The first MBA students at the Tuck School of Business founded in 1900 as the first graduate school of management
The MBA was born at Dartmouth College’s Tuck School 114 years ago with a four-student class. Today there are hundreds of thousands of MBA students a year earning degrees in thousands of institutions worldwide.
More than that, for the first time ever, the MBA has become the most popular postgraduate degree in the U.S. after education, according to figures from the U.S. Department of Education.
In 2011-2012, the last year for which data is available, 191,571 people graduated from U.S. schools with advanced degrees in business, some 25.4% of all the master’s degrees conferred. That compares with 178,062 master’s in education, or 23.6%, of all the advanced degrees (See table below).
THE MBA SURPASSED THE MASTER’S IN EDUCATION AS THE MOST POPULAR POSTGRADUATE DEGREE
Through most of the modern era, a master’s in education had long been the dominant degree, in part because some states require it to teach. Indeed, back in 1970-71, business master’s accounted for just 11.2% of all postgraduate degrees, while education dominated with 37.2%. In those days, even advanced degrees in the humanities, which had 14.6% of the market for master’s degrees, exceeded those in business.
The remarkable growth of the MBA—largely due to its widespread acceptance by employers and the almost assured return-on-investment of the degree—has been fairly steady during the past half century, making the degree the most successful educational product of the past 50 to 100 years.
How come? Srilata Zaheer, dean of the Carlson School of Management at the University of Minnesota, has seen the transformative power of the degree first hand. “A business degree remains one of the most predictable paths to success and financial stability and can provide the proverbial leg up from relative poverty to great accomplishment and wealth,” she maintains. “In uncertain times, such as we have had since 2008, it tends to draw more students who make this connection. We have any number of alumni from our MBA programs who have come from small towns, modest backgrounds, often the first generation in college, going on to become immensely successful entrepreneurs and leaders of global firms.” She cites John Stumpf, chairman and CEO of Wells Fargo as an example. “He grew up in a farm family of 11 children in Pierz, MN, sharing a bedroom with his brothers, and being the first in his family to go to college,” she recalls.
Paul Danos, who as dean of Dartmouth College’s Tuck School of Business, is the longest serving leader of a major B-school, believes the growth has come become schools have adapted to the changing needs of the companies and organizations that hire MBAs.
THE MBA HAS ADAPTED TO CHANGE ‘BETTER THAN ANY OTHER FORM OF ADVANCED EDUCATION’
“Businesses have grown enormously in complexity and scope, and more than ever, they need ethical, skilled, well-educated, creative leaders who are global in outlook,” says Danos. “Business education in general and the great MBA programs in particular have adapted as these demands have grown, perhaps better than any other form of advanced education.”
The Department of Education numbers support his point of view. In 1980-1981, some 19.1% of all the master’s granted were in business. In 1990-1991, advanced degrees in business grew to 22.8% of the total market, and in 2000-2001 to 24.4%.
The biggest gains for the degree occurred in the ten years from 1975 to 1985 when master’s in business grew to 22.5% of the total from 13.4%. As far back as 1975, the MBA blew past both law and medical degrees in the U.S. But it was only three years ago, in 2010-2011, that business edged out education as the most popular advanced degree, accounting for 25.6% of all master’s versus the 25.3% for education. The numbers for business are largely made up of MBAs but also include specialized business master’s programs, including master’s of finance or accounting.
Says Danos: “Top business schools have continuously changed in response to the ever-changing demands of business; and this can be seen in how crucial issues such as: ethics, sustainability, leadership, technology, globalization and much more have been mainstreamed into MBA programs along with the classic core topics of business management.”
Source: U.S. Department of Education
Source: Brookings Institution
The popularity of the MBA has also risen as far more people in the U.S. earn postgraduate degrees. The Department of Education statistics show that advanced degrees today are as common as bachelor’s degrees were in the 1960s. More than 16 million people in the U.S., roughly 8% of the country’s population, now has a master’s on his or her resume, a 43% increase since 2002.
The investment people are making in higher education, and especially the MBA degree, is driven by the belief that it will payoff, despite the loans that often are taken out to finance the degree. A Brookings Institution report in 2011 found that higher education is a much better investment than almost any other alternative, even for the Class of the Great Recession in 2009 and 2010.
A college degree dramatically boosts the odds of finding a job and making more money. On average, Brookings found, the benefits of a four-year college degree are equivalent to an investment that returns 15.2% per year. “This is more than double the the average return to stock market investments since 1950, and more than five times the returns of corporate bonds, gold, long-term government bonds, or home ownership. From any investment perspective, college is a great deal,” according to Brookings.
THE MBA LEADS TO GREATER CAREER FLEXIBILITY, HIGHER PROSPECTS FOR SOCIAL MOBILITY
And that investment shows up in every paycheck. A recent study by the Urban Institute showed that the earnings premium for graduate degrees is sizable and growing. In 2002, average earnings for full-time workers ages 35-44 with master’s degrees were 8% higher than those for similar workers whose highest degree was a bachelor’s. By 2012, that difference was 21%.
