The MBA's Value? Debatable

Posted by: Louis Lavelle on January 13, 2012

A recent headline on Poets & Quants posed the question “MBA Still Worth It?” It then supplied the answer: “Absolutely, Say Alums.” If only it were that simple.

The P&Q story is about the latest research from the Graduate Management Admission Council, which surveyed 4,135 business school alumni who received their degrees since 2000. The GMAC report paints a rosy picture of the MBA’s value, more or less what you’d expect from the publisher of the GMAT exam, which gives the organization a vested interest in drumming up b-school applications. But to say the GMAC survey is definitive proof that the degree is worth it—keeping in mind that “it” at some top schools is a tuition and forgone salary bill well in excess of $300,000—well, that’s a bit of a stretch. Consider the following:

Job Status: According to GMAC, 86 percent of the MBAs from the Class of 2011 who answered the survey were employed after graduation. This is actually worse than the Class of 2010 (88 percent) and represents an unemployment rate of 14 percent—nearly triple the 5 percent unemployment rate for college graduates reported recently by Georgetown University’s Center on Education and the Workforce. It’s worth noting that the 86 percent of 2011 grads who were employed included 12 percent who went back to work for their pre-MBA employer—not exactly a ringing endorsement for a degree that bills itself as a stepping stone to a new career. And remember this is a survey that may have a self-selection problem: who’s more likely to answer a survey about their job status, the employed or the unemployed?

Job Requirements: GMAC reports that three out of four Class of 2011 alumni with jobs report they could not have obtained those jobs without their graduate management degree. All that really proves is that MBAs aren't applying for jobs as burger flippers--is that really proof of anything?

The Jobs Themselves: The GMAC survey found that the Class of 2011 went mostly (69 percent) into mid-level positions, with 21 percent taking entry-level jobs, 8 percent taking senior-level positions, and 1 percent taking executive spots. This is considerably worse than just a year ago, when entry-level positions accounted for only 17 percent of the total, 14 percent of the class went into senior-level positions, and 3 percent landed executive spots.

Return on Investment: When it comes to the "value" of the MBA, what people are talking about, mostly, is money. Dave Wilson, the GMAC president and CEO, says in a statement that the survey results "demonstrate that a graduate management degree is, in fact, a solid investment in your future, both in good and bad economic times." But that's far from certain.

The average salary for full-time MBAs in the Class of 2011 - those that actually had jobs - was $79,806, a year-over-year decline of $4,533 or 5.4 percent (and that doesn't include inflation). GMAC also calculated a return on investment and deemed it "stellar." Alumni recouped one-third of their b-school investment within a year of graduation, 100 percent four years out, and doubled their money after 10 years. But those figures are based on the estimates by survey respondents--not a detailed calculation of the actual costs and financial benefits of the degree. That back-of-the-envelope calculation could be on the money, or it could be way off (if, for example, survey respondents didn't include forgone salary in the cost of the degree). We just don't know. Even if it is accurate, what of it? Doubling your money after 10 years is a bit less than you can expect from any halfway-decent investment earning 8 percent a year--and unlike most other investments, an MBA is highly illiquid--once you pay for it, you're stuck with it.

Business school students want to believe they're making a wise investment in their futures by plunking down a fortune on a degree, and for many of them that might be true, particularly at top schools where the ROI calculus is more favorable. But the numbers sure don't bear that out for everybody. Optimism is deeply engrained in the b-school mindset, but in this case it's the worst kind of optimism: misplaced.

Reader Comments

Brian C.

January 13, 2012 11:41 AM

I read the original article cited here, and was mildly shocked at both the conclusion and their approach to it. This is a well-done follow-up. I'm a computer science graduate student, and the consensus among me and my peers is that an MBA is a dumb degree. Any moron can be a manager and boss people around.

