The Evolution of the MBA

by Ben Perreira

Before you accuse me, take a look at yourself. – Eric Clapton

When I decided to get my MBA three years ago I didn’t know as much as I could have about what opportunities were out there and which doors were closing. I knew that a lot of successful people around me had MBAs and that a lot of jobs I wanted listed “MBA preferred” or “MBA required” high on the list of qualifications. If I were to do it again I would wait until I had been working for at least 5 years to have better perspective, but at the time it was sort of a no-brainer.

Follow enough business news sites and you will find a constant stream of op-ed pieces on the eroding value of the MBA degree.

The argument goes like this: Years ago you could get an MBA and become a member of an exclusive club, thus availing you to high paying jobs. In the last ten years there has been an increase in the supply of those with MBA degrees (due to online programs, people being out of work and going back to school, smaller schools offering the degree, etc.). Today, the degree does not deliver the ROI that it did in the past.

(You can read examples of the argument in long form here and here.)

All of this is true, and it makes sense when examined with a narrow lens. The fallacy in this argument is in assuming people have one goal when they get an MBA – to make the most money possible. They will use the degree to propel them into investment banks, consulting firms or management training at CPG brands.

Of course, the vast majority of people who enroll in MBA programs want to make more money than they are now making, but the motivation is often also to change careers, to accelerate their careers, to gain credibility, and to seek out challenges.

Vacations, sporting events, going to the gym and buying cars all have very poor ROIs. We “invest” in these things with the expected dividend of later enjoyment.

Add to the problem of an increase of the supply of MBAs the decrease in demand. Which is to say, a dissatisfaction with the way old school MBAs looked at the world. Anything that could be quantified would be counted and added to the master Excel sheet. Anything that gave a little when poked was assumed to be unimportant. There is a reason why the “Add $500k in valuation for every engineer, subtract $100k in valuation for every MBA” maxim exists in the startup world. Why hire someone who has been trained to be an egotistical machine?

My colleagues and other new MBAs I’ve met look at the world as a complex place that requires flexibility. They are prepared to roll up their sleeves at startups, join nonprofits, or lead HR teams. They know that there is a fertile territory beyond ratio analysis. They know that if Michael Porter can fail, so can they. They know that increases in income have diminishing marginal returns, that the difference between $50k and $150k is much greater than the difference between $400k and $500k. They want to do interesting work and realize that the money will come when they have proven themselves. They know that the future is hard to predict so they don’t bother worrying about the NPV of their MBA. They know they will pay it off eventually, so they get back to focusing on making things happen.

It is not surprising that old school MBAs would misfire on valuing the degree in changing times. Change was not part of the model. Luckily, we’re learning from their mistakes.