MBA degree and recession?

As most coaching classes are busy preparing their call-getters to convert their initial calls, into final admits, news from B-School campuses keeps pouring in. 'Placements take a hit at top B-schools'. 'IIM students look up to PSU's for their placements'. These reports have been raising doubts in the minds of the call-getters, whether it is the right time to quit a secured job and go for something as uncertain as an MBA?

The fact of the matter is that this slowdown is not a recent phenomenon. We saw it coming last year itself, the year in which the IIM's witnessed the highest number of CAT applications - more than 2.80 lakh, about 25% over the CAT 2007 numbers. A similar jump was seen in the number of applications to other institutes as well. So why is an increasing number of students looking to beat the slowdown with an MBA degree?

The reason why most people opt for an MBA is not only because it gives very generous monetary returns, but also because it is important for making a career change. Different people have different reasons for doing an MBA - knowledge, a better position, shift of career and some do it even for status.

But the big question is, what is the right time to do an MBA? With jobs not available, pay-hike being almost negligible, many people believe that this is the right time to spend 2 years doing MBA and upgrade your skills and ability to get employed. If you analyze objectively, by the time you pass out, the business cycle may be on the upturn and you would be ready on time to take advantage of the situation.

Though the atmosphere at business schools may suggest otherwise, a point to be noted here is that it is only the salaries that have taken a hit - not placements. Most of the top B-Schools have recorded 100% placements or close to that. Earlier finance companies used to recruit students in bulk at higher pay packages.

Today, due to the economic downturn, finance companies are making fewer offers with lower pay packages and this in general has plummeted the average salaries at B-schools. But on the positive side, students have garnered the opportunity to work in diversified profiles across sectors and functions, profiles that would help in their career progression.

The two intensive years that you spend at a B-School campus equip you with knowledge in areas like finance, marketing, logistics, personnel and strategy. Also, through case studies you would learn to analyze different business issues faced by the companies.

You also get an opportunity for internship and projects, which help you gain that valuable real life experience. In short, an MBA from a top B-school gives you the flexibility to switch careers and also makes you more employable because of the mental grooming to face the challenges of the real world.

Though this might be the right time to do your MBA, you need to be careful about certain things. Go for the top B-Schools only. An ordinary B-School may not offer you all the benefits that we have discussed earlier.

Since you are trading off an earning opportunity to do your MBA, you should ensure that you get a good return on your investment of time and money. Secondly, in tough times like these, you might look forward to shorter MBA programs. There are a couple of good institutes that are offering a 1-Year MBA program. So, you not only get all the advantages of a good MBA program, but your earning cycle starts a year in advance.

However, whether it is a 1-Year program or a 2-Year program, an MBA degree does have the power to bail you out of the recession.

Why Value of MBA has declined?

Few MBA or executive training programs adequately address the importance of developing leaders. For the most part programs tend to be theory oriented and use the traditional tools of conceptual learning — case studies, lectures, films and discussions — relying on the contrast between managers and leaders actions. Which may be why the value of an MBA and the salaries of MBA students appear to no longer be what they once were.

The problem with many business school leadership programs is they teach ideas, not real behaviours, and the professors are chosen by virtue of their ability to publish detailed research, not their leadership experience. Understanding something intellectually often has little to do with being able to do it. Adult learners need experiences and coaching to turn concepts into leadership behaviours.

Henry Mintzberg, a professor of management studies at McGill University in Montreal, also argues that because students spend so much time developing quick responses to packaged versions of business problems, they do not learn enough about real-world experiences. Rakesh Khurana, a professor at Harvard Business School and author of From Higher Aims to Hired Hands, a historical analysis of business education, says business schools never really taught their students that, like doctors and lawyers, they were part of a profession with professional standards. In the 1970s, he said, the idea took hold that a company’s stock price was the primary barometer of a leader’s success. Among other things, this changed business schools’ concept of proper management techniques. Instead of being viewed as long-term economic stewards, he says, managers came to be seen primarily as the agents of the owners — the shareholders — responsible for maximizing shareholder wealth.”We can’t rely on the usual structure of MBA education, which divides the management world into the discrete business functions of marketing, finance, accounting, and so on,” he says.