InterestedParty

January 13, 2012 12:00 PM

Louis,

Great story! I appeciate the critical look at MBA related statistics and the questioning of their true significance.
On another front, as I am soon set to start in the Cornell-Queen's EMBA Program, I was curious if BW antincipates that it will ever adjust its ranking methodology to include established Partnership programs? Or even Partnership Programs where BW already ranks the respective schools involved on an indvidual basis? For prospective students who rely on BW rankings as a useful tool, it is a shame that the Columbia-Berkeley and Cornell-Queen's EMBA Programs, as just two examples are not covered within the rankings even though they are captured individually by BW rankings? Just curious...Thanks again!

Matt

January 13, 2012 12:31 PM

It is sooo important to ONLY get an MBA from a top school. Those of us who mistakenly got an MBA from school with little or no brand equity cannot find jobs! For profit schools should be illegal. They are taking tuition knowing full well that grads today will probably not get a job or a better job.

BW's Louis Lavelle

January 13, 2012 12:43 PM

@InterestedParty...Unfortunately we have no plans to change our policy regarding ranking joint programs. That said I think either of the programs you mentioned are terrific joint programs, owing entirely to the strengths of their constituent b-schools. If two great b-schools are joining forces, it's hard to go wrong.

Louis Lavelle
Associate Editor
Bloomberg Businessweek

theTruth

January 13, 2012 12:52 PM

Agree with Matt. Top paying companies will generally only recruit at the top 10-12 schools. The GMAC data is skewed down because it includes all MBA programs, including 2nd and 3rd tier programs. The ROI is much higher for the top schools. The avg. starting salary from these schools is at least double the avg. shown in the article.

InterestedParty

January 13, 2012 1:28 PM

Louis,

Thank you for the informative and prompt reply!

Mike

January 13, 2012 5:12 PM

Thanks for the follow up. I graduated with an MBA in 2011 and my classmates are either in jobs they don't love or back at their previous employer. 100% of them.

The education was probably really good - but the economics of it are terrible. It's going to take me far longer than the 4 years stated there to pay back the money I borrowed - not including opportunity cost. If process was half as expensive it might be ok.

On another note... I love the statistical debate that followed the article. Certainly quant MBA's reading... LOL.

HENRY

January 13, 2012 8:36 PM

GMAC, AND GOVERNMENT MOTORS IS THE LAST PLACE TO GO FOR AN THOUGHT ON EDUCATION.THINK PRIVATE ENTERPRISE COULD GIVE A MORE HONEST ANSWER THAN A GOVERNMENT COMPANY THAT DOSE NOT BELIEVE IN FREE ENTERPRISE.

sherryerdmann

January 14, 2012 2:13 AM


Online instruction and testing done by High Speed Universities can be as good or better than classroom, if done well. One of the things I do is create learning management sites using the Moodle content management system, and design and author courses for them.

H. Chopra

January 14, 2012 7:59 AM

Louis Lavalle's comments are well-founded and represent the true value of an MBA in the current business environment. Although the rate of unemployment is slightly higher for 2011 and the salaries are marginally lower, what we must look at is the situation that would have emerged if those seeking jobs did not have an MBA. U.S. economy has run into a patch unprecedented in history, and the fact that 86% of Business Graduates got absorbed in jobs speaks about the value of an MBA, rather than lack of it.The U.S.economy, and many other linked economies in the rest of the world witnessed a somewhat over-stated boom prior to the meltdown that started in 2008, but a trough should normally have been expected after a few years of boom. What is baffeling and uncalled for and is not going to help the MBA valuation and the job market is the daring initiative of some rating agencies to downgrade the sovereign ratings of the richest country of the world, now followed by the same action for some prominent European countries.Certainly, a better appreciation of the consequences of over-globalization is called for.

Tyler

January 14, 2012 5:14 PM

Some employers have simply gone back to hiring bachelors degree holders with specific competencies, referrals, or accomplishments. Example: more young nursing BS grads instead of graduate MSN degree holders. Trend is not isolated to the MBA credential, but the MBA supply glut will make it a more pronounced case study than other masters degrees.

Ted

January 14, 2012 8:34 PM

why did bloomberg use GMAC as a source? Didn't bloomberg know that GMAC as going to paint a good picture on the value of a MBA. i mean, GMAC makes money when people get MBAs. That's kind of dumb that bloomberg did that. Why did Bloomberg ask recent MBA graduates on the value of a MBA? they would have told them a more accurate picture.

