Business school and business

Introduction

In 2006, the average starting base salary for fresh MBA graduates in the United States rose to US $92,000. According to Graduate Management Admission Council (GMAC) report, the average new MBA with a job offer in hand earned US $92,360 during their first year of employment, an increase of 4.2 per cent from US $88,626 graduates received in 2005 (Refer Exhibit 1). Moreover, two-thirds of job offers to MBAs in 2006 came with signing bonuses that average US $17,603, up slightly from last year.

However, recruiters were getting increasingly frustrated with the quality of the new MBA graduates. Expectations were high, since the cost of hiring MBA talent was roughly ten times more, the cost of hiring talent in the open market. Corporate recruiters complained that much of what MBA programs taught ignored the complexities of the real world and they were blaming business schools for that. Many companies also complained that "MBA graduates' excellent theoretical knowledge were not matched by sufficient interpersonal and, especially, supervisory skills which were essential in a good manager."[4] As John Reed, former Chairman of Citicorp said "If you go to a business school they will say they are going to train people who are going to do business. But the intellectual disciplines there in the business school don't really keep track of the advances in practice; they keep track of what's going on in the narrow disciplines and what is being published in various journals."[5]

Background Note

The first MBA program began in 1900 at Dartmouth College's Tuck School of Business. It was modeled on the standard American two-year post-graduate academic programme. "It closely resembled undergraduate business training with its very functional and practical approach. Most business professors were practicing or retire corporate managers who focused primarily on the sharing of lessons learnt in the workplace. The United States had approximately 150 business schools at that time."[6] In this era, the MBA agenda was marked with contribution by corporations and their current and retired employees. Friga, Bettis and Sullivan in their paper titled Changes in Graduate Management Education and New Business School Strategies for the 21st Century referred to this as "Corporate-Based Era."

In the 1950's United States graduate business schools were being criticized for not being academic enough and poor relevance to business issues. In 1959, two reports, one by Robert A. Gordon and James E. Howell which was sponsored by the Ford Foundation; the other by Frank C. Pierson (sponsored by Carnegie Corporation) voiced concerns about the state of management education in the country. Both studies reported "American graduate management education as little more than vocational colleges, filled with second-rate students taught by second-rate professors who did not understand their fields, did little research and were out of touch with business."[7] One report further stated business education as a "vague, shifting, rather formless subject."[8]

Based on the recommendations a massive reform effort was initiated which was aimed to make business schools more academic, research based and less vocational. The Ford Foundation dedicated US $35 million towards this reform effort. This resulted in the creation of the classical two-year MBA programme. The first year provided a foundation in the basics of management and the second year offered electives to allow specialization in a specific area. This also initiated the research programs for which the US universities are now well known.

The insistence on an academic regime meant that business schools might ignore the contribution, the business itself could make. This division of opinion between academic and industry learning business school continues today.

The next round of changes was triggered by the Carnegie Commission Report during 1970s. The commission expressed concerns regarding a lack of relevance in the topics under research, overly quantitative course content and a lack of preparation for entrepreneur careers. As a result B-schools began modifying their class offerings to include more organizational behavior and teamwork topics, and new entrepreneurial track arose. However, there was no significant change in the structure of the program

In 1988, a significant report on the status of management education stated "although the quality of MBA students coming out of B-schools was found to be acceptable overall, concerns surfaced related to the co-operation of business and B-schools, integrated curricula, the relevance of research and soft skill development."[9]

The year 1988 also saw the introduction of ranking system for B-schools. It was the first time that such type of ranking systems was introduced in the US. This prompted B-schools to invest heavily in marketing as well as to look for new target markets. However, even then it was faculty oriented with an emphasis on basic management research.

In the early 1990s business schools were again criticized due their lack of relevance to modern business. The MBA was said to be too academic, too theoretical and lacked relevance from real-life business practice. MBA graduates were criticized for adopting an analytical and quantitative approach to business issues when companies needed managers with more diffuse skills, such as leadership. Faculty members were said to lack business experience and to be more interested in research rather than in providing business solutions.

In April 2002, the Management Education Task Force of the Association to Advance Collegiate Schools of Business (AACSB) came out with a report which criticized the relevance of business school courses. It recommended that American business schools focus more attention on "basic management skills, such as communication, leadership development and change management and prepare managers for global adaptability."[10] This meant that the MBA curriculum was to undergo change yet again with an increase emphasis on leadership, business ethics and morality.