For universities, business schools have been a means to an end — money. They are less expensive to operate than graduate schools are with their elaborate labs and research facilities, and alumni tend to be generous with donations. About 146,000 graduate degrees in business were awarded in the U.S. in 2005-06; roughly a fourth of the 594,000 graduate degrees awarded that school year,the U.S. Education Department notes. Still, there have been signs all is not well in business education.

A study of cheating among graduate students by Linda Trevino, Ken Butterfield and Donald McCabe, published in 2006 in the journal Academy of Management Learning & Education, found 56% of all MBA students cheated regularly — more than in any other discipline. The authors attributed that to “perceived peer behaviour” — in other words, students believed everyone else was doing it.

McCabe, writing in the Harvard Business Review, contends the prevalence of cheating among MBA students is because of the “get-it-done, dam-the-torpedoes, succeed-at-all costs mentality many business students bring to he game.” He describes an MBA student mentality of getting the highest GPA possible so they can get the highest paid jobs in the pharmaceutical, high-tech and finance sectors.

Some employers are beginning to question the value of an MBA. A research project that two Harvard professors released in 2008 found that employers valued graduates’ ability to think through complex business problems, but that something was lacking. “There is a need to broaden from the analytical focus of MBA programs for more emphasis on skills and a sense of purpose and identity,” said David Garvin, a professor of business administration and one of the project’s authors.

Students themselves may welcome an emphasis on character skills and personal development. In surveys that the Aspen Institute regularly conducts, MBA candidates say they are less confident now they will be able to resolve ethical quandaries in the workplace.

In fairness, several business schools are trying to revise their model but most have yet to realize they have a credibility problem. Business schools including the University of Toronto’s Rotman School of Management, Wharton, Yale and Stanford are overhauling their MBA programs, with a focus on better problem-solving, decision-making, ethics and social responsibility through experiential opportunities.

Angel Cabrera, President of the Thunderbird School of Global Management in Arizona, says that business schools are slowly beginning to move towards accepting the broader responsibility of management, citing the example of more than 200 business schools around the world that have endorsed the Principles of Responsible Management Education, a movement sponsored by the United Nations.

The challenge for business schools now is how to develop leaders not managers — people who believe business has bottom lines beyond shareholder value.

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ISB Placements rise by 33%

MUMBAI: The 2010 batch of Indian School of Business (ISB), Hyderabad, saw a 33% increase in total number of placement offers and an 11% rise in average salary over last year, the institute said in a media statement.

“This year shows a significant improvement over last year,” said dean Ajit Rangnekar. The class comprising 568 students witnessed offers from top companies in technology, consulting and finance increase by 116%, 40% and 30%, respectively, over the last year, making them the largest recruiters on campus.

Citibank, DBS Bank, Accenture Services, Arthur D. Little Asia, Cognizant Technology Solutions, Amazon Development Centre India, United Health Group and Dr. Reddy’s Laboratories are few of the 346 recruiters.

“Last year was a traumatic year, but we still matched compensation level of 2007,” said Mr Rangnekar. “2008 was a mad year, as companies were paying far too much money. There was gross over optimism in the market. Given that in 2009 there was undue pessimism,” he added.

This year’s highlight was first-time recruiters from the green energy sector like Schneider Electric India and Wipro Eco-business.

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Foreign MBA degree fetch a Good Job

Due to globalisation, liberalisation and privatisation, it has become feasible to pursue an MBA course from foreign universities especially in UK, Australia, USA and Canada.

Distance learning MBAs and online MBAs from foreign universities still have the same attraction. A foreign degree guarantees more exposure since students need to interact with fellow classmates and faculty to learn and evolve.

In a foreign MBA, students come with work experience in a variety of fields like finance, high-tech, marketing, poetry, films and other such artistic fields. The diversity in student body helps them develop a strong network across all countries.

So does a foreign MBA still have the same attraction as in the past decade? “A foreign MBA degree is still attractive for a large pool of people in India, though only few globally renowned institutes are great to get in, which include Asian Institute of Management, Philippines, London Business School, United Kingdom, Kellogg School of Management, USA, Harvard Business School, USA, and Wharton University of Pennsylvania, USA. One of the good points of a foreign MBA degree is its admission criteria which include 3-4years of corporate experience and case studies which are based on real time experience for students to learn the art of management,” notes Sunil Goel, Director, GlobalHunt, an executive search firm.