Paul

January 15, 2012 6:10 AM

I read the original thread and saw the link to this one. I don't entirely approve both views. Stats gives an idea but are often too general.

The best thing is to talk to graduate and learn about their stories. You then notice the emerging pattern of the most successful coming from the fact that they had an idea or an original plan before starting an MBA.

If you go for an MBA hoping that it will bring you a magical and perfect job offer from someone you never met before, then good luck.

Have a goal first, then evaluate if the MBA will give you the skills needed to get there!

I personally went for a Master of Management instead, finding it more relevant to today's needs within organizations. (and according to my goal!)

@BRIAN C: Although I don't fully rely on stats, I have some for you: 70% of business fail within the first year and 90.9% of them is due to lack of management skills. So if you are planing to run your own business with tech skills and this attitude: GOOD LUCK!:)

Lana

January 15, 2012 10:53 AM

Brian,

You are a computer science graduate for reason. Obviously you don't understand how to operate and run a business, or as you said it boss people around. It's because of people like you that an MBA's are essential. Please stick to what you know and. what you are good at (computers). Am sure few would like you as a boss!

Erik

January 15, 2012 12:41 PM

Many of the grads that don't find jobs or are unhappy in their current one, maybe are not well networked. B-school is part of the equation. You have to know who you are and how your skills translate to what the market needs. If more money is the only reason you are getting a degree you may be disappointed.

Thierry Deruelle

January 15, 2012 1:20 PM

I agree the data is skewed, but the result is not the data, it's the data that's the result.

If you look at MBAs 20 years ago, only a few schools and very privileged persons actually got out with theses titles. For profit education did a good job at democratizing the access, that's all.

The title just means you will understand many aspects of a business and speak the lingua franca of business, it's up to you to hone on the skills you want afterwards.

Therefore, if we have more MBAs out there, speaking the same or close to the same language, then the overall return on the economy has to be positive.

I would not take the employment rate of the the alumni as the only dependent variable to look at in this story. In a world and our NA and EU economy, where we need to innovate and go across borders, this common lingua franca of business can only help us build more bridges towards growth and prosperity.

Thierry Deruelle, MBA
SAVAYA consulting

NDA

January 15, 2012 10:40 PM

To me the issue is only about top MBA. I would like to know if this also applies to the top 5 because in the end it is where people want to get a slot. Any hint here?

Adrian Chira

January 16, 2012 4:41 AM

Great story. I was lucky to graduate in 2002 and got an executive position in less than a year afterwards. So break even for me was in 1 year after graduation. And yes, I went to the most reputable program from my country. But this does not happen for my colleagues (that's why I said I was lucky). In their first year most of them went to work for their previous employer.
Also as noted in the article the value of a MBA degree is eroding. I see several causes for this. One may be the increasing number of people getting an MBA which is not proportional with the number of positions that require such degree. In this case the offer is much higher than the demand and the number of new graduates that are employed in their first year decreases as well as the average salary for those graduates making the recovery of your initial investment even harder.
As Brian C. mentioned above, for people having a degree that is already in high demand (computer science) MBA is just a dumb degree. It does not justify the effort and money needed to be invested in getting this degree since your existing one is doing the job. For the others that want to go up on the corporate ladder and they need such a degree for this, it may be the only option so it may justify the investment.

Binnyker

January 17, 2012 5:13 AM

Very interesting and informative, but I guess the article misses that it’s not only jobs after MBA but also the number of entrepreneurs who build start-ups and their success of return through this channel? I am sure there is a considerable percentage that does something with what they learnt?

Matthew

January 17, 2012 1:48 PM

A very interesting article. After 11 years experience working in HNW Banking and Funds Management I have come to the conclusion that a MBA is moe of a status symbol than a true value add for businesses. I really believe that those post-grad degrees that truly add value to the business leader and the business are those with a strong degree of academic rigour that teach critical thought, logic and analytical processes at an advanced level such as Law or Finance. I have had the misfortune of wokring for and with a number of MBA grads and the only thing they know how to do is spout the right jargon at the right time, hold circular conversations and hide topics and solutions in a rain of acronyms.

