What's an MBA Really Worth?

It will cost more than $100,000 to earn a degree at an elite business

school. Just one problem: There's little real evidence that it will enhance

your career.

After college, Tad Glauthier didn't have much of a career plan. He knocked around for a while as a ski

instructor, then as a TV sitcom stand-in. But when he decided at the age of 28 that it was time to get

serious, he applied to one of the most revered career-building institutions in capitalism: Stanford's

Graduate School of Business. "I thought B-school would catch me up," he says.

Ask him about his educational experience, however, and he fails to mention discounted cash-flow

analysis, the chi-square test, or any other morsels of wisdom from the standard MBA curriculum. Instead

he cites his role as executive producer of the 2002 GSB student musical, Spectacular, Schmectacular,

and "All About Beer," a one-week elective about organizational dynamics in the brewing industry. As for

his future? Glauthier hopes to start a business he describes as "a cross between Moulin Rouge, Angkor

Wat, and Burning Man -- in a supper club."

Two years at Stanford and $60,000 in tuition alone to open a restaurant? Ray Kroc, who founded

McDonald's without even a high school diploma, would be spinning in his McGrave. There's nothing

wrong, exactly, with bright, ambitious young people spending a small fortune on an experience that, in

some ways, compares favorably with summer camp. But for many of them, isn't it just a spectacular,

schmectacular waste?

It has long been common wisdom that gaining an MBA from any but a top-tier school was a losing

proposition. Go to Harvard, it was said, and in time you'll earn back your tuition and opportunity cost in

higher salary. Go to a school ranked below, say, the University of Rochester, and you probably won't

recover your investment.

In this era of drum-tight hiring budgets, however, faith is flagging in even the elite institutions. Recent

history -- think Global Crossing, Kozmo, Pets.com -- suggests that pouring 100,000 MBAs into the

workforce annually has done little to raise the general level of business wisdom. "At the height of the

bubble, our typical client wanted its CEO to be a bright, young up-and-comer with an MBA from a good

school," says Scott Gordon, director of Spencer Stuart's tech-industry recruiting practice. "Today, realworld

experience is far more important. An MBA alone just doesn't open the doors it once did." You don't

have to tell that to John Damon (MBA, University of San Francisco, 2000). He's been living off

unemployment and savings since he was laid off last August. "It's a real eye-opener for those of us who

went to school and got our MBAs," Damon says, "because we never thought we'd be in this situation.

When things got bad, the degree didn't seem to matter."

The most stinging criticisms, however, are emerging from within the business school establishment. In a

draft report published internally this spring, the schools' own accreditation body, the St. Louis-based

Association to Advance Collegiate Schools of Business, roundly criticized its members. Business schools,

it said, are hopelessly behind the curve on information technology, have an unhealthy obsession with

their standing in magazine rankings, and, worst of all, proffer an out-of-touch, ivory-tower curriculum.

"Preparation for the rapid pace of business cannot be obtained from textbooks and cases," the report

scolded.

Still more pointed is an upcoming study by Jeffrey Pfeffer, a management professor at Glauthier's own

business alma mater, Stanford. In it Pfeffer challenges the bedrock assumption of business school: that

those who make the effort to get an MBA degree have more successful careers than those who don't.

Pfeffer combs through 40 years' worth of data for evidence that this is true -- and uncovers almost none.

He quotes Ronald Burt, a University of Chicago business professor and the researcher behind two of the

studies in Pfeffer's paper, who says, "I have never found benefits for the MBA degree. Usually it just

makes you a couple years older than non-MBA peers."

Strangely, one group that seems to have no doubts about the MBA is the one most at risk -- the

students. Applications are at record levels again this year, and judging from Business 2.0's survey of the

class of 2002 (see "Tomorrow Belongs to Them"), those who have the degree view a rich, rewarding

career as all but ensured. That assumption might be due for reexamination. To those who put

themselves deep into hock believing that an MBA would improve their lives, Pfeffer poses an unsettling

question: "Before you did this," he asks, "did you look at any data?"

The most stinging criticisms, however, are emerging from within the business school establishment. In a

draft report published internally this spring, the schools' own accreditation body, the St. Louis-based

Association to Advance Collegiate Schools of Business, roundly criticized its members. Business schools,

it said, are hopelessly behind the curve on information technology, have an unhealthy obsession with

their standing in magazine rankings, and, worst of all, proffer an out-of-touch, ivory-tower curriculum.

"Preparation for the rapid pace of business cannot be obtained from textbooks and cases," the report

scolded.

Still more pointed is an upcoming study by Jeffrey Pfeffer, a management professor at Glauthier's own

business alma mater, Stanford. In it Pfeffer challenges the bedrock assumption of business school: that

those who make the effort to get an MBA degree have more successful careers than those who don't.

Pfeffer combs through 40 years' worth of data for evidence that this is true -- and uncovers almost none.

marks at teaching them. No school rated above "moderately effective" in teaching students to apply

business theory in practice. In fact, alumni seemed to be saying that theory wasn't all that useful

anyway, ranking it second-to-last in importance.

The AACSB task force strongly suggested clearing the ivory-tower cobwebs out of B-schools and letting

people with real-world experience design curricula and teach alongside academics. But Milton Blood, the

AACSB's managing director of accreditation services, predicts resistance, especially at the most

prestigious institutions. "They don't have the incentive to shift," he says.

Pfeffer's rebuke to business schools strikes even closer to home. In his paper -- coauthored by Ph.D.

student Christina Fong and scheduled for publication in a fall edition of Academy of Management

Learning and Education -- Pfeffer notes that the widespread assumption that an MBA education will

enhance a person's career is almost wholly unsupported by data. Called "The End of Business Schools?

Less Success Than Meets the Eye," the paper reflects Pfeffer's belief that business schools, like all

successful, slow-moving institutions, are highly vulnerable to competition.

Some competition already exists. Both McKinsey and Boston Consulting Group offer in-house training in

basics for non-MBA consultants. BCG's Business Essentials Program, for example, is a mini-businessschool

course that turns MDs and Ph.D.s into functioning management consultants in just two weeks. "I

wouldn't say that an incoming [non-MBA] becomes a complete replica of an MBA in two weeks," says

Kermit King, head of BCG's North American recruiting. "But it eliminates any glaring disadvantage in

terms of a toolkit."

Pfeffer admits that one reason there's scant evidence for the alleged superiority of MBAs is there's not

much data -- period -- on the subject. Still, he's not impressed by what he's found. One major

investment bank analyzed the 2000 salaries of its employees and failed to uncover a statistically

significant correlation between having an MBA and higher pay. Ronald Burt, who performed the study for

the bank, found similarly inconclusive data in follow-up studies of graduates of the University of

Chicago's business school. Pfeffer also examined some 40 years' worth of studies that attempted to find

a correlation between grade point average and future salary. If the subject matter taught in business

school were directly tied to business success, he reasons, there should be a strong link. The studies

didn't find one.

Still, Pfeffer and others raise important questions for anyone rushing to get an MBA. The fact is that

intimate knowledge of the capital asset pricing model and other items in the MBA toolkit is no guarantee

of career success. What matters much more is how artfully you apply what you learn. Business school

professors can't teach you how to do that. They never could.

Presented with the news that his MBA does not ensure him a fabulous career, Glauthier brings up that

beer class again. That's because one day, Pete Slosberg -- founder of Pete's Brewing -- showed up as a

guest lecturer and floated an idea for a startup. Glauthier and some classmates showed interest, so

Slosberg invited them to write a business plan. Two weeks after spring break, Slosberg had the company

funded and Glauthier had an offer to work for it: competitive salary, options vesting over four years.

Glauthier politely declined so he could get moving on the supper club project. And for him, that