Says Jayaram K Iyer, Professor, Marketing, Loyola Institute of Business Administration, “Unfortunately yes and in fact gullible students are falling prey to glitzy advertisements and five-star-hotel fairs from foreign universities that seem to promise more and deliver a lot less; it is as usual the 'country of origin' effect: craze for anything foreign. Most of these foreign universities are here because they can’t find students in their own countries; it is business for them and no education can swerve from altruistic goals. Good foreign MBA degrees are restricted to a few top 30-40 b-schools in the world and the ranks are public information. However, one good aspect of all these foreign MBAs is that, the students get lot more culturally diverse exposure that moulds them to be more global in perspective. Of course, they also become more patriotic realising the worth of India.”

Does a foreign MBA give a better pay, position etc? “A foreign MBA degree from a renowned institute certainly gives better pay and position as it provides exposure, builds up strategic thinking, leadership ability and foremost, it teaches how to get culturally fit in an organisation.

Holding a foreign MBA degree from a renowned institute develops very high aspiration in a candidate as far as compensation is concerned, this might not be feasible in today's economic scenario,” adds Goel.

So the question is, Is a foreign MBA essential to fetch a good job? “Finally, one needs to decide what he/she plans to do after an MBA. This is probably the most defining factor to take a decision. If one is planning to take up a job abroad, one can opt for a foreign MBA. If one plans to return to India on completion, one should think through. Compared to foreign B-schools, Indian institutions offer cost advantage, making them more attractive if one is planning to build one’s career in India,” feels Ajay Oberoi, director general & trustee, AICAR Business School.

The quality of education at top-ranked Indian business schools is at par with some of the best in the world. But that applies to only a handful of business schools across the country.

In India, most of the MBA students are fresh out of college and have no work experience. This is not the case with the foreign MBA institutions.

Students come with work experience in a variety of areas and this helps them broaden their perspective. Whatever the route, a foreign MBA degree from a renowned institute certainly enhances one’s chances of fetching a good job and gives one an edge over other candidates.

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Management Education Flaws

It is tragic that education today churns out graduates unmindful of the requirements of the industry that will employ them. In boom times, most organisations grab whatever employee they can and then invest heavily in training, for want of an alternative. We have heard of the training campuses of large companies. I was involved in training for new recruits at Lehman Brothers when they set up their back office in Mumbai. 

Also, an investment banker was in discussion with me once to set up a mini-university within his company. The objective: crash the time it takes a new recruit to be productive, from nine months to 45 days. 

No depth

The problem with our management education is fundamental. Most MBA courses, for example, are marketed on the basis of a stated number of credit courses. Some are compulsory while others are elective. Each credit course on paper is well laid out with quizzes, presentations, assignments, reading and end-term examination. The process of evaluation is expected to assign marks for class participation as well.

So, topics like elements of finance and derivatives may each have one course. Naturally, a more complex subject like derivatives takes a beating, having to be covered in a short time-span. Before a faculty can warm up to the subject and establish rapport with the students, the course is over and finished. There is neither an effort nor a desire to grill the students in the fundamentals and ingrain some depth of knowledge such that when he enters employment, he is ready to contribute.

In my interactions with students undergoing super-specialisation in different aspects of finance such as wealth management or investment banking, it was appalling to see them struggling with basics. What is their specialisation and what is super about them is anybody’s guess. In most of these institutes, we still have the concept of a teacher coming and lecturing, students taking down copious notes and later regurgitating the same in an end-term exam, passing with marks upwards of 90% but with little assimilation of knowledge. The institutes have learnt to avoid investments in libraries and the tech-savvy students, heavily reliant on Googling, have adjusted very well, rarely making visits there. They all want handouts, for reading multiple books is an activity for which they have no time. 

