

RIP, MBA - The economic crisis has exposed the myth of business-school expertise - winanga
http://tbm.thebigmoney.com/articles/judgments/2009/03/25/rip-mba

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chime
_sigh_

I just got home from my evening MBA class after a full day of work. I'm the
Director of IT at a pharmaceutical manufacturer in Florida and graduated with
4.0 in CS and Econ with Math minor as my undergrad. After my MBA, I'm hoping
to pursue a CS/Math PhD degree and I consider myself a lifelong student with
no desire to make millions. I mentioned all of this because I want to make it
clear that my reasons to defend the pursuit of an MBA program is solely
academic in nature and not based on the potential earnings or promotions. I
could make a lot more by switching companies, networking, or working overtime.
I don't have to get an MBA just to make more money.

An MBA from a good university is HARD and enlightening work. Yes, the barrier
to entry is pretty low and I've had the mis-experience of being in groups
where 35 year old finance majors with 8 years of field experience didn't know
how to use the Excel SUM() function. Nevertheless, the professors are
extremely experienced, industry stalwarts from all sorts of background.
Tonight an ex-IBM'er with 20+ years of Sales & Marketing experience across
various IT sectors taught me about building customer value.

Here on HN we see blog posts by know-it-all nobodies dispense wisdom on "10
ways to blah blah" and all of us discuss the merits and demerits of the post
for hours and days. An MBA is a superset of that, formalized and organized.
Yes, you can learn business skills anywhere, especially by running your own
company. However, that does not mean you cannot benefit from decades of
knowledge, wisdom, and research in every field from finance to management to
marketing. The goal of a well-designed MBA program is to equip you with the
knowledge and skill to make better decisions in addition to letting you employ
your gut instincts and intelligence in your ventures.

The problem with MBA programs is that too many people treat them as "bigger
paycheck" tickets and smaller universities lower their standards to welcome
anyone who can pay them $20K/year. This has the negative side-effect of making
even the hard-working MBA graduates appear to be useless greedy monsters like
this article portrays.

> The reality is that business school is now chiefly a community of intention.
> It brings together people who share certain career aspirations—for the most
> part, to make big bucks—and occupies their time teaching them a few
> technical things that they don't need to know, along with a code of conduct
> that says, in essence, whatever is legal is ethical; and if it makes money,
> it's a positive duty. It's now clear that we would have all been much better
> off if, instead of cloistering these people on fancy campuses with world-
> class golf courses, we'd have sent them off to do two years of national
> service.

This entire paragraph is a complete load of crap. Over and over our
professors, books, seminars, and presentations mention that doing the right,
socially-beneficial thing is the only way to go. We read cases about bad
businesses, identify the good ones, and isolate the bad ones pretending to be
good. Not once has any of my professors even so much as sugar-coated what
Enron, Worldcom, Lehman, AIG, or any of the tons of other companies have done
as being acceptable. Yes, profit and shareholder value maximization is the
legal requirement for any public corporation but not at the cost of long-term
corporate and social goals.

Sorry about the rant but I'm pretty sick of the dumb-greedy-MBA stereotype.
Everything I learn in school at night, I get to immediately apply it at my job
the next morning. My advice to anyone reading this is if you have a technical
background and have often lacked in management and leadership skills, an MBA
from a good university will genuinely help you be a well-rounded entrepreneur.
Don't have unrealistic expectations about suddenly being transformed into
Steve Jobs but do realize that leadership skills can be learned and 360-degree
knowledge of business operations (from tech to finance to sales) will make you
a very valuable asset to any organization, including the one that you start.

~~~
plinkplonk
"An MBA from a good university is HARD and enlightening work."

Could you elucidate what is "HARD" ? I am NOT being sarcastic. I am genuinely
curious, but I've found MBA __coursework __, (except in advanced finance) to
be relatively easy compared to, say, a compilers class.

Running a real marketing campaign could be hard (depending on the context) but
what is hard about the MBA course work in marketing?

Could you give couple of examples of what was hard about your MBA so we can
understand better? (repeat, I am NOT being sarcastic or mocking you)

~~~
carbon8
Well, first of all, what's hard for one person can be easy for the next. Plus,
people have a lot of misconceptions about many business related fields.

Take marketing, for example. It is often misinterpreted as purely "promotion"
when really it also encompasses product development, pricing and placement.
For me, product development and placement come naturally while I find branding
to be tremendously difficult, certainly more difficult than any technical
challenge I've ever faced. What one person finds "easy" or "hard" is dependent
on a lot of factors, including personality type, skills, what sector that
person is operating in, etc. For one product or service, pricing may be
extremely simple while in another it might require significant market
analysis.

