To take a master’s degree in business administration (MBA) at Harvard Business School, the first exclusively graduate business school and still, on most measures, the world leader, is not cheap. Tuition fees are $30,000 or so for each of the two years; other bills and living costs add another $25,000 a year. Add to that earnings forgone: the cost in recent years, for a clever 28-year-old, might well have been another $100,000 or so over the two-year programme. Surely only students with great confidence in their employability would take such a financial risk.
In fact, no. Business schools find themselves in a bizarre situation. They are struggling to find jobs for their current crop of graduates — but overwhelmed with inquiries from would-be students. While, on some estimates, more than one in five of this summer’s MBA graduates is still job-hunting, all the signs are that there will be a bumper crop of applications for the class of 2004, whose students will begin their courses in September next year.
The unfortunate class of 2001 struggled to find employment, or discovered that promised jobs evaporated as the economy deteriorated. One reason for the popularity of the MBA is that it had become an entry ticket to lucrative jobs. “Investment banking and consultancy drive our business,” says Meyer Feldberg, dean of Columbia Business School in New York. As those two industries tanked, so did jobs and summer internships for graduates. At Wharton, the business school attached to the University of Pennsylvania, eight students saw their job offers rescinded and 38 had their starting dates pushed back. Almost all the culprits were consultancies.
Other schools have been similarly bruised. Even at Harvard Business School, some students are out of work: campus rumour says up to 20% of the summer’s graduates, although school officials think that is much too high. But at least the top schools can protest: when a couple of companies dared to withdraw job offers to HBS students in particularly brutal ways, Kim Clark, the school’s dean, promptly banned them from recruiting on the campus for the next two years.
Bad though 2001 has been, next year may be even worse. This is the season of campus recruitment fairs, but companies that once sent three or four recruiters to conduct eight interviews apiece may now send only one, and some are going to fewer schools, or (like Reuters, a media group) are making a presentation but not hiring. Booz Allen, a consultancy that normally makes job offers at the end of a first-year student’s summer internship, is now postponing offers until December — if indeed it makes any at all. Because such employers have in the past usually paid a student’s second-year fees, the effect is to plunge students into financial uncertainty.
Or to force them to look for alternatives. Back in the 1960s, students took MBAs mainly in order to run manufacturing companies. Maybe those days will now return. Dull old manufacturers are back in fashion. Cargill, a maker of agricultural feeds and fertilisers, saw attendance at a recruitment reception rise from 30 last year to 300 this year. Health-care companies are also attracting big crowds.
The dearth of jobs puts top business schools on the spot. Richard Schmalensee, dean of MIT’s Sloan School of Management, was annoyed to be told recently by a student that there was an implicit bargain: “I pass my courses, you find me a job.” He thinks students are not eager enough to use their own resources to look for work. Doug Breeden, dean of the Fuqua School, at Duke University in North Carolina, is exploiting the network of alumni to try to drum up new job prospects.
And Still They Come
However much today’s students worry, plenty more would like to join them. Demand for MBA courses boomed for much of the 1990s, and then tailed off as the glamour of e-commerce lured students away. Columbia received 5,277 applications for this year’s MBA intake, double the number in 1992 but down on the 1998 peak of 5,719. Now, though, the evidence suggests resurgent demand for next year. One indicator is the Graduate Management Admission Test (GMAT). Although the numbers do not take account of people who take the test repeatedly, the trend is sharply upwards.
Another portent is attendance at roadshows: Stern, an up-and-coming school attached to New York University, has seen a rise of 30-50% since September. Along with its full-time MBA course, the school runs a part-time course that takes in students twice a year. Applications for the spring course are up 50% on last year.
The rise in interest is not confined to the United States. American schools now recruit all round the world. Columbia’s Mr Feldberg reports that this autumn’s information session in London attracted 200 people, compared with 70 last year; the one in Paris attracted 135, compared with 60 last year, while “Toronto just blew everybody’s socks off.” Business schools are mainly an American industry, but many European schools are prospering. INSEAD, France’s top school, saw a 47% rise in applications for the current year’s class. At HEC School of Management in Paris, Bernard Ramanantsoa, the dean, says that applications for the 18-month MBA course starting in January are 8% up on a year ago, when demand was flat. Smaller schools are more nervous: Didier Develey, dean of the Reims Management School, worries that people may now “reduce their investment in education”.
One reason for rising applications is doubtless the fall in opportunity cost: as companies stop hiring, students are less likely to miss out on that $100,000 consultancy job. Another is faith that business will once again be a lucrative career, and the MBA will remain the surest route to the top. In America, according to “Which MBA?”, published by the Economist Intelligence Unit (The Economist’s sister company), more than half the chief executives of big companies have MBAs.
For universities, the countercyclical nature of the demand for MBAs will certainly be a relief. Many universities, such as Chicago and Northwestern, draw a subsidy from their attached business schools. And executive education, an activity that business schools have been expanding even faster than MBA programmes, turns out to ebb and flow in line with the economic cycle, according to John Quelch, former dean of the London Business School. But the demand for MBA graduates may not quickly return to the boisterous levels of the 1990s. If the firms that do most of the hiring are not consultancies or investment banks, they may demand different skills: perhaps expertise in engineering or law, rather than a general understanding of business principles, acquired at great expense.