There are other less tangible benefits as well. Robert Bruner, dean of the University of Virginia’s Darden School of Business, notes that having an advanced degree leads to greater career flexibility, a higher quality of life, higher prospects for social mobility, and significantly reduces the odds of unemployment during a career.
“Higher education simply prepares one to function more effectively in the face of life’s uncertainties,” believes Bruner. “Education provides a valuable hidden option that helps to act as a shock absorber, like an insurance policy, against the episodic employment shocks that business cycles impose. The higher-educated are out of work less often.”
The MBA degree also has helped many transition into careers that allowed them to follow their passions. “An advanced business degree can be transformative for career changers, and as we see more returning veterans, for example, who need to learn the language of business, the MBA, especially one that focuses on experiential learning, can facilitate these transitions,” says Zaheer of the Carlson School.
“Even those who are not primarily drawn to business as a career are seeing the value of the skills they acquire in an MBA program — the leadership skills, the knowledge of finance and accounting and global supply chains and the people and team management skills — as valuable no matter what they want to accomplish — whether it is heading up a symphony orchestra or running a non-profit in Africa or a hospital (all of which our alumni are doing)! We are seeing more ‘off-roaders’ - students looking to be entrepreneurs or for non-traditional careers like these, in our programs, and this might be contributing to the increase in masters in business as well.”
SURVEYS OF MBA ALUMNI CONSISTENTLY SHOW HIGH LEVELS OF SATISFACTION WITH THE DEGREE
Of course, there are no guarantees that an advanced degree, even an MBA, can work magic on everyone. Harvard and Wharton MBAs can and do lose their jobs. Stanford MBAs can create entrepreneurial ventures that go bust. And the payback from the degree, while still high, has fallen from the glory days of the degree in the 1980s and 1990s. But in general, all the research shows that the degree is well worth it, that people who go to business school are more than satisfied with the experience, and that the naysayers are few and far between.
Surveys of alumni, for example, consistently reaffirm the value of the degree. The latest look at MBA alumni by the Graduate Management Admission Council shows that nine in 10 (91%) recent business school alumni from 2010–2013 consider their graduate management education a good to outstanding value. Sixty-six percent of alumni agree their education was financially rewarding. And a quarter (26%) of alumni report their expectations for recouping their financial investment were exceeded while 53% say their expectations for return on their investment (ROI) were met.
Source: AACSB
What’s even more surprising about these results is that they do not include MBA alumni who are likely to be among the most satisfied with the degree. Most of the alumni from the best business schools in the world aren’t included in the study. By and large, there’s no alumni from Harvard, Stanford, or Wharton. None from Chicago Booth, Northwestern University’s Kellogg School of Management, MIT Sloan, Columbia Business School, or Dartmouth’s Tuck School of Business. For whatever reason, those schools and many more decided not to participate in the latest research. In fact, alumni from only three business schools—Virginia, Carnegie Mellon, and Indiana University—of the Top 20 in the U.S. were included in the survey.
As the demand for the MBA has grown so has the number of institutions that offer the degree. The Association to Advance Collegiate Schools of Business, the major accreditation body of business schools, has now granted accreditation to 711 business schools, up from well under just 200 institutions in 1972 (see chart above). Much of the explosive growth in recnt years has occurred in Europe, China and India. Yet, the AACSB total of 711 accredited institutions is less than 5% of the total number of business schools in the world.
WHY THE WORLD NEEDS MORE MBAS, NOT LESS
While many college administrators worry about the impact of technology on higher education and many business schools have seen demand for the full-time, two-year MBA program flatten in recent years, deans of the most prominent schools believe the degree’s future remains bright.
“I believe that full-time MBA programs are the best vehicles by which young people can develop the leadership qualities that allow them to meet the monumental challenges of tomorrow’s business environment,” says Danos of Tuck. “The world needs well-educated and mature young people who are prepared to lead in the burgeoning firms that are growing with the world economies.”
Kellogg Dean Sally Blount
Sally Blount, dean of Northwestern University’s Kellogg School of Management, agrees. In an recent essay entitled, “Yes, The World Needs More MBAs,” she argues that the increasing complexity of the world’s problems requires more leaders with the abilities that only an MBA can provide. “Clearly you can have a rewarding life and career without an MBA,” Blount concedes. “And you can certainly become rich and powerful without one, as Bill Gates, Jeff Bezos, Richard Branson, and Amancio Ortega can testify. But when you’re creating the next Google or Apple, you’re going to need people with the training, skills, and network that business education is uniquely good at providing. There’s a reason all of those companies hire people with MBAs.”
Given the profound social challenges facing the country and the world, the demand for well-trained professionals can only go up. “The inability of government to address fundamental social issues only enhances the need for the private sector to step in,” she adds. “We will need leaders who can hold government accountable for managing public resources and protecting the public trust—and who can leverage the power of markets to create lasting social value.
“Intelligent, highly driven individuals will reinvent markets, fuel growth, and work across sectors to build strong, transformative organizations,” wrote Blount. “But markets or governments won’t do this on their own; the incentives just aren’t there. That’s why the world needs more, not less, business education. It depends on it.”
Source: U.S. Department of Education
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