Also, whether a person finds something "hard" or not doesn't directly relate
to its value. I wouldn't find it "hard" to spend hours reading case studies,
but they are tremendously valuable since you can learn from other companies'
successes and failures and apply them to your own company. On the other hand,
someone might find advanced corporate finance "hard," but unless he or she
wants to work in a job in which it would apply, it's largely useless for that
person.

FWIW, I'm not in an MBA program, but I do the web business thing while my wife
is in a top-tier MBA program and is an exec in the financial industry. She has
an analytical background but prefers strategy and operations. I know one of
the things she finds both challenging and valuable is being exposed to fields
that are outside of her interests but are important for having a well-rounded
view of how businesses and marketplaces function. In bad business conditions
this is especially valuable since you can't just stumble and guess your way
around like you can when money flows easily.

~~~
plinkplonk
"first of all, what's hard for one person can be easy for the next. "

no doubt but the question was explicitly what part of the _coursework_ was
hard, not the actual practice of business, which we all acknowledge is very
hard.

"Also, whether a person finds something "hard" or not doesn't directly relate
to its value. I wouldn't find it "hard" to spend hours reading case studies,
but they are tremendously valuable since you can learn from other companies'
successes and failures and apply them to your own company."

I didn't claim any of that. The question was solely about a statement in the
original post and asking for examples _in order to understand the point made_
, because in _my experience_ MBA coursework is an order of magnitude easier
than a masters in say Physics. My experience is not necessarily universal of
course.

I _don't_ believe an MBA is useless, but I am not so sure what quantum of
value it _does_ have. Hence the question.

~~~
carbon8
_what part of the coursework was hard, not the actual practice of business_

An MBA is practicing business, at least at the top tier schools (possibly at
the others, I don't know). Most of the focus is on case studies and group
projects tackling real business issues, usually from real businesses,
sometimes simulating what you would do and sometimes actually dealing with the
actual company. Group projects in part time programs are frequently based on
things actually occurring at a business one of the group members works at or
runs, while in full time programs students will work with companies on
existing issues. Traditional coursework is more commonly found in the the
strictly analytical finance and economics classes.

~~~
plinkplonk
"An MBA is practicing business,"

This is the first time I've ever heard an mba as __practice __(vs a study of
theory) in running a business. Great insight (if true).

"Most of the focus is on case studies"

A case study is not quite practice, more like a review I'd think. If this
concept is adopted , analysing Napoleon's campaigns would be "practicing war"
, reading about Bruce Lee's fighting style(and even debating about it) would
be "practicing KUng Fu" and an analysis of Beethoven's Fifth Symphony would be
"practicing music".

" and group projects tackling real business issues,"

This is more like it. What percentage of an MBA do you think would involve
running (parts of) a real business? 25 %, 50 %?

"This past quarter, for instance, her group in one class did all the business
planning for a group member's business that he is now creating."

Well, this will become a "real business" when it is actually running? I mean,
till it runs this planning is as good as anyone else's?

"In other cases, they've done restructuring plans that are then implemented by
the company. "

This is more in line with "practicing business". Thanks for the input. Thought
provoking.

~~~
carbon8
_This is the first time I've ever heard an mba as practice (vs a study of
theory)_

Considering that this is the basic model of MBA programs, not to mention that
it's also the basic model of pretty much any professional graduate program in
pretty much any field, I'm left wondering how this is the first time you've
encountered it.

 _A case study is not quite practice, more like a review I'd think._

When you are reading, but not a project. Even if it's a project to make a
decision based on historical conditions, students are doing exactly what
they'd be doing if they were running the company or division, and in most
cases they are or will be running those or similar companies and divisions
making the same kinds of decisions in the same ways, which is the whole point.

 _This is more like it_

During the course of working on the project it's really exactly the same as
the above.

 _Well, this will become a "real business" when it is actually running? I
mean, till it runs this planning is as good as anyone else's? ... This is more
in line with "practicing business"_

It's really no different. Look, her school is a top-tier business school and
the business we are talking about aren't social web startups. When you are
dealing with industries that require a large capital investment, it's often
much harder to start and the consequences much worse when you fail. I've had
to take more than 6 figures of investment for a web company and I've never
needed to give up more than equity and sometimes some strategic guidance,
whereas in other industries I might expect to be signing a personal guarantee,
possibly even having an investor become an integral part of operations. So
when we are talking about planning a business, we aren't talking about a web
company with a one page business plan.

------
ShabbyDoo
I have an MBA from a school that sometimes makes the Top 50 lists. I had some
extra scholarship semesters available as an undergrad and was allowed to
partake in the MBA program concurrently.

The MBA experience shaped the way I think about problems as much as my
undergrad in computer engineering. A good program teaches students to think
through problems using an economic framework while engineering school promotes
a technical one. Both are valuable (as are many other ways of thinking).

