Top 20 Reasons MBAs Are Overrated

Updated: March 18, 2010

What's common between Frederick W. Smith of FedEx Corp., Bill Gates of Microsoft, Larry Page of Google and Steven A. Ballmer of Microsoft? They knew better than to waste their time trying to get an MBA. Research has repeatedly proven that few executives who hit the very top have this all-important degree. Even managers who have MBAs don't think too highly of this degree. According to David K. Zwiener, executive vice-president at Hartford Financial Services Group Inc. and graduate of the highly prestigious Kellogg School of Management, "an MBA opens that first door for you. After that, it's up to you."

Most recruiters agree that an MBA can only help you land your first job after graduation. Don't expect any more career benefits from your degree. From there on, the only things that can help you reach the top is your instinct, hard work and intelligence. Here are a few reasons why we believe MBAs are highly overrated.

1. The cost of education: Even before you can step into the hallowed portals of a business management college, the exorbitant fees test your resolve. For some reason, an MBA is not supposed to come at a reasonable cost. The idea is that a sufficiently high cost will deter run-of-the-mill students from attending and ensure that the school only gets students that are really serious about completing the course. This means that, unless your parents have pots of gold buried in their backyard, you are going to be working yourself thin to pay off the enormous loans you acquire to complete the program.

2. Performing with the crème de la crème: Honestly, how difficult can it be to ensure that your college gets high scores if you admit only the very best students to your MBA program? Most business administration colleges have strict admission criteria. If you don't have the GMAT scores to match their expectations, don't bother applying.

3. Spoon feeding: The aim of most business management programs is not to create dynamic managers who have the capability to think outside the box and create unique solutions to problems. Schools like Harvard spoon feed their students by telling them exactly what courses they need to take and when they need to take them.

4. Creating overfed monsters: We can all agree that you need to learn a lot and process a huge quantity of information when you're working toward an MBA. But when business management institutes insist on creating highly intensive programs, it can be very easy to get lost in all the mumbo jumbo that they require you to learn. This could eventually cause you to lose focus on the real issues.

5. It's called networking stupid: If you thought these MBA graduates got high paying jobs on graduation because they were highly qualified, think again. While in college, these students are busy networking and catching up with the old boy's network. This way, most of them can be assured a good position once they make their way into the field.

6. Bursting the myth of education: How important is a good business education when it comes to reaching the top echelons of the business world? Not much at all! In a survey conducted in 2004, BusinessWeek examined the five highest-paid executives at each of the S&P 100 companies. Their research indicated that only 146 of the 500 executives reported having MBAs and only 71 of them received MBAs from the top 10 B-schools.

7. Figures vs. big talk: Most MBA schools like to openly tout the "fact" that their graduates get high paying jobs as soon as they leave college and go on to build great careers. However, if we return to the BusinessWeek survey, we see that the number of graduates who ended up with the highest salaries is actually quite small. Only about one in every 4,000 alumni of the top 10 MBA programs were among the highest-paid executives in 2004.

8. It's all in the name: Business schools may be unsuccessful in creating curricula that help their students face the challenges of the business world, but the schools themselves are models of business success. It may seem paradoxical but universities like Harvard, Wharton, Kellogg and Stanford realized early on the importance of a hard sell. They have successfully created brand images that have managed to stand the test of time. Recruiters perceive graduates of top-ranked programs as safe choices in a sea of maybes. In 2004, among the 71 alumni of top 10 schools who landed in the high-paid group, Harvard and Stanford graduates pulled in $10.9 million and $11 million, respectively. Those from Wharton and Chicago - which fared better in the 2004 B-school ranking - made less, with average compensation of $7 million and $8 million. When setting pay for new graduates, recruiters consider school reputation more important than student quality.

9. Not enough practice: One of the biggest reasons that MBA grads fail to perform is because they often don't have enough practical experience. Most business schools rely on outmoded teaching methods and do not afford students an opportunity for practical experience. Most business schools fall short when it comes to providing people with an opportunity to practice what they learn. This means that these youngsters leave college with half-baked ideas that may not stand up in the real business world.

10. The business of education: Most business schools are more interested in commercial success than quality education. In other words, business education is big business for schools and their professors. In the United States, business schools have rapidly expanded their money-making executive education activities. However, these schools don't seem to have imparted their business expertise on their students. Although business schools and business education have been commercial successes, there are substantial questions about the relevance of their educational product and doubts about their effects on both the careers and management skills of their graduates.

11. Doing more damage than good: In 1989, Harold Leavitt, one of the biggest critics of business school curricula, said that "we have built a weird, almost unimaginable design for MBA-level education" that distorts those subjected to it into "critters with lopsided brains, icy hearts and shrunken souls." Most schools overemphasize business at the expense of developing wisdom, leadership and interpersonal skills. And worse, according to experts, these colleges have been teaching the wrong things in the wrong ways.

