By Stephan Manning.
Many believe that elite business schools, such as Harvard in the US, London Business School in the UK, and INSEAD in France, produce the business leaders of tomorrow. And it is certainly true that the world elite – in business and politics – is typically recruited from a handful of institutions. But do elite business schools necessarily benefit economies? A close look at the latest Top 20 list of most prestigious business schools in Europe, based on QS Top Universities Rankings, makes you wonder: At first glance, it may be no surprise that London Business School and INSEAD top the list. But why is none of the Top 20 schools based in Europe’s strongest economy – Germany? Why is the entire region of Eastern Europe, despite highest GDP growth rates over the past two decades, not listed at all? And why is the third highest ranked school – Bocconi University – located in Italy, which has been facing ongoing political and economic struggles? It may be true that every ranking is biased and flawed, but you may ask myself: Do elite business schools contribute to national economic strength at all?
The answer to this