Education is viewed as a very profitable business, where your cash flow is upfront before the product is delivered, and admission is driven not by quality of education but by placement and remuneration record. Higher the placement record, better the average pay offered, greater the intake of students. The institutions are structured to cater to this formula. They use marketing skills and personal relationships with HR managers and somehow push placement for the students. Many even dump a certain syllabus on the students, make them learn a few jargons and unleash them in the market to wreak havoc. Most students in finance would have no clue on any practical aspect of what they learn. 

They don’t get to see a Reuters or Bloomberg screen, rarely visit active markets during the course — all this despite the internet and other trappings of modernity being available. In fact, most teachers themselves must be surviving without actually visiting the live markets.

No exposure

What is taught is determined by the academicians who rule these institutions and not on the basis of what the recruiter would like to have. While some do invite practising professionals to come as visiting faculty, that exposure is minimal. Rare are those institutions who invite practitioners on a professional basis to conduct a full-credit course with complete practical orientation. 

The general approach ingrained in the average MBA course seems to be that the students need to have a broad overview of the various subjects and not necessarily in-depth knowledge in any sub-topic. This has reduced it to a farce, with the students throwing sophisticated phrases with little understanding of concepts. You scratch them at the surface and they start to falter. I have seen this at different levels in different situations. 

Students in finance complete the course without a clue on how products are structured or traded, why the arbitrage taught in a classroom rarely works in practice, how bid-offer spreads and liquidity can kill all that theory mugged up in a classroom. The pity is that most don’t care, so long as there is a job at the end of the course. 

Low-paid teachers

Emmanuele Darman describes this in his book My Life as a Quant: “During my last few years at Goldman Sachs, I interviewed undergraduates applying for jobs in investment banking, and I was often surprised at how little of their coursework some of them recalled, how little a sense they had of the essence of their field. I met juniors majoring in statistics who couldn’t define standard deviation and students who had taken several courses in electromagnetic theory but couldn’t remember Maxwell’s equation. What I had learned, I had learned well. Theirs’ sometimes seemed a wasted education.”

 

Rarely is teaching a choice of pursuing a passion. While there are some faculty members who have opted for it despite the low remuneration, in most cases, it is by default. I have never been able to reconcile the expectations from low-paid faculty members who turn out students offered starting salaries higher than their remuneration. Rarely do you find practising managers giving up their lucrative careers to teach.

Industry’s role

Institutions trying to attract visiting faculty from practising managers also face many problems. They owe their loyalty to the organisation they work for, cancel lectures at the last minute, and rarely coordinate the topics or deliver to the agreed syllabus. To make matters worse, these visiting managers rarely read and hence fail to stitch the theory to the practice. 

 

While the brochures speak elegantly about the faculty, pedagogy with lectures, case studies, class discussion, etc, it is seen that faculty often don’t change the case studies for more than 4-5 years. Even today, most institutions would harp on the Barings case study, while there are multiple cases of later years available to emphasise on the learning. Latest market practices are often not taught. For instance, a class on fixed income markets would rarely refer to the FIMMDA or its handbook of market practices, CCIL and the clearing and settlement practices, RBI’s electronic anonymous screen-based trading system and how to interpret the market from the prices quoted there, etc. It is possible that in most cases the faculty themselves are not aware of these. 

It is necessary to deal with this on a holistic basis. Initiative must come from industry to set up state-of-the-art management training institutes. Each one can be set up by a cluster of contributing or participating companies. Each of these institutes must have a cluster of real businesses, producing products and services used by the participating companies setting up the institution. Students studying for an MBA would spend 3-4 years with a well-structured mixture of theory and practice. The companies must be run by the students themselves with assistance from faculty who must be practising managers. 

Graduates must be assured of jobs from the participating companies with an option to choose jobs outside the participating companies. By the time they graduate, they would have managed different aspects of a running company and be ready to put their theory to practice, having dabbled in it. 

This is possible only if organisations such as FICCI, CII and Assocham take the lead and set up great centres of learning across the country. The faculty should be paid on the same scales as senior management staff in industry. Naturally, the cost of such education would be high and must be borne by the students, through scholarships if necessary. Needless to say, for their work in running the company, they will be paid a remuneration which can partially defray the cost of their education. 

If we fail to address the need to revamp our education system and think innovatively, managing double-digit growth rates may be an uphill task.

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