12. Creating foot soldiers, not warriors: Of the four CEOs people most often named when asked who had accomplished great things, none had a business school degree (and two, Robert Galvin of Motorola and Gates of Microsoft didn't even finish college). Interestingly, 40 percent of U.S. CEOs mentioned in the Fortune article "Why CEOs Fail," had MBAs! This means possessing an MBA neither guarantees business success nor prevents business failure. Many experts have repeatedly complained about the relevance of business school. They believe that the curricula taught at business schools are utterly divorced from the challenges of everyday management.

13. An MBA degree doesn't help you succeed: If an MBA education is useful training for business then, as a matter of logic, having an MBA degree should be related to various measures of career success and attainment, such as salary. Also, what you learn in business school should ideally help you be better prepared for the business world and more competent in that domain. This means, if your business school has actually conveyed professionally useful knowledge, then your grades will act as a measure of how much you have learned or mastered the material. It follows that your grades are somewhat predictive of various outcomes that index success in business. All you need to do is to check the credentials of the managers who have risen to become CEOs and top managers - their grades (if any) had nothing to do with their success.

14. No real knowledge is being imparted: One reason that having an MBA degree may show no effect is that mere possession of the credential may not be strongly related to your mastery of business knowledge. Recently, an investment bank was horrified to find that an MBA graduate it hired from a leading business school, an individual who had apparently taken a number of courses in finance, could not calculate the net present value of a future stream of payments. For most of these students, learning is not an explicit goal.

15. Makes you older than your peers: Investment banking is a major destination for graduates of MBA programs. It is one of the few occupations where one might think that having a graduate business degree is important and useful. A recent survey shows that an employee with an MBA may actually be at a disadvantage in this career. Getting a degree takes time, which means that people with an MBA are, on average, a year older than those without the degree. What's worse, the extra degree did not have any special impact on their total compensation. It actually had a negative association when it mattered at all.

16. Too many managers: Because business education is a "cash cow" at many universities, programs have proliferated - including part-time, evening and weekend programs; executive MBAs and expansion of existing programs. This has resulted in a rapid increase in the supply of MBAs. Although fewer than half of the schools offering an MBA degree are accredited, the fact of rising supply remains. At the same time, demand for MBAs may be falling. More supply and about the same or less demand would mean less advantage in terms of salary or other career outcomes for MBA graduates. Moreover, unlike other professions such as law, medicine, accounting, architecture and some branches of engineering, the practice of business management is not restricted to people who possess a formal credential or certificate of training. Thus, with no entry barriers into the profession - and with no entry point controlled by business schools - it is not surprising that the credential has a smaller effect on various economic outcomes.

17. Once in, you are assured of a degree — no matter what: In today's prestigious business schools, students have to demonstrate competence to get in, but not to get out. Every student who wants to will graduate. At Wharton, researchers have found that less than one percent of the students fail any given course. This means, on average, the probability of failing more than one course is almost zero. In effect, business schools have developed elaborate and expensive grading systems to ensure that even the least competent and least interested get credit.

18. Does your teacher know what he/she's teaching? Business schools are relatively unique among professional schools such as law, social work, medicine, education, architecture and engineering in the degree of separation from the profession that they supposedly serve. This is not to say that business school faculties don't consult for businesses or teach in company executive programs, or that students from business school don't go on to practice management. All of this does occur. But, the degree of separation that differentiates business from other professional schools is vast. The proportion of faculty who move in and out of the profession or who practice it regularly is small. And the extent to which curricula in the various professions are or are not linked to the concerns of the profession is miniscule to say the least. This directly affects their ability to prepare the students to practice their profession.

19. Learn the jargon, know the game: In the late 1990s, consulting firms found it difficult to compete with high-technology start-ups for talent. Consultants had always hired some people without MBA degrees, but now they increasingly concentrated on people without business degrees - some of them lawyers, doctors and philosophers. Since these people did not have any business background, they required some training so they could give advice to companies using business language and business knowledge. The consulting firms created 3-week programs in which these "new hires" learned the basics of business. In these three weeks, these people covered what business schools usually take 2 years to teach. And what did these new hires actually learn? The jargon of corporate America of course! Interestingly, internal studies conducted by firms that hired these non-MBAs found that they did no worse and, in some cases, better than their business school counterparts.

20. So why the rush for an MBA? Simple. The MBA comes from a prescreened pool. The core curriculum taught at business schools is irrelevant. The utility of a business school degree is to provide a pedigree rather than learning. Once you are in a Harvard or a Kellogg, you can be assured an entry into the business circles. But that's all. From there on, only your true abilities can help you climb the corporate ladder. And this is no revelation to business schools - they've always known this truth. They only don't want to change the status quo. It is scarcely in the interests of the top-ranking business schools to change the rules of the game that have put them on top.

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