Where did business schools and MBAs go wrong?

Business schools are changing. Not what they teach. Not what they research. But what they cost and their very purpose.

The reason? Business schools have themselves become big businesses.

Today’s business schools inhabit sprawling buildings that house hundreds, sometimes thousands, of studious ‘customers’ longing to be taught how to make their millions, while gaining access to prize lecturers and glittering alumni. Legions of staff wait to serve the needs of their ‘clients’ via satellite campuses in exotic locations around the world, in turn providing outposts of foreign direct investment in emerging markets.

Let us be honest, many business schools are bigger brands and organisations than the companies a decent proportion of their students are likely to work for, so perhaps the cost is justified.

Yet business schools around the world have promoted themselves as not just places of knowledge transfer and research, but as the bedrocks of careers, the ladder to an alternative one or the out-of-the-box toolkit for would-be entrepreneurs. Graduate programmes, most prominently MBAs, but ever increasingly masters in management (MIM) degrees too, are seen as the ticket to commercial stardom, or so the chain of thought goes.

First, there’s the cost of attending business school that, depending on where you go – most want to go to a ‘very good school’ – can cost between £10,000 (US$14,200) and £30,000 (US$43,000) for an MIM degree in the United Kingdom, not including living costs. In Europe, the cost is between €500 (US$620) and €35,000 (US$43,500), again before living costs.

What about MBAs? For internationally renowned schools candidates can expect to pay in the range of £25,000-£100,000 (US$35,600-$142,000) in fees alone. Therefore, once applicants add in living costs, travel, entertainment, as well as the forgone salary, then an MBA can cost as much as US$333,000 (£234,000), according to data from Poets & Quants, for a bellwether school like Wharton or Harvard Business School.

The wider societal and economic cost

The trouble with making management education so expensive is that it creates the same conundrum society experiences if medical school is too expensive – which, in the United States, it is. Namely, that only those who can afford medical school or are in receipt of a limited number of scholarships go, not those best qualified or suited to it.

Furthermore, for wider society it means businesses may not be managed as creatively, professionally or with as much of a global outlook as they could be. This means firms led by unqualified teams might take unnecessary risks or enact the wrong strategic decisions, subsequently meaning economic growth is lost. This is because in the same way that patients can quite rightly expect their doctors to be sufficiently trained, the same should be true for entrepreneurs and managers.

A business background is no guarantee of a steady pair of hands – just look at BP and Lehman Brothers as recent case examples. But all economies need managers and business leaders who have the skills and training to make businesses and, ultimately, national economies more successful.

In the UK, post Britain’s vote to the leave the European Union, some three million workers may or may not be able to stay in the country. Equally, they might choose to leave. As The Economist explains: “Some [firms] will hire more Britons or robots. Others may up sticks.” And, because few organisations have seemingly considered the impact of this, it is important to ask: How might those businesses succeed without management talent being available and what will be the commercial and financial cost?

Theoretically the answer lies in a) hiring more managers from outside of the EU, a move not really in keeping with the UK government’s desire to cut immigration, or b) a wave of new MBA and MIM candidates at UK business schools. If the solution is ‘b)’ then the statistics make for horrible reading.

This is the result of a farcical situation whereby the leading schools in the UK, those identified by The Financial Times business rankings, have worryingly few UK students on their programmes.

On the full-time MBA programmes analysed, UK students fill a minuscule share of the places. For example, Cambridge Judge Business School has 8% UK students (14/174), Imperial College Business School has 15% (10/67), London Business School 10% (42/425), Oxford Said Business School a mere 6% (20/327) and Warwick Business School has 10% (14/73).

The UK numbers for home-country students are very low when compared with US schools such as Dartmouth’s Tuck School of Business which educates an MBA student body that is 70% American. Harvard (86%), Michigan Ross (69%) and Stanford (60%) all post respectable figures. Ultimately, this puts UK firms at a managerial disadvantage: don’t train home-grown talent, do not reap the rewards of doing so; something that is especially true when labour markets contract.

Yet behind this UK situation is something more sinister: prospective UK students are not as lucrative, government-funded or financially well-off as candidates from elsewhere, so UK schools do what they do best – teach everyone else to do it.

Not only is this unsustainable and damaging, but in order to make the UK more competitive British businesses will need to educate more members of staff with advanced business degrees if they are to compete in a complex global business environment.

Meanwhile, some European business schools are ensuring that educating leaders and truly gearing themselves towards widening access is an imperative. As part of that offering, fees in Austria, Finland, Holland and Germany are consistently below £10,000 (US$14,200) for an MIM degree.

What is more, as schools have positioned themselves as a one-stop-shop, they need to ensure the value they provide future leaders, both entrepreneurs and managers, lies not only in the curriculum but in collaborating with an international student body offering knowledge transfer and future opportunities for doing business.

Failure to provide better access or educating too few domestic students risks societal costs not envisaged beyond the classroom – lack of social mobility, poor earnings potential, fewer start-ups and successful new ventures. That manifests itself in an economy that is less competitive, forward thinking or interesting than it could be. Facilitating this means business schools being fairly priced and open institutions, not finishing schools for the few.

The crisis of globalisation

Within lecture theatres and seminar rooms the trouble with business schools is also eminently clear: there is a problem with the global business and economic environment, the crisis of globalisation.

As a result, if globalisation is indeed in crisis as a result of economic, political, social and environmental factors, then business schools, and the academics within them, are also in the dock.

For the past 117 years, since the formation of the first schools of management in the US and UK, and even earlier in France, management science has taught leaders about the mathematical models for operations management, the techniques for implementing the right marketing strategy and to focus on the theory of the firm and who it is for. Standardised approaches to manufacturing and one-size-fits-all services have further exacerbated the need for a rethink beyond digitisation and automation.

Citing a report from the Aspen Institute, veteran business journalist Duff McDonald explained recently that “when students enter business school, they believe that the purpose of a corporation is to produce goods and services for the benefit of society.”

“When they graduate,” he continues, “they believe that it is to maximise shareholder value.”

Mixed in with the science has been economic theory that has sought to ensure that shareholders come first, customers second, and so on. Throughout these advancing stages of management, firms have gradually catered for every aspect of our lives and the physical environment we inhabit.

The trouble for business schools going forward is that many of their core subjects are increasingly outdated and detached from reality. For instance, the crisis of globalisation presents a unique challenge to business schools’ predisposition that trade should be free from cross border taxation, flexible working conditions are a societal benefit and that multinational corporations should have revenues larger than advanced nations.

In a crisis of globalisation, the inter-connectivity of nations and people means that the winners and losers of the process of globalisation are now more aware than they once were – look at ‘rust belt’ America’s support for now President, Donald Trump – yet are business schools best placed to explain how this affects businesses?

More strikingly, in an interconnected economy the systemic risks are not only financial or economic in nature, but instead involve geography, foreign policy, climatology and supply chains.

However, far too little research is conducted on these risks by business schools. Instead think tanks such as Chatham House, which recently published its Chokepoints and Vulnerabilities in Global Food Trade report, highlighting a serious vulnerability stemming from interconnected food supplies, are filling the gap.

Importantly, unlocking new ways of doing business in a more protectionist, mercantilist business climate will be easy on the home front but far more difficult abroad.

In the geopolitical scramble for global influence, foreign direct investment is a prevalent feature of expansionist mergers and acquisitions and joint ventures between emerging and Western firms, which are driven by the former. We face a crisis of Western-led globalisation that business schools must discuss responses to.

From an environmental perspective the crisis of globalisation presents an opportunity for sustainable supply chains and more equitable value chains, although most firms are really only playing around the fringes of what is possible. Meanwhile the Earth’s nine lives are running out. Stewardship of the environment requires better leadership from business school alumni as well as clearer actionable solutions from academics.

Global business, indeed globalisation itself, will have to revamp and re-engage with a world tired of exploitation and crises.

Business schools which, by proxy, taught the leaders who have played a part in decreasing world certainty in the first place – a nod to Friedman and Hayek who argued that companies’ sole responsibility is to maximise profit for shareholders regardless of negative externalities – require a pause for self-reflection to consider the world as it is, for the sake of business school curriculums.

Ultimately, are business schools educating the leaders of tomorrow in ways that can confront societal needs, fix a crisis of globalisation, create a globalisation that works or provide an affordable solution to educating the entrepreneur of tomorrow?

This question must be answered if the right strategies are to be deployed by firms which solve society’s needs alongside providing products and services for profit, as profit is merely a by-product of something much greater and meaningful: the journey to something bigger – helping bring other businesses to market, delighting customers or helping to create a better society.

If nothing else, leaders of schools need to be clear that no one should need to have been a successful entrepreneur in order to afford, and thus to attend, business school and that their existence is to serve society, not grow rich from it.

Robert Quartly-Janeiro is a partner at QR&P, which is an intelligence and research-led consultancy advising clients on international business risk (operations and strategy), megatrends and national security resilience.