Here's a specific example: Is Amazon's new EC2 dedicated instance pricing a
good deal? A naive analysis requires simply adding up the sum total of all
costs and comparing the difference. What's wrong with that?

1\. A dollar today is worth more than a dollar tomorrow. How much more? That
depends on your unique circumstances. You're a start-up? It's really expensive
to spend money today. You'd much rather pay more later when your concept is
proven out. Are you GE and can borrow at rates only slightly higher than the
government? Then, a dollar now isn't much different than a dollar tomorrow.
So, you have to establish what's referred to as a discount factor to compare
payments made at different times.

2\. The dedicated instance program has characteristics of an option. You have
the right but not the obligation to purchase server hours. So, your economic
model has to allow for the future decision to switch over to the per-hour
model if prices drop drastically.

3\. The "strike price" (using the term loosely) of the option is fixed even
though Moore's law is likely to hold over the life of the option. Is paying
$500 now for the right to purchase server hours for 70% off a good deal if
server hours only cost 1/5th of what they do now at the time of the option's
expiration? How steeply can prices decline so that you are still at the point
of indifference between paying up-front and paying later?

4\. A quick analysis of the marketplace for on-demand computing suggests that
it is quickly becoming commoditized (at least at the basic levels). Price
competition for commodity-like goods is tremendous, so we should expect prices
to drop as more competitors emerge. Even if Moore's Law didn't hold, one
shouldn't evaluate the option based on today's pricing.

5\. The option doesn't appear to be transferable. What discount factor does
one place on purchasing something valuable that he can not sell?

I actually put together such a model. Even under optimistic Moore's Law cases
and high discount rates, dedicated instances are a good deal (presuming you
will use all three years with certainty or can transfer your rights).

------
ryanwaggoner
The author makes the classic mistake of confusing correlation with causation:
"Hmmm...banks hire lots of people with MBA degrees, and this crisis started in
the banking sector. The MBA degree must be the root cause of financial
crisis!"

Actually, now that I read through it again, I'm not sure it's even worth
dissecting. It strikes me less as a merely illogical diatribe against business
education as much as an intentionally misleading hit piece against something
the author neither understands nor respects.

~~~
weiser
Actually, the author is clearly stating the causal relationship. He is
pointing out that free market fundamentalism is the cause of the crises and
Business schools are the cheerleaders for free market fundamentalism.

Now, I personally do not agree with that argument, but your criticism of
author's argument is unfounded.

~~~
ojbyrne
Perhaps some B-schools are the cheerleaders, but I never saw it where I was.
Economics departments are where that particular meme came from, and they don't
actually teach economics in B-school except tangentially.

~~~
TomOfTTB
My experience is the same. I think people are confusing the macro (economics)
with the micro (running an actual company). Business schools focus on the
micro and in doing so very rarely address economic systems as a whole.

To but it a different way economics is about how the rules of an economic
system are created. Business school is about teaching the student to work
within the rules already created in the existing system.

------
neovintage
In the interest of full disclosure, I am a current MBA student during the day
and developer by night.

Its unfortunate that this article focused solely on the financial industry. I
agree that some schools seems to breed more of what the author is referring to
in the industry. Yet I think its a blanket generalization to all MBA programs.
The MBA typically gets a bad wrap when any economic problems start to occur.
Most people will then start to quote statistics that say most of the top
companies do not have MBAs at the helm, so why do we need these MBA programs?
What about those that have worked on Social Ventures during their MBAs? Are
they guilty of wasting their time in an MBA program?

I chose to get an MBA so that I could understand the business side of things
more and to build a professional business network, the latter being the most
important. You'd be surprised at the background of people you meet in school.
Do I think that everything taught to me in the program should be taken as
gospel? No.

~~~
genesoo
@neovintage I totally agree with you. I am an engineer by training and is
currently in the second year of business school. I would have to say this
article has too narrow a focus and stereotype MBAs. There is a lot more to MBA
than finance and people who sought for big payouts. I have come to business
school to understand the business side of things. As an engineer, I just did
not understand why this marketing people just kept asking me to make things
that I don't see a value in.

Business School is a place that allows people with motivation and the will to
change the world to share ideas with each other. Of course, there are also
some people who are more keen in getting a comfortable job and lead a
comfortable life. But so far for me, attending business school has extended my
horizon greatly (I did figure out that finance is not my cup of tea and
technology is my true passion). I have learnt a lot about people skills,
finance (to help me understand term sheets when I startup), business strategy
and ways to grow businesses so my ideas can achieve the biggest impact on
people's lives.

------
davidw
This would be a good place to mention a book I enjoyed reading recently:

"Ahead of the Curve: Two Years at Harvard Business School"
<https://www.amazon.com/dp/1594201757?tag=dedasys-20> (yes, it has my
affiliate link)

It's written by a pleasantly cynical, yet curious Englishman. It's pretty
interesting to hear about the whole experience, the mindset, and some of the
people involved. A particularly relevant (for me) passage:

"Rubenstein looked like any other Wall Street elder statesman, in a blue
pinstriped suit and owlish tortoiseshell glasses. But the moment he spoke, eh
revealed a droll, self-deprecating wit. The difference between corporate
leaders and those who start their own businesses, I had observed, was
startling. The latter come across as so much smarter and independent-minded,
so much less prone to platitudes, so much more comfortable in their own skins.
There seems to be an anarchic streak in anyone who has taken a real risk in
his life. And even when it has to burn its way through a pinstriped suit, it
shows."

That sort of hints at one of the "problems" with teaching business - there's
lots of useful stuff you can learn, but there is also some natural, innate
talent there, that doesn't necessarily correspond to doing well at an MBA
course. So perhaps it's best to get out there, get some experience, and then
just do it.

------
melvinram
The MBA is not going to die anytime soon. As a society, we need ways to
quickly and efficiently rank people by merit. The MBA today offers this
exactly the same way a bachelors degree used to offer it. Most don't really
use 90% of what they learn but it helps sort out those who are not willing to
do extra.

I don't have an MBA, nor do I plan on getting one. I don't see it as good use
of my time but I still highly doubt that the MBA will die anytime soon.

~~~
indiejade
It's definitely not going to die any time soon.

The "M" in an MBA still stands for Master's degree. Master degrees are
certainly not worthless. If the author of the article wants to disparage
graduate level studies, he certainly ought to go after more than one
particular brand of degree. The MBA hating is getting really old.

------
dtap
Business schools are very self propagating. People who get them decide they
are valuable and then convince others of the same which builds a bubble. There
are certainly valuable skills (accounting, finance, marketing) that can be
learned with experience. I have found everything could be picked up in a few
weeks.

I have moderately fallen into it, getting a BBA along with my engineering
degree.

~~~
hs
"I have found everything could be picked up in a few weeks."

yes, business courses are really that easy

i took accounting course back then, the first couple weeks it didn't make
sense (too simple). i thought a better way (aka ABC (activity based
accounting)) which was covered weeks later

i sat on mba course later and most 'analysis' are too simplistic, mostly
straight lines (remember 'beta' ?). complete waste of time.

i feel that business in general is easy and not much to learn so schools just
teach _everything_ for the sake of teaching.

out of the 1000 pages in many business textbooks, maybe only 100 pages are
useful.

~~~
Frocer
What makes "business" so different from "sciences" is that most business
skills are not hard skills. There are certainly a few -- such as accounting
and finance (btw, corporate finance is not as easy as you think).

"Soft skills" -- such as your presentation skills, your communication skills,
client management skills, etc, are actually arguably more important. As a
former consultant, I think soft skills is much more critical for your business
success.

Business classes are easier than engineering classes because the "hard skills"
aren't nearly as complex, but keep in mind you pick up a lot of other skills
that are even more important in business settings.

------
azgolfer
I think he's confusing several issues. Markets are self regulating, normally.
But when the government intervenes with pressure to loan to people who can't
afford the loans, then has Fannie Mae and Freddie Mac guarantee the securities
(so the lender is not directly at risk), they become much less self
regulating. Funny that people think this crisis is a reason for more
government intervention. Conservatism has had a lot of bad press for the last
40 years, but maybe those old conservative bankers weren't such a bad thing.

------
aswanson
I think what Clayton Christensen has contributed in terms of his theory of
disruptive innovation at the Harvard program is valuable. An MBA trained under
him would have an visionary adavantage in a startup situation.

~~~
ShabbyDoo
A friend with a fairly recent MBA from Harvard told me that such professors
are highly sought after by students. The school has some sort of
lottery/bidding system to allocate slots in those classes.

~~~
jhancock
if Harvard were interested in spreading the good word, they could have taped
the lectures and had them online by now. I'm sure you don't need to be in the
same physical room to get 90% of the good man's lessons.

~~~
dangoldin
You can always read his book and email him any thoughts or questions. You'd be
surprised how often you get a response.

------
T_S_
No, we are all down. It's really a question of who's down more. Go over to
wilmott.com and you will see the ex-physicist quants getting all defensive
too. Not to mention the finance theorists. Oh, and don't forget the economist-
philosophers like Laffer and Greenspan.

MBAs shouldn't be trusted to make important decisions, and neither should the
rest of us apparently. Maybe check with Mom first next time.