The Problems with Existing Business Education

In 1971, J. Sterling Livingston, a Harvard Business School professor commented that "Formal management education programs typically emphasize the development of problem solving and decision making skills, for instance, but give little attention to the development of skills required to find the problems that need to be solved, to plan for the attainment of desired results or to carry out operating plans once they are made."[11]

More than thirty years later the same sentiment is echoed in the words of Henry Mintzberg (Professor of Management at McGill University in Montreal). He said that "Business school graduates are analytically adept but are enervated when formulating and enacting action plans. They are technically sophisticated but slow to productively adopt these skills to the idiosyncratic necessities of their new positions, firms and industries."[12] He further stated "it prepares people to manage nothing."[13]

In her presidential address to the Academy of Management in 2005, Jone Pearce of the Graduate School of Management at the University of California, Irvine, drew attention to the divide between the scholarly world of research and what she called 'folk wisdom': the insights conveyed in the classroom. "Many of us", she told her fellow practitioners, "have created these two nearly parallel worlds as a way of coping with the conflicting pressures of conducting serious scholarship and the need to teach experienced managers who pay a lot of money to learn something useful."[14]

Corporate recruiters were also criticizing the MBA graduates for their inclination towards theoretical and analytical rigour and failing to see the big picture. As Nike Inc., CFO Bob Falcone said "they may miss critical marketing angles while doing due diligence on acquisitions."[15] The shortsightedness of MBA graduates was also reflected in the words of John Carrig, Vice President and Treasurer of Philips Petroleum Co. He observed that "In examining whether building a gas plant is a good decision, they might look at the present value, but they're likely to miss whether its dilutive of earnings, the economic value added, and the earnings above the cost of capital, which is how a project decision relates to the big picture."[16] The inability of the MBA students to see the big picture may arise from the antiquated organizational architecture of the typical business school. As Nobel economist Herbert Simon warned almost fifty years ago, "there is a natural tendency for business schools to organize around functional silos such as accounting, finance or marketing. These silos then engage in perennial contests to build coalitions and protect turf. The result appears to be at many schools, an unbalanced core curriculum that doesn't fully meet corporate or social needs."[17]

Bob Thompson, Corporate Vice President and Controller of Whirlpool Corp., who received a University of Michigan MBA in 1977 complained that "recent graduates are so enamoured of theory that they sometimes actually shrink their job responsibilities in favour of technical wizardry what may be hazardous to company's health such as, in one case he's observed, pursuing improper derivative positions."[18]

According to many executives recruits poor communication skills were also a major area of concern. Many companies complained that MBA graduates excellent theoretical knowledge was not matched by sufficient interpersonal and especially, supervisory skills, which were essential in a good manager. In the words of Richard Wallman, Senior Vice President and CEO, Allied Signal Inc. "The ability to communicate your thoughts, influence a team, and bring out the best in others is more important now than ever, and today these soft-skills can make or break an individual."[19]

"Companies also complain that managers roughly know what they need to know, but most don't do it,"[20] said the late Professor Ghoshal. So the ability to take action was another skill that was coming to the fore. Executives needed the capacity to take action; the capacity to build personal energy for taking action; the capacity to develop and maintain focus in the midst of distracting events. It required action-taking ability.

Judgment and intuition were built through related experience. The challenge for business schools, therefore, was to build a rapid-fire set of decision-making experiences. So, it may be time for schools to rethink one of their sacrosanct components; the case. Harvard Business School MBA students studied and prepared more than five hundred cases. The trouble was that classic business school case, as normally construed, was time consuming, individually oriented, and too specific to be generally applicable. In addition, the process of preparing a case was largely intellectual.

Paul Lehman, a 1996 Columbia MBA graduate who worked for Pfizer Inc., thought that many schools inflate students' expectations of the job world. "You come off campus ready to be CFO. In every [business] case you play that role,"[21] he said. "You don't know how little you know until you get on the job."[22] Adds David Mendis, who was a finance veteran at Marriott International.

Therefore, the challenge lied in how to strike a better balance between the traditional number crunching management science courses like accounting, finance and operations management and the often neglected soft-skills like leadership and negotiations, which can make or break executives in the real world.

New Initiatives

The old sentiment was showing signs of change as MBA programs were reinventing themselves in order to keep up with the fast changing corporate America. MBA programs from Duke University's Fuqua School of Business to the University of Chicago's Graduate School of Business were promoting themselves as schools that can deliver the skills and qualities that corporate recruiters were looking for.

