Friday, May 15, 2015

Who does an MBA benefit to- other than the university offering it, of course?

It’s almost impossible to ignore attractive advertisements of MBA courses offered by different universities on TV and other media, job advertisements needing people with MBA degrees to occupy positions related to management and leadership. It provokes people to think if a degree like MBA would make people more entrepreneurial, better managers or worthy leaders. Are organizations recruiting and/or promoting such people more successful?

The concept of business management and business school is a relatively new development. The first business school was founded in Paris, France in 1819 while the first university in the world was established, arguably, in India, Nalanda university, around 427 AD (but subsequently destroyed around 1200 AD), while the University of Bologna, Italy was established in 1088 and continuing ever since. The first business school in the USA is Harvard Business School, established in 1908. It was also the first business school to offer MBA degree. Previously neither MBA nor other management degree or third party certificates (e.g. PMP, Six Sigma Lean etc.) was so important or financially remunerative in corporate America. 

Current widely prevalent culture of MBA and business management in terms of manufacturing and corporate management arrived in the USA during 1970s, instigated by the Japanese companies. It would not be wrong to say that the concept of operational management and constant pursuit of excellence came from Japan or successful Japanese companies like Toyota and National-Panasonic (Matsushita Electric Corp.). Massive success of Japanese companies in western markets provoked or forced American/western companies to initiate or learn Japanese management style. Previously it was assumed that success of such Japanese companies is basically cultural. It started changing around 1974 when Matsushita purchased an ailing American TV manufacturing unit near Chicago from Motorola, retained almost all its previous staff while making the same unit massively successful.

Many big and famous Japanese companies like Toyota maintain its own training programs and institutes to train its employees, mainly the executives, and grooming future leaders.  Few American companies like GE also had similar training centers. But there is a very fundamental difference. The motive of such Japanese training institutes are not making money by offering that training or degree or certificates to anyone who can pay, in stark contrast to its American counterparts. Such Japanese training institutes within a company are highly guarded venture. Admission of others, even for short visit, are not much encouraged, if not prohibited.

It might be surprising to many that top ranking Japanese Universities, former Imperial universities, formed prior to World War-I, later became seven best universities did/do not offer any course in management. Only one of such universities, University of Tokyo, started offering management courses as late as 2008. Few other Japanese universities, mostly private, do have business schools and offer MBA degree. But study of business  or management is not so visible or even important in corporate Japan that practically dominates many sectors of global economy since World War II.

It seems that social mobility and consolidation of wealth is worsening almost globally. America is among the worst affected, at least among developed countries. It perfectly correlates with eroding scientific and technological edge and competitiveness of American industries. USA ranks sixteenth in terms of "quality of research" in 2012, down from its second raking in 1995. Fast declining competitiveness of advanced industries in the USA is almost a routine issue discussed in media and policy makers alike.

Nowadays we hear a lot about developing leadership and innovation. We probably would hear more about those seemingly un-trainable attributes as social mobility and wealth consolidation deteriorate. Organizations have to manage with fewer talents and leaders while the demand for such people is expected to increase due to growing markets in many countries in Asia, Africa and Latin America.

Moreover, we are now hearing a increasing noise about talent shortage in almost every sector. Some industries seem to be in more difficult position than others. And it’s not restricted to just USA. Many Human Resource (HR) professionals do not agree with talent shortage ‘propaganda’. They believe that there is no shortage of qualified manpower. What the companies are complaining is about the price they like to pay for talented employees. Such tendency, even by the companies making good profit, will create more bottlenecks to recruit and retain employees with leadership and innovation capabilities. People investing good amount of money in getting MBA need to recover that expanses, irrespective of its value. Reluctance of companies to pay more is bound to put pressure on both the recruiter and the candidate. That burden will also be passed to other non-MBA employees or job seekers as well.

