From the category archives:

Risk Management

The subtitle for this post could probably be How to manage your risks if MBA bubble to burst?

There is no question in my mind that the MBA degree and MBA education have been going through the significant changes in the last decade or so. The question I actually have is, are those changes just normal incremental adjustments, or cyclical fluctuations, in response to changes in educational and business environment,  or are they indicators and precursors of some tectonic changes happening in the MBA market. Or, more specifically, is the MBA education approaching the bubble state with rising costs and flattening MBA salaries, when the return on investment is catastrophically  decreasing?

This also reminds me a little bit about the debate on the global warming: Are the temperature rises and glaciers melting just a manifestation of a regular global climate cycles, or are they effects of the human activity? And more importantly, are these changes going to be just incremental shifts to which the humankind will gradually adapt, or are they ultimately leading to a catastrophic and abrupt meltdown of the whole ecosystem on the scale of the Ice Age, if not worse? I will leave the global climate debate to the scientists, but I will ponder on the MBA state.

I do not have a definitive answer to the question posed at the beginning of this post and I have not done a comprehensive research on the topic. But I would like to share a few thoughts born from casual following and observations of the MBA news in the media. (By the way, almost exactly two years ago I had another post related to this topic – Is MBA Losing Its Appeal? Check it out for additional information.)

Here is just a short list of the most obvious changes that have been happening in the MBA marketplace lately:

  • Rising cost of tuition that significantly outpaces inflation
  • Rising cost of financing educational loans
  • Decreasing employer sponsorship of MBA education
  • Flattening starting salaries post-MBA
  • Significant increase in number of MBA holders
  • Inconsistent pattern in MBA hiring
  • Questions about relevancy of the MBA altogether

Some of these changes have been historically correlated with the fluctuating business cycle, e. g. decreased MBA hiring in recession. But I am returning back to my original question: is it, in fact, the effect of business cycle or the first signs of the long-term trend?

All of these changes cumulatively carry with them certain risks – risk of decreasing ROI in the MBA, risk of not finding the appropriate job and staying underemployed, risk of decreasing life-long income potential, risk of higher competition for fewer jobs.

I think that these risks can be mitigated in the short- and mid-term, but it would require from both the business schools and MBA students to revise their approach to MBA degree, and make some adjustments respectively.

Let’s take a look at some of those changes and see what can be done to mitigate the associated risks. Even though we are just scratching the surface of the problem in this post, and the offered solutions are in no way the ultimate or the only ways to address those risks, they give some more obvious answers and may provide some pointers for further brainstorming.

The first three items on the list: Rising cost of tuition that significantly outpaces inflation, Rising cost of financing educational loans, Decreasing employer sponsorship of MBA education. They all affect the overall rising cost of MBA education to the MBA students. The possible solutions to these challenges could come from two sources: a) business schools could dip deeper into their endowments to provide more and bigger scholarships for more students; b) students could choose to go the part-time route for getting their MBA, which would allow them to keep otherwise forgone two years salary and partially pay for the MBA as they go. Another possibility is to pursue MBA at European business schools that traditionally have one year MBA programs.

The other three items that could be grouped together are: Significant increase in number of MBA holders, Inconsistent pattern in MBA hiring, Questions about relevancy of the MBA altogether. These three are loosely related to the MBA jobs market.

One of the possible solutions to MBA market over-saturation could be in increased differentiation of MBA graduates. Differentiation could be achieved through higher specialization, i.e. instead of getting so-called general MBA students may choose getting concentration in one of the industries or business functions, such as real estate, supply chain management, financial management, MBA in healthcare management, MBA in IT, green MBA, etc.

Another way to confront the issue is through diversification of skill set by getting dual degree, such as MBA/JD, MD/MBA, MBA/Master in Project Management and others. This trend is indeed becoming more and more pronounced these days, as I noticed more business schools have been offering dual degrees to their MBA students in the last few years.

A cheaper alternative to dual degree could be obtaining some of the industry-recognized certifications, such as Project Management Professional (PMP), certificate in Business Analytics, CPA (Certified Public Accountant), probably to lesser degree – ITIL (IT Infrastructure Library) certifications, and others. By themselves these professional certifications seem like a step down from a glorified MBA degree. But MBA in conjunction with these certifications becomes better differentiated and more valuable to the potential employers. Some of these certifications, such as PMP or CPA, have experience prerequisites, but these hurdles could be overcome with appropriate planning of pre- or post-MBA career path.

This approach to diversification of MBA skill set may also help fight the trend of flattened starting MBA salaries, as with broader qualifications an MBA could be a more valuable asset to the organization and command/negotiate higher compensation. And the issue of MBA relevancy could also be addressed by such MBA enhancers as discussed above.

Another way of fighting the issue of MBA over-saturation is to start looking beyond traditional MBA career paths and job markets. For example, entrepreneurship has not been a very popular post-MBA destination until just a few years ago. Now I can see more and more reports on MBA graduates who choose to start their own business and join the start ups instead of trying to break into traditional MBA fields of banking, investments, consulting and try to climb the corporate ladder.

Speaking of the traditional job markets, it is quite obvious that as the developed economies have reached their maturity their growth has flattened out. But the emerging economies, on the other hand, are still showing the signs of tremendous growth. This means that MBA students might start looking for employment opportunities in those emerging markets, such as BRIC (Brazil, Russia, India, China) and beyond.

The post turned out quite long, so I will have to cut it short here. So is the MBA bubble going to burst? I don’t think the MBA degree is quite there just yet.  In my opinion, even though there are some troubling tendencies in the MBA market and growing risks associated with them, these risks are still manageable and could be effectively mitigated with appropriate adjustments in business schools and MBA students expectations. And if the MBA degree is becoming less of a sure-fire “jumping board” or a “golden ticket” it used to be in the past, it still could offer quite reasonable and attractive ROI compared to many other advanced degrees. Therefore, go MBA!

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