Get Real

January 17, 2012 10:15 PM

If you get an MBA from a top 100 school and you perform well, you will have gained immensely more knowledge, personal net value and worth to society than a mediocre student at a so-called top 10 program.

Generalized stats are worthless. It all depends on the individual. I speak from having been there, done that, and have all that I mention to prove it.

MBA

January 18, 2012 12:17 PM

Here's my opinion: it depends.

If you go to a school where the undergraduates can take the same courses as the MBA students, or you studied business before, an MBA is a dumb degree.

If you can think of all the techniques used to analyze financial statements, etc., then you don't need it (e.g., through natural training/working).

If you can think of all factors to analyze in a marketing strategy, international expansion strategy, or corporate governance issues, etc, then you don't need it.

I myself have an MBA degree from a top 1-5 business school. Personally, it's an expensive 160k investment. For my career choice, it was not worth it. However, it has made me learned that when you are doing business, there are general factors to consider. For example, international business-political risk, economic risk, currency risk, domestic risk, international customer analysis, etc.

Simply put, there are those who can benefit from an MBA degree, and there are those dumb enough to spend 160k to relive their dumb college lives all over again.

MBa

January 18, 2012 12:23 PM

I'd like to use an example of my former college roommate. He was homeschooled. He once showed me notes on when he studied mathematics. He essentially re-created basic calculus in his own terminology. To adjust to the calculus knowledge commonly taught was like learning to translate for him.

Basically, if a person can be like that, but in business thinking, having knowledge of various business subjects, and in having business analytical skills, an MBA is just 1-2 years of reliving his college life. However, those who aren't like my college roommate (like me and a bunch of others, particularly those who studied engineering or the sciences), then the MBA is really worth it.

PerspectivebyKJ

January 19, 2012 12:06 AM

Think of it like an iPad. You have those people who buy it and only use it when they're in the bathroom or too lazy to bring their computer to work. To them the $500 may be overpriced.

But you have those who purchase useful apps and use the iPad in a way that enhances their life making them more informed, productive and connected. Heck, some even invent new ways to use it.

Like an MBA, you've got to assess what the value is to you as an individual and what you want to get out of it. There are a number of people who relive undergrad, are unhappy at their jobs or just want to hide out because they don't know what else to do. They will complainers and will loathe the investment of time/money.

For those who know what they want to do and think/plan long term, they will certainly see the value. And these are also the people that make the most of their time by networking and soaking in every opportunity.

An MBA is worth it. And this comes from a 2011 grad who attended a lesser known full-time MBA program and is still unemployed.

Personal Worth?

January 19, 2012 1:14 PM

I find it interesting that no comments seem to refer to any real value added in an MBA applicant.

My thoughts regarding obtaining an MBA center around real personal improvement and the actual knowledge gained. These strands of commenting seem to only be concentrating on the fancy bullet point on a resume.

Is that really all it is? Should I just pick up some business books and a couple business review mag subscriptions and be all the wiser? Could I hear from MBAs that feel they have become better Management professionals, Directors... or even those who have not.

Jeff

January 22, 2012 9:43 PM

I can see the arguments against getting the degree, I would never left my current job to go to a top 10 for two years, it would have cost me 300K in forgone salary, stock, bonus and total benefits, plus you have to uproot yourself and pay large tuitions and end up in debt. No way I would have fallen for that scam.
My employer is graciously pre paying my tuition 100%, so I'll end up with a middle of the road State University AACSB MBA for free. The ROI made sense, I keep my job and I get a MBA without cost - other than a lot of time. Overall I have enjoyed the process, as I am mainly looking for improvement, not a bigger paycheck. If the worst thing have is a piece of paper that costs $30 and my only expense is $30, then I'm not gonna bitch about it being such an expensive piece of paper (which it really is at $30), could imagine $200,030!

jj

January 24, 2012 1:56 AM

Oh Henry,
if you had even 1 clue to how important GM is to this country. you poor guy. you keep drinking the Con Kool-Aid, see how that works out. We already had 16 years of republicon policies that have led to disaster after disaster.