Many, if not most, of the MBA candidates are already employed. Company's current higher management (again, mostly, MBA alumni) attach a great value to that degree. Many, if not most, pursue the degree to get promoted in the company they are already working for or to get a new job elsewhere. It would be interesting to analyze the job performance, not salary though, before and after such people get MBA, to know if MBA actually add value to an employee and, most importantly, to the company. If the answer is affirmative, then the next obvious question would be- at what price- for the company. If an organization gets $100 benefit but needs to pay extra $1000 per month, then it does not make much sense. Unfortunately, sufficient data of such confidential nature from neutral source is not so easy to come by.

But available data do indicate that most top performing American companies starting from older generation of successful companies, which are no less important even today, like Ford, Boeing, General Electric, General Motors, Pfizer, Monsanto and many more; to today’s successful tech giants like Microsoft, Google, Apple, even Spacex, were established by leaders and entrepreneurs without an MBA. The long list of such companies also indicate that profile of such companies fit almost all types of industries. MBA does not seem to help much to ambitious entrepreneurs- earlier or now.  It’s becoming clearer that companies created by technocrats and/or scientists generally are more sustainable, productive and successful in creating wealth in the long run.

It does not take much to understand that whatever way you divide $1000 among some people; it still remains $1000. More you manage for yourself (and certain people), less others would get.  The pie would increase only if the total value increases. Here I should mention that sharing of profit arising from improved technological or managerial practice, in fact, declined in the US in last few decades, unlike past corporate history of Henry Ford era. He doubled average workers’ wage, shortening the workday from nine hours to eight, along with few more job benefits. And he did all those without any compulsion from law or labor union. He revolutionized not only global automobile industry but also helped building legendary American middle class and America as a super power.  

It’s now a well-accepted fact that talented students do not favor science and technology as a career, almost everywhere, even in developing countries. Creative art and humanities are doing even worse. As a society, we seem to be more obsessed with wealth management than wealth creation. Our economy and businesses are now overwhelmingly dominated by one aspect- finance. About 60 percent of the graduates from top three Ivy League universities (Harvard, Yale and Princeton) opt for careers in finance and management and not in science and technology. Talented students from prestigious universities still flock to Wall Street. This craze for wealth management among talented students in almost every developed country is also destroying able human resource needed for wealth creation, and cater to other faculties of human mind and creativity. Fortunately, the trend seems to be reversing. Since last couple of years, a growing number of ivy league business school graduates are joining Silicon Valley tech sector, leaving the glamour of Wall Street.

It has been proved many times that neither leadership nor the ability to innovate can be taught or learned much in formal education. A decently accepted model postulates that only 10 percent comes from formal education while 70 percent comes from on-the-job experience to develop leadership. Actual leaders and geniuses rely more on heuristic. But that capability can come only if one has mastered the boolean, i.e. sense of logic supported by data or fact. Once one master the art of boolean, then only s/he can practice heuristics successfully and go beyond direct experimental proof or evidence based hypothesis or conclusion. There are many examples of such heuristics geniuses in human history, starting from Fermat’s last theorem to Einstein’s famous formula E=MC2. In all such cases, experimental proof came much later, if at all. Nonetheless, great sense of logic (boolean) and/or scientific or technical ability alone is not and must not be the main parameter for a great leader. To me, management seems to be a common sense approach based on sense of heuristics and, more importantly, personal integrity and innate ambition where social, personal values and ethics play a huge role.

Behavioral economists suggest that predictable or rationally irrational decisions are far more common among top executives than we might think. The last global financial meltdown around 2008 is an example, may be little extreme,  for neglecting such human ‘misbehavior’. And it’s very much possible that many such top executives who were part of the global financial meltdown were motivated more by the social upbringing, personal values and ethics, or lack of it, that I mentioned earlier.

Many people would agree that the most challenging management job would be to become the President or Prime Minister of a democratic country. But no country has any requirement for its top executive to have any such degree like MBA. Neither people with long corporate career with prestigious management degrees and/or experience are proven to be a better national manager or leader. 

Short URL: