How business schools have lost relevance

Image credit: Harvard Business School

First a confession: I’m a recovering MBA. I got mine back in 1992 from a top European business school yet even as I was doing the coursework I was quite skeptical of the approach taken. Nearly thirty years later I’m even more skeptical, and history seems to be on my side.

The origins of the MBA (Master of Business Administration, for the three people out there who aren’t familiar with the acronym) go all the way back to 1908 when the Harvard Graduate School of Business Administration created the very first academic approach to management. The idea was to create a quasi-scientific academic discipline that would go some way to meeting the needs of the increasingly large commercial organizations that were shaping the world of commerce.

As times have changed so too have MBA courses changed, at least in terms of curriculum. Marketing became increasingly important as ad agencies and others pioneered market segmentation techniques. Operations management adapted to new trends in manufacturing and logistics. As technology became more important, MBA courses have attempted to cover at a very high level some salient aspects of how computer technologies impact the business of business. Most recently there’s been an attempt to add “entrepreneurship” into the mix.

But the fundamental problem was always this: there is an inherent tension between the needs of academia and the needs of commerce.

Academics need to get papers published (and ideally then cited by other academics in turn) and at least a book or two out into the world. Their audience is other academics and so tenure, promotion, and job opportunities at other institutions all depend on standard academic output. For commercial entities, however, academic papers aren’t much use if the competition is taking away your customers and if your sales processes aren’t generating the required revenues.

And while all MBA courses stress management accounting and building pretty spreadsheets they are more or less silent when it comes to questions of innovation and opportunity creation.

Today the situation is even worse. Many business schools have added courses on entrepreneurship, aimed at addressing the fact that many young people aren’t as interested as their parents in working for large corporations but would prefer to be involved in the startup scene. Unfortunately, the academic mindset doesn’t accommodate this new type of activity very well. Those responsible for hiring people to teach entrepreneurship are locked into yesterday’s mental model. Who do business schools hire to teach entrepreneurialism?

Invariably business schools hire academics who have “studied” entrepreneurship by going to already-successful corporations such as Google and Facebook and conducting interviews in the belief this will reveal “the secrets of success.”

Who don’t business school hire? They never hire entrepreneurs who’ve actually done it for real and who understand that retrospective case studies are very little use to anyone contemplating starting their own company. Business schools don’t hire entrepreneurs because, well, those folk haven’t published academic papers in academic journals! They’ve not been cited by other academics! They just don’t have the necessary track record! Sure, they may have built companies and learned important real-world lessons but they don’t have the citations. End of story.

As large corporations always tend toward mediocrity because “don’t rock the boat” becomes the over-riding principle and because HR departments impose more and more deadweight, the need for disruption and innovation becomes ever more pressing. Yet newly-minted MBAs are highly unlikely to provide any new thinking because they’ve been schooled by academics for whom orthodoxy is the default perspective.

Startups, meanwhile, don’t need MBAs for the very same reason. They don’t need clever analysis; they need people who can be pragmatic, imaginative, and get things done. I know, because I’ve done five startups of my own. I’d never hire a graduate with an MBA.

So what sorts of employers still need MBA graduates these days?

Management consultancy firms and venture capital firms and investment banks all hire boatloads of MBAs every year. But while they offer amusing and well-remunerated work it’s unclear whether any of these sectors add any real value to the economy. Management consulting firms are notorious for clever ideas that somehow fail to translate into meaningful additions to their clients’ bottom lines. Venture firms are increasingly myopic, all investing in precisely the same “hot” opportunities and throwing billions of dollars into fiscal black holes like Uber and WeWork. Investment banks routinely destroy hundreds of billions of dollars of value by creating toxic products like CDOs that are designed entirely for the benefit of the banks rather than for their clients.

All in all, things are looking quite dire for our tired old friend the MBA.

In theory, business schools could wake up and make radical changes to the way they operate. They could attempt to understand the needs of the marketplace and look for ways to meet those needs. They could begin to realize that the requirements of academia are at variance with the needs of corporations and startups alike, and find ways to retain the trappings of academia while radically restructuring their approach to business education.

Or they could continue as they have for decades, making tiny cosmetic alterations in a sad attempt to remain “relevant” and count on prospective students being unable to recognize fundamental changes in the employment market.

As we all know, playing it safe is usually the best medium-term bet. Just ask Xerox or H-P or IBM or Kodak or Sears or Kmart or Best Buy or…

Anyone who enjoys my articles here on Medium may be interested in my books Why Democracy Failed and The Praying Ape, both available from Amazon.

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