For example, Harvard Business School (HBS) had transformed its curriculum considerably in recent years. In 2004, it replaced its first-year requisite "General Management" course with "The Entrepreneurial Manager". Harvard also increased its entrepreneurial courses from two to eighteen over the last decade.

Harvard, considered to be the pioneer in the case study method of teaching now used more online supplements in the classroom so that students can work with databases of real-time information. Harvard cases, one third of which were new each year - "aimed to teach interactive, global and relevant practices"[23] said Steve Nelson, Executive Director of Harvard's MBA program.

Harvard had also invested millions of dollars in setting up research centers around the world. In July, 1997 HBS opened California Research Center (CRC), in Menlo Park, California as part of its Global Initiative. Launched in 1996, the Global Initiative was a major effort to build closer ties with companies, academic institutions, alumni, and other resources worldwide. The second research center was opened in Hong Kong, the following year and a satellite center in Tokyo later. The School opened its third research center, in Buenos Aires, in 2000, and its fourth center, in Paris in 2002. Its latest addition, the India Research Center (IRC) was opened in Mumbai in March, 2006. In its inauguration, Professor Krishna Palepu, the School's Senior Associate Dean for International Development said "The new Mumbai center will help us expand our ties with prominent business leaders, universities, and researchers throughout India - a key emerging force in the global economy."[24] He further added that "HBS presence in the region will increase the breadth and depth of HBS research and case studies and thereby enhancing the learning experience for all MBA students and Executive Education participants."[25] Faculty travelled to these research centers to research and write cases that were updated throughout the semester as industry and company conditions change.

Nelson said "Our course development is so close to practice that faculty research can anticipate many of the changes taking place in management."[26]

Darden Graduate School of Business Administration at the University of Virginia - recent initiatives include the Batten Institute, the UVA research center that produced issues-based initiatives that shaped Darden's teaching efforts, case writing, research and projects.

Professor David Beim who taught Introductory Corporate Finance at Columbia Business School said "We've tried to make this a much less textbooky, mechanical course"[27]. His twenty five years of investment banking experience was reflected in the way he approached the course. He started his class by saying "Raw numbers make sense and gain interest only in relation to other numbers, and I want to sharpen your skills for using ratios to understand the true story of what's going on"[28]. After an hour of talk on basic financial ratios he distributed a worksheet listing five sets of key financial ratios. He called out five different industries, asking students to match each balance sheet to a corresponding business task - a task requiring assumptions about the nature of different businesses. The last ten minutes were spent on discussing the answers. "We've oriented towards problem-solving and skills so that at the end of the course students can take an unstructured situation, extract insight, and make projections."[29] "The detective scenario", he said along with the case-centered exercises that make up the other half of the course, employ what he called "experiential education" as a framework for learning.

"Leaders must learn the fundamentals in finance, marketing and operations"[30] Snyder said (Dean, Harvard Business School). "Through our issue-based initiatives, we are able to weave current theme into ethics, e-business and entrepreneurship."[31]

David Schmittlein, Deputy Dean of Wharton School says "Through consulting activities, projects and experimental learning, professors tackle issues and decisions of the day."[32] Wharton's MBA program included seventeen e-business electives, which were reviewed yearly.

Historically, University of Chicago was considered to be too theoretical in its approach. However, the university has revamped its curriculum. They now asked students to develop real products for real companies. Sponsors of the course included Citicorp, Ameritrade, American Airlines, Allied Signal and others. New products taught students through direct experience how to generate and evaluate new product concepts, financial forecasts, pricing strategy and other elements of business. "There has been a lot of work done to help on collaborative skills"[33] said Cheryl A. Francis, a former CFO and a member of the advisory council of the University of Chicago Business School.

Other schools were also working hard to keep in touch with what was happening in the real world. The Olin School of Business at Washington University in St. Louis for example, brought in business leaders not only to help shape the curriculum, but in some cases to teach courses alongside Professors.

At Chicago, the University of Pennsylvania's Wharton School, Harvard Business School, Columbia Business School, and others among America's top business school, the main thrust reflected a learning process in which finance, marketing and manufacturing or other operations became more intertwined. The new emphasis put added focus on teamwork, interpersonal skills, and consulting-like group projects - and understanding how complex business problems were solved. At the same time schools were at least trying to apply the basic theoretical principles to corporate realities.

"Our insistence is that whatever someone's major, it has to fit within the broad business framework"[34] said Dan Dalton, Dean of Indiana University's Graduate School of Business. All first-semester MBA students there learnt the essential tools of business in a fifteen credit course, team taught by faculty from various functional areas and resulting in a single grade. "We're trying to prepare people to appreciate the technical silos are not very effective in the workplace"[35], the dean said. The change in approach echoed through more than 700 schools, both large and small, which offered MBA degrees around the country.