Youngndumb

January 24, 2012 6:43 PM

I started out my college life but then chose rent over tuition. I worked, played around, and became a mom.

I am one who got my BS degree from a for-profit college and am plugging away towards my MBA with the same school.

Just like work, an education and degree is only what you make of it. Our muscles atrophy from lack of use. The same happens with education. If we fail to use our educational foundation (regardless if its from a top school or a no name school) we will forget the concepts and fall flat.

We put in a lot of money but time is where we truly benefit. We may not all have the immediate gratification of the "job of our dreams" but we still need to have our education when the opportunity comes our way.

MBA

January 26, 2012 3:36 AM

One aspect to consider is that in this economic climate with tighter budgets and headcount restrictions, having a top MBA helps to provide job security as it creates an aura of pedigree. Headcounts are shrinking and from what I've seen, those with such a degree are least likely to go first.

I agree with others that just earning the degree, even from a top school, does not guarantee a highly coveted position. The factors in your admissions essay to b-school are more relevant for your job search than the degree itself. The MBA is just the cherry on the top.

Varun

January 31, 2012 10:34 AM

@ Personal Worth:
I'm an MBA. Been one for five years. And I believe my degree has helped me become a far, far better business professional.
Frankly, without the MBA I wouldn't have gotten the job I held. Which was for a world-class services company with a management trainee program. Which led to another great job, with a world-class chemical company - where I learnt a lot about how my 'classroom training' translated into the real world. And that got me excellent bosses to model myself on. (Officially it's called mentorship.) Which, in turn, made me a better leader.
If I'd avoided the degree, I wouldn't have qualified for either job. Could I have worked for the same firm? Yes, but not in the same role. Thanks to the training I got during my MBA, I've ended up training people on how to do their work better. Including some outstanding engineers, who - if I didn't have an MBA - would be light years ahead of me in their contribution to the business. And I got thanked for it. Can't really top that in terms of job satisfaction.
So yes - I believe the MBA was a worthwhile investment. I don't work in the finance industry or the consulting industry - never have - but for a hard-core 'engineering' firm where less than 2% of the people have MBAs - and this 2% includes the whole HR department.
The MBA, in my view, is what you make of it. Yes, the course helped me get my job, but it also helped me know what job I WANTED to get. I cannot stress the last part enough.
I'm from a Top 5 school in my country (not the US) and I benefited. Probably the US follows the same rules.
On another note, I was pretty impressed by the 86% employment rate. The comparison is not with the employment rate across the country, because this includes the number of people who've been in a job a long time. The appropriate comparison is with people just entering the workforce - which, in this economic climate, means a high unemployment rate.

Sheila

February 1, 2012 7:02 PM

Question.... What if you are already in management or senior management... Is it worth it to then pursue an MBA to get the piece of paper for your next opportunity? Or will the assumption/understanding be that you've had first-hand experience so no MBA is needed?

Mike C

February 25, 2012 8:48 PM

Brian C.

Interesting comment about the value of a CS degree. You should know that while you and your buddies are trying to reverse-engineer MD5 for one of your course assignments, liberal arts majors are coding for Google, MS, Apple etc. Companies that identify talent, not degrees. A degree at times is a check the box, most positions you will apply for (the one's worth getting) will request a portfolio of work, I know because I hire people like you.

My experience is that individuals with attitudes like yours don't make it very long; humility, hard work, and consistent results are what make real professionals.

So as you fumble through your first job, there's a 90% chance the guy who is gonna be there to help you out may never have gone to college or studied something completely different than CS. No level of education trumps passion, most in your field are self-taught and chances are they will be the ones who you will rely on to get what really matters: experience.

So, careful what you say Brian, you never know who can torpedo your career before it ever get's started.

(P.S. the 90% probability wasn't pulled out of thin air, it's based on census data, I do extensive research on the educational and professional background of the employees at the firms I work for. Just something us "dumb business types" do to understand our workforce so we can identify the most effective talent pools for long-term growth.)

My question to you is: What is the value of your degree Brian?

- M

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