The Economic Downturn and MBA Programs

Things have been pretty crazy lately, so I haven’t had much time for blogging. One thing that I’ve been thinking about a lot, though, is what this current economic downturn will mean for MBA programs, particularly on the applicant side. I enjoyed my MBA program and there are two questions I’ve been pondering when it comes to the economic downturn and MBA programs:

Will it change who applies to and ultimately accepts offers to attend MBA programs? Investment management and consulting have accounted for roughly 40-50% of the MBA candidates at my alma mater for the classes of 2008, 2009, and 2010. I’m curious to see what folks in consulting careers and finance careers choose to do in this environment.

How will the current economy change career expectations for those who graduate from MBA programs? I graduated from business school in 2005. When I graduated, careers in high finance (banking, private equity, and hedge funds) were a pretty sure way to put oneself in the running for a fairly sizable economic windfall after graduation. The economic machinery supporting the big paydays in those industries appears to be relatively broken at the moment. In some cases, in investment banking in particular, you could argue that the structure that used to exist isn’t likely to return in the near future.

Thoughts? Share them in the comments.

  • I guess the latter depends on whether the new administration really puts the clamps down on using bailout money for seemingly undeserved bonuses. 🙂

    Regarding the former, my bet is that the bad economy increases applications for business school as traditionally happens. Lower opportunity cost, ability to differentiate in tight markets etc…

    The “reluctant consultants” (read: talented and multi-tooled but haven't found their niche yet and thus default to consulting) will be going in with open minds about careers and hoping that an epiphany strikes at some point during those two years. I think the epiphany strategy is one too few admit to going into school.

    The career consultants and financiers may be hoping for a turnaround in the next two years and that those jobs that are gone today are here tomorrow. I'd imagine they'll wind up hunkering down in more corporate finance and strategy roles, however.

    Good questions though Charles. Your thoughts?

  • Lets look at all the people that went back to school after the 00-01 implosion, graduating in 02-04. I suspect a lot of them went into the finance realm like you said and are now experiencing a second reckoning. My main thought then is to track who those folks were and avoid going where they end up after this current shake-up. 😛

    I hope actually this current episode changes some of the core education offered in MBA programs, to provide a little more real-world grounding in thinking through the wider implications of Macro decisions rather than focusing on theoretical financial models, which lead to fallible computer models.

  • brent,

    even with reduced levels of leverage and more regulation, i think entrepreneurial finance (hedge funds, venture capital, private equity, etc) will still be attractive to a lot of people. it might be slightly less lucrative, but probably still more lucrative than many other pursuits. i am less optimistic about investment banking returning in the short term, though, as that is the domain of publicly-traded and closely monitored companies.

    the only thing that i can see really upsetting the apple cart would be if entrepreneurial finance firms and consulting companies decided that the degree was no longer a critical item for advancement, promotion, etc. i'm not sure when / how / if / why this would happen.

    your guess is probably better than mine.

  • Rand,

    I think you have a very good point – there is something to be said for
    watching the direction that MBA grads head and heading in the other
    direction as quickly as possible. I suspect coursework and curriculum at
    most programs will have to find a way to deal with the financial / economic
    downturn and it's implications for traditional economic and financial models
    that are borderline orthodoxy.

    Full disclosure – I studied and still study Economics and think it's useful!

  • A huge consideration is the financial impact on the schools: most B-schools make the overwhelming portion of profit from their executive programs. For some schools, the MBA program is a net loss subsidized by exec ed. Attendance in exec ed must now be dropping as the corporations that send people cut back, while MBA applicant interest stays steady or grows as oppty cost to attend drops.

  • TedHoward

    One phenomenon I noticed during the last tech bust was the flight to education. Something I found odd at the time was that many of those getting their MBA had not necessarily been interested in an MBA until they were laid off. Apparently I'm not alone in seeing this trend (http://www.geekmba360.com/?p=319). Based on this observation, I've often wondered what the differences are in post-MBA career path between those who are getting their MBA partly due to a recession versus the others getting their MBA.

    My other reaction/thought to the MBA path these days relates to a link … a link that I cannot currently locate. It was a nice graph showing disproportionately large pay of bankers as a function of time and banking regulation. If we are entering another era of increased banking regulation, which tends to bring down relative pay, will this effect career paths of those who would otherwise be in investment banking. And will this effect the size of the the applicant population for startup business positions?

  • termllife

    Thanks for the link Ted, it's very interesting!

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