Outlook

It seemed that the focus on experimental education was starting to pay-off. As Dominic DiMarco, CFO and Planning Director of the Automotive Consumer Services Group at Ford Motor Corp., said that he saw an increase in the aptitude of Ford's Finance MBA recruits. "We are getting excellent graduates that can make an impact right from the start,"[36]

DiMarco, who recruited MBA students at Ford over fifteen years, attributed the improvement to the focus MBA programs have put on work outside the classroom. "Many MBA schools are being more selective about MBA candidates and requiring applicants to have more job experience before they enter"[37] he says.

DiMarco also credited the coursework that MBA's do in teams across disciplines. He said that, increasingly finance people at Ford are being integrated into decision making across the organization. "They need to take an enterprise perspective, rather than make a decision from a strictly financial point of view,"[38] he said. While in the past MBA's had a harder time seeing the bigger picture, they were more effective at it, according to DiMarco.

A trend towards applications-based teaching, where students work in groups in a lab environment, were starting to produce results. "New MBA's are better team players and better communicators"[39] as said by Cheryl A. Francis, a former CFO and a member of the advisory council of the University of Chicago's Business School.

But Calvin Baker, a CFO and treasurer of Wisconsin Energy Corp. and a 1969 Chicago finance MBA, was realistic about what any mere degree can deliver. "There's no way a hotshot out of Chicago, or any other school, will be able to handle the complex nuances of dealing with the business world right away"[40] he said. P.Andrew Bilboa, CFO of Emazing.com was also skeptical about the renewed value of an MBA. He said "B-Schools might have gotten better over the last few years, but they still need to be more attuned to the needs of corporate America. If I were looking to hire a financial wiz kid, I wouldn't hire an MBA. I'd hire someone with an MFS, or a background in math."[41]

