Is it worth doing an MBA?

By Bill Ridgers

“The mark of an MBA,” said Robert Buzzell, a late Harvard professor, “is that he is often wrong but seldom in doubt.” For many, that sums up the attitude of these masters of the universe. But of late, a degree of hesitancy has crept into prospective business students’ minds – and in the most fundamental respect: whether to leave their jobs and enrol in the first place. In 2016, 261,248 people sat the GMAT, the de facto entrance exam for MBA programmes – a drop of 11% since 2012. The drop in America, the biggest MBA market, has been even more pronounced, falling by more than a quarter over the same period.

For decades, an MBA has been a near-requirement for managers in their late 20s looking to further their careers. Consultancies, for example, value graduates’ ability to analyse a wide range of business scenarios, much as they do when poring over case studies in the classroom. Around a quarter of MBAs from the top schools become consultants once they graduate. More Silicon Valley firms, too, are tapping business schools for new hires. But in the financial world they are losing their cachet. Until recently around half of graduates at London Business School, for example, found work at a financial firm. Today less than a quarter do. That is partly because, rather than paying a premium for those with an expensive business-school education, many banks now prefer to recruit younger graduates who then work their way through the ranks. Research from GMAC, a business school association, suggest that for 20 years, as demand allowed schools to push up prices and graduate salaries failed to keep pace, the return on investment offered by the degree has been falling.

The value of one of these degrees varies hugely between institutions, depending on cost, salary foregone and increase in salary post-degree. At Buzzell’s former home, Harvard Business School (HBS), for instance, students who have spent two years studying on its Boston campus can expect their salaries to increase by around $50,000 compared with their pre-MBA earnings. That sounds healthy until one considers the cost of taking the degree, which can be close to $500,000. The Financial Times’s value-for-money index, which takes all these factors into account, throws up some surprises: HBS is 87th and the University of Pennsylvania’s Wharton – America’s other most-famous business school – 99th. Britain’s Judge School, at Cambridge University, comes first, followed by Germany’s ESMT, France’s Edhec and Britain’s University of Strathclyde.

The shifting balance between salary and costs are not the only reason why investing in an MBA is looking less attractive. Foreign students used to apply to business schools in Britain and America in the hope of finding employment in those countries once they graduated, where opportunities are greater and salaries higher. This route, though, is becoming less certain. Not only are fewer firms in the financial sector recruiting MBAs, but restrictions on visas in America and Britain have tightened, making it harder for graduates to stay on and work. The fear is that an America-first President Trump, and a Brexit that focuses on lowering immigration, may make things even tougher. In a recent survey, GMAC, a business-school organisation, found that non-Americans are 44% less likely to apply to an American business school than before the election.

MBAs also face competition from other degrees, such as the Master in Management (MiM). MiMs cover much of the same ground as an MBA, but are taken by students with no work experience immediately after their undergraduate studies. Although MiM graduates get more junior jobs, fees are also much lower. In any case, some, such as Bill Boulding, the dean of Duke University’s Fuqua business school, think that by the time they reach their thirties graduates from both degrees probably earn the same amount. It is just that MiMs front-load their education and then concentrate on climbing the greasy pole. GMAC’s research suggests that after 10 years, MiM students can expect a higher return-on-investment than graduates from full-time MBA programmes.

In an attempt to adapt, business schools have begun to try to nurture more entrepreneurs. Nearly all programmes now offer a course on entrepreneurship. Some have built “incubators” in which students are offered help with launching new companies; schools sometimes even take equity. But MBAs’ horizons are broadening too. Where once they were obsessed with making money, now more hope to make a difference to the world. A study in 2015 by Bain & Co, a consultancy, found that 66% of MBA students ranked making an “impact” (such as working for a social enterprise) as more important than a high salary. But most aspiring MBAs are quite interested in money; and, as business schools themselves teach, it is worth crunching the numbers before committing.

ILLUSTRATION JAMIE EDLER