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Risky Business
Business Schools Headed for a Bust?

The implosion of legal education may already be common knowledge, but business schools may not be far behind, despite the supposed management expertise of their professors. The problem, as the Economist points out, is that rather than staffing their programs with successful businessmen and managers they are instead turning to academics with little practical business experience:

[B]usiness schools have been captured by the academic guild. In 1959 two inquiries sponsored by the Carnegie and Ford Foundations argued that business schools were little better than trade schools and urged them to be more academic. Now they are little more than flags of convenience for academics. The surest way to get a tenured post is to write a PhD (on a subject only loosely related to business) and publish a string of articles in respected journals. Tenured academics are untouchable and can block any change in a school. So far the best schools have been able to thrive despite the power of the academic guild. Academic star-power helps them to attract high-paying MBA students.

But even at the elite level the power of the academic guild can be a problem. Professors have too little incentive to focus on teaching: the best will perish unless they publish in the right journals. And they have too little incentive to produce usable research. Oceans of papers with little genuine insight are published in obscure periodicals that no manager would ever dream of reading. Innovation is fuelled by bringing ideas from different spheres together. But academics specialise in dividing the world into tiny sub-disciplines. And when you get to the fat middle of the market these problems rise to the level of dysfunction.

Add to this the usual higher ed mistake of overspending on fancy facilities, and you have a recipe for decline.

The decline has been going on for decades, of course, but for most of the time it wasn’t a serious threat to business schools’ bottom lines. The cachet of having an MBA was seen as an important marker for having a successful career in business. This was enough to keep students applying regardless of any shortcomings in the curriculum itself.

But the same process at work at other institutions of higher ed is at work in business schools as well: The rapid growth of tuition is forcing students to have second thoughts about the value of an MBA. As a result the number of applicants for the GMAT has fallen drastically in recent years. Many schools’ poor track records in job placements for graduates isn’t helping their case.

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  • Boritz

    Another factor: The erosion of the relevance of traditional business knowledge as a success factor. For example, once upon a time fundamental analysis was of great importance in valuing a company and its stock. Today you’re better off looking at that organization’s regulatory burden, their lobbyist track record, and the attitude of the administration and congress towards it. Keystone’s fundamentals are great, but it isn’t going anywhere. If you want to understand why the answer doesn’t lie in the kind of data MBAs traditionally deal in.

  • Anthony

    Feed’s title brings to mind relevance of model; toward what end is MBA acquisition designed? Given structural as well as global factors now enveloping market economics (capitalism) must purpose and purview of MBA be revisited.

  • Greg Olsen

    I suspect that the decline in GMAT applicants has more to do with the poor employment prospects and declining bonus pools on Wall Street. First it was would-be management consultants, then would-be investment bankers, now… The standard business school curriculum (as defined by the AACSB) has value, especially the accounting, finance, entrepreneurship, and organizational development courses. The biggest problem with business schools are that not all of them are even really MBAs (i.e., having regional and not AACSB accreditation). Many of these regionally accredited MBAs at liberal arts colleges are not worth the paper they are printed on. Work experience should not be a requirement for all fields in MBA programs. Since the quantitative courses are just applied mathematics and linear programming, calculus and statistics are what they are, a mathematician can teach them without prior work experience. Where the PhDs with no work experience fail are in marketing, manufacturing and logistics, organizational development and entrepreneurship. Those fields are arts not sciences.

  • GodisanAmerican

    Business majors, especially marketing and management majors, are totally party majors. Many of them end up there by rejection not selection. They can’t write so social science or humanities major are out, cross out STEM majors because they can’t do math, and education, well that doesn’t pay well.

    All you have to participate in some group projects, listen to some lighter than air material such as strategy or leadership (lol), and hang around campus for 4 years and next thing you know is that you have a college degree in marketing.
    Don’t believe me. Ask one of these ‘business’ majors, what is a revenue? You will get all kind of random answers.

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