  1. Bridging the Gap - Are MBA programs finally starting to deliver the qualities that companies need in the recruits they hire?, Joseph McCafferty, CFO.com, August 08, 2001
  2. Bridging the Gap - Are MBA programs finally starting to deliver the qualities that companies need in the recruits they hire?, Joseph McCafferty, CFO.com, August 08, 2001
  3. Incomplete Education - At many business schools, finance instruction just doesn't make the grade, Stephen Barr and Roy Harris, CFO.com, April 01, 1997
  4. What companies want from a MBA graduate, Economist, 3rd April, 2001
  5. Making Management Matter: An Interview With John Reed, Academy of Management Learning and Education, 2006,Vol 5, No 1, pp 84-100
  6. Friga, N. P., Bettis, R. A. and Sullivan, Robert S.(2003) "Changes in Graduate Management Education and New Business School Strategies for the 21st Century", Academy of Management Learning and Education, Vol 2 No.3, pp. 233-249
  7. The MBA - some history, www.economist.com
  8. But Can You Teach It? - The Economist, May 21, 2004
  9. Friga, N. P., Bettis, R. A. and Sullivan, Robert S.(2003) "Changes in Graduate Management Education and New Business School Strategies for the 21st Century", Academy of Management Learning and Education, Vol 2 No.3, pp. 233-249
  10. The Upwardly Global MBA , Nigel Andrews and Laura D'Andrea Tyson, Strategy+Business, September, 2004
  11. Opinion" What's an MBA good for - Really?, March 06, 2006, www.computerworld.com
  12. No More Boring Analysis, The Economist, May 13, 2004
  13. No More Boring Analysis, The Economist, May 13, 2004
  14. But Can You Teach It ? , The Economist, May 21, 2004
  15. Incomplete Education - Stephen Barr and Roy Harris, CFO Magazine, April 01, 1997
  16. Incomplete Education - Stephen Barr and Roy Harris, CFO Magazine, April 01, 1997
  17. Why Johnny Can't Lead - Peter Navarro, Harvard Business Review, Dec 01, 2004
  18. Incomplete Education - Stephen Barr and Roy Harris, CFO Magazine, April 01, 1997
  19. Incomplete Education - At many business schools, finance instruction just doesn't make the grade - Stephen Barr and Roy Harris, CFO.com, April 01, 1997
  20. The Upwardly Global MBA , Nigel Andrews and Laura D'Andrea Tyson, Strategy+Business, September, 2004
  21. Incomplete Education - At many business schools, finance instruction just doesn't make the grade - Stephen Barr and Roy Harris, CFO.com, April 01, 1997
  22. Incomplete Education - At many business schools, finance instruction just doesn't make the grade - Stephen Barr and Roy Harris, CFO.com, April 01, 1997
  23. Get Smart Part Three: Curriculum Report, Cecilia Rothenberger, www.fastcompany.com
  24. Harvard B- School to open research center in Mumbai, Shalini Narang, Feb 23, 2003, www.hindustantimes.com
  25. Harvard B- School to open research center in Mumbai, Shalini Narang, Feb 23, 2003, www.hindustantimes.com
  26. Get Smart Part Three: Curriculum Report, Cecilia Rothenberger, www.fastcompany.com
  27. Incomplete Education - At many business schools, finance instruction just doesn't make the grade - Stephen Barr and Roy Harris, CFO.com, April 01, 1997
  28. Incomplete Education - At many business schools, finance instruction just doesn't make the grade - Stephen Barr and Roy Harris, CFO.com, April 01, 1997
  29. Incomplete Education - At many business schools, finance instruction just doesn't make the grade - Stephen Barr and Roy Harris, CFO.com, April 01, 1997
  30. Get Smart Part Three: Curriculum Report, Cecilia Rothenberger, www.fastcompany.com
  31. Get Smart Part Three: Curriculum Report, Cecilia Rothenberger, www.fastcompany.com
  32. Get Smart Part Three: Curriculum Report, Cecilia Rothenberger, www.fastcompany.com
  33. Bridging the Gap - Are MBA programs finally starting to deliver the qualities that companies need in the recruits they hire?, Joseph McCafferty, CFO.com, August 08, 2001
  34. Incomplete Education - At many business schools, finance instruction just doesn't make the grade - Stephen Barr and Roy Harris, CFO.com, April 01, 1997
  35. Incomplete Education - At many business schools, finance instruction just doesn't make the grade - Stephen Barr and Roy Harris, CFO.com, April 01, 1997
  36. Bridging the Gap - Are MBA programs finally starting to deliver the qualities that companies need in the recruits they hire?, Joseph McCafferty, CFO.com, August 08, 2001
  37. Bridging the Gap - Are MBA programs finally starting to deliver the qualities that companies need in the recruits they hire?, Joseph McCafferty, CFO.com, August 08, 2001
  38. Bridging the Gap - Are MBA programs finally starting to deliver the qualities that companies need in the recruits they hire?, Joseph McCafferty, CFO.com, August 08, 2001
  39. Bridging the Gap - Are MBA programs finally starting to deliver the qualities that companies need in the recruits they hire?, Joseph McCafferty, CFO.com, August 08, 2001
  40. Incomplete Education - At many business schools, finance instruction just doesn't make the grade - Stephen Barr and Roy Harris, CFO.com, April 01, 1997
  41. Bridging the Gap - Are MBA programs finally starting to deliver the qualities that companies need in the recruits they hire?, Joseph McCafferty, CFO.com, August 08, 2001

References

  1. Joseph McCafferty, Bridging the Gap - Are MBA programs finally starting to deliver the qualities that companies need in the recruits they hire?, CFO.com, August 08, 2001
  2. Stephen Barr and Roy Harris, Incomplete Education - At many business schools, finance instruction just doesn't make the grade, CFO.com, April 01, 1997
  3. What companies want from a MBA graduate, Economist, April 03, 2001
  4. Making Management Matter: An Interview with John Reed, Academy of Management Learning and Education (2006), Vol 5, No 1, pp. 84-100
  5. Friga, N. P., Bettis, R. A. and Sullivan, R. S. (2003),'Changes in Graduate Management Education and New Business School Strategies for the 21st Century', Academy of Management Learning and Education, Vol. 2, No 3, pp. 233-249
  6. The MBA - some history, www.economist.com
  7. But Can You Teach It? - The Economist, May 21, 2004
  8. Nigel Andrews and Laura D'Andrea Tyson, The Upwardly Global MBA, Strategy+Business, September, 2004
  9. Opinion: What's an MBA good for - Really?, March 06, 2006, www.computerworld.com
  10. No More Boring Analysis, The Economist, May 13, 2004
  11. Why Johnny Can't Lead - Peter Navarro, Harvard Business Review, Dec 01, 2004
  12. Cecilia Rothenberger, Get Smart Part Three: Curriculum Report, www.fastcompany.com
  13. Shalini Narang, Harvard B-School to open research center in Mumbai, Feb 23, 2003, www.hindustantimes.com

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