not profitable so there is no value I would give it other than zero. But wait, there is the probability however infinitesimal that the price of gold will rise above $1,100/oz and then I would be able to run this mine for a profit; when gold is below $1,100 you simply idle it, when it is in the money you run it. All good so far. But they shoehorn this concept in a mildly desperate attempt to apply it to the MBA value proposition. Its as if they were saying “we know the MBA proposition is –ve NPV on expectation, but in the uncertainty of the world you’ll be better armed with it than without.” Not quite analogous to the gold mine, because the gold mine does not waste while you wait for it to get in the money; the MBA recruiting opportunity has a half life measurable in months / quarters. If you graduate in a shitty economy, it wont pay for most of you. EVER!
But as an investment any deal has a cost and a benefit. If you are setting aside the intellectual benefits (more on this) and looking at MBA as an investment, fine, do the analysis. I am lazy so I will give a simple and vulnerable calculation. But I think you will atleast grant me that it is not mischievously tweaked. I am assuming on expectation for all numbers below. He will incur $150k in expenses over 2 years ($90k in tuition, 40k in living expenses, 20k in forgone surplus of 2 years of working). He will get $10k of increased surplus each year after MBA on expectation – a few will get $200k jobs for five years, most will get $100k jobs, a small fraction <1% will get millions. At 5% discount rate (since I am taking expected cash flows I am just going risk free on the discount rate, if I were to use a lottery ticket cash flow I would use a high discount rate) and assuming a 30 year work span post MBA I get npv of -$13k. Before you whip out your HP12C in a preppie wall street strut please pause to note the moving parts above and that you could get any answer you want, but I feel my inputs are fairly uncontroversial and arrive at this result. This near-zero NPV is why your corporation finance professor in a passing sleight of hand will allude to the real-option value of the MBA. A lot of break-even / moderately value losing propositions are couched in the logic of real options.
In all of this diatribe of I haven’t had the chance to expose the intellectual vacuum that is the MBA program. I went to a program that prided itself as being rigorous and quantitative. But schooled in engineering I understood immediately that the curriculum and expectations of the professors were extremely unchallenging in both aspects; the tone was to dumb it down and the atmosphere did nothing to prod the already incurious MBA mind. There was little rigor in developing the theoretical under-pinnings, no one cared anyway, inquisitive questions I posed to professors without a ready motivation of how will this help me make more money (especially when asked of the performing star type professors) were treated with ridicule which was well received by a mirthful and mocking student body, provocative case write-ups invited the TF/prof to bleed all over them while trite, equivocating prose brought praise.
So could the MBA be good for anything? I can see some people who might actually get something good from it.
- The rock star GoldKinsey ex-analyst with the fully paid ride can make a fantastic vacation out of it, kinda like a cruise with a delightful buffet of classes, clubs, networking opportunities and fawning acolytes.
- The immigrant who has no other connection to America can make a good punt on credit. Don’t put your own money down, enjoy the ride for 2 years if you get a great job in America fine, pay back the loan. If you don’t, default! I cant imagine they have liens on your diploma, but even if they manage to do that what have you really lost? Return to India or wherever with an amazing experience of a lifetime on Citibank’s nickel.
Some nuggets I got from it included an exposure to the social sciences. In the coursework I saw a window into another world where people talked about political science and international relations, Coase’s theory of the firm, network externalities and other neat ideas. I also got to take a picture with some Nobel laureates. I got a handle on the literature to make inroads into lines of individual inquiry (I got a reading list). I learned to parse the finance media and cut through a lot of BS in making investing decisions – ultimately I lost more in 2008 in investments than the tuition I paid for the MBA, but I don’t know the counter-factual; I could’ve lost more.
I didn’t have google or blogs 10 years ago when I was looking into MBA. Perhaps the facts / logic even if they were served on a platter wouldn’t have made a difference to me. But perhaps you could be a little more open-minded than I and evaluate the situation for your individual self and not conform to an obsolete orthodoxy. Whatever you do, don’t feel motivated to get an MBA if you saw something here that you didn’t quite understand and want to learn more about it – that’s what Wikipedia is for.
Labels: mba programs, signaling theory, top 10
posted by Smurfy at 1/25/2010 06:43:00 PM
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