How elite business schools are pulling away from the pack

An MBA from an elite business school was traditionally a passport to either a seat on the corporate board or to a very large salary on Wall Street or in the City of London. But all that is changing.

In the past decade the reputation of the financial sector, as well as the changing aspirations of millennials, has meant that many MBA alumni now eschew these roles. The headline data show a shift away from investment banking, once the most coveted job for elite MBAs, towards technology and entrepreneurship. However, all is not as clear-cut as it seems.

Traditional finance jobs may be proving less attractive, but the world of alternative investments is booming, says Geoffrey Garrett, dean of the Wharton School at the University of Pennsylvania. And these jobs, he says, are vital to successful start-ups.

“People tend to think of finance and entrepreneurship as being at the opposite ends of the spectrum,” he says. “They’re not.” At Wharton, the San Francisco Bay area now rivals New York as the destination of choice for the school’s alumni.

Further to this, entrepreneurship is about more than starting a company, says Stacey Kole, deputy dean of Chicago’s Booth School of Business. “Not everyone needs to be the guy with the great ideas,” she says. “Students are graduating and going out there and buying a business. I think we’re at the beginning of this new phase.”

But as the job market fragments and the high-bonus banking culture loses its appeal, business schools are facing real questions about the cost of their programmes and whether the full-time MBA addresses the needs of today’s business school graduates.

At Columbia Business School in New York, dean Glenn Hubbard points out that many second- and third-tier schools charge fees comparable with those at the very top of the rankings, something he argues is untenable. “I just don’t see the two-year MBA as a product for these schools,” he says.

Even for the top schools he believes the sticker price for a two-year MBA, from which students often graduate with debts of $100,000 or more, is daunting for most applicants. “The opportunity cost of getting a two-year MBA is going to get achingly high over the next decade,” he predicts. “We can’t expect to raise prices at the rate we have been doing unless we provide service.”

As the small group of elite business schools pulls away from the rest of the pack, there is little agreement on how they will differentiate themselves or even how many institutions will be in this top section. Booth’s Prof Kole believes it will have 20 members or more. Others are less optimistic.

At Insead, ranked number one in the world for the first time this year, dean Ilian Mihov puts the number of elite schools at nine. These are the schools — seven from the US plus London Business and Insead — that since 2000 have occupied the top slots in the rating of schools most recommended by alumni in the FT MBA rankings.

“This [recommendation] is something that is very powerful,” says Prof Mihov. “These [business schools] are our competitors. These schools have managed to separate themselves.

“At some point it becomes a self-fulfilling prophecy,” he adds. “The best students want to go there.”

As they pull away from the group of also-ran business schools, these top-tier institutions still have to justify their price tag as well as try to reduce their costs. Every school has its own agenda, as each tries to differentiate itself.

For Prof Mihov, it is about offering a truly global experience through Insead’s multiple campus format — 750 MBA students a year study on at least two of its campuses, he says. “The content is the same, the context is very different.”

For Prof Hubbard the holy grail is integrated teaching and team teaching between professors from different disciplines. “The problem is that we have been teaching [MBAs] bit-by-bit, not as a whole. It is a bit about the curriculum but it is more about how we teach,” he says. “The only truly successful schools will be the ones that do this on a grand scale.”

At IMD in Switzerland, which has a class of just 90 students, the focus is on a more personalised experience, working with the school’s executive clients to give targeted job placements, says Ralf Boscheck, MBA programme director. “Every bigger player can beat us on scale effect. We need to avoid the commodity trap on placement.”

And for Bernard Garrette, the associate dean in charge of the MBA programme at HEC Paris, it is about specialisation and employers are driving the changes. A recent curriculum overhaul with recruiters was a salutary lesson. “We discovered that there were things that professors thought were indispensable that were not.

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“The recruiters want students to have a story to tell. General management is not enough,” says Prof Garrette. They want people who have “T-shaped competencies”, with a depth of knowledge in specific areas.

To reduce costs to students, all the top schools are fighting to create an extensive scholarship pool. Here every business school looks to Harvard and Stanford, where about 50 per cent of students receive financial aid. MIT is a case in point, where dean David Schmittlein has been building up the scholarship base to compete with comparative top-tier schools and prevent Sloan losing students to these schools. “If you’re not really competitive in financial aid, it masks who you compete with,” he says.

But, as he points out, at the top schools it takes $500,000 in endowment to create just one sustainable scholarship.

A bigger question is whether the full-time MBA itself is sustainable. Prof Kole is bullish. “It may be that one day the demand for the full-time MBA goes away, but today it is very robust [at the top schools].”

Christoph Loch, director of Cambridge Judge Business School is less confident. “The MBA is a mature market . . . the MBA industry has over-expanded.” He believes this will result in a shakeout. But, he adds: “That doesn’t mean the MBA will die.”

Loyal servants?

Employers may wish to reassure themselves about the loyalty of employees who want their company to help finance an MBA, writes Laurent Ortmans. They will tell you that they want to improve their business acumen, enlarge their network and increase their earnings — all laudable aims.

I was supposed to go back to the family company, but I am now starting my own

However, data collected as part of the Financial Times 2016 Global MBA ranking show that alumni who graduated in 2012 rated promotion within an existing company lowest out of eight reasons for doing an MBA. With a score of 4.2 out of 10, it came far behind starting their own company at 5.2 — the next least-popular motivation.

“I returned to my initial employer out of loyalty,” said one graduate, who moved to a new job a year later.

Changing employer and career were among the highest-scoring priorities, respectively rated 7.7 and 8 out of 10. A current piece of MBA jargon is the “triple jump” — when graduates switch to a new employer in a different industry in another country.

About three in five graduates (61 per cent) were working in a different industry three years after graduation to their pre-MBA job. Nearly a third (31 per cent) moved country.

Those who were working in finance before their MBA were the least prone to leave their industry, with only 40 per cent doing so, compared with two-thirds of those in consulting and 91 per cent of those in the military. In terms of international mobility, those who were working in Israel, the UAE and France before business school were most inclined to switch country, with more than 60 per cent moving, compared with 11 per cent of those based in the US.

The lure of entrepreneurship may prove too strong even for those with loyal intentions. About 19 per cent of graduates started their own company.

“I was supposed to go back to the family company,” said one graduate from Stanford, “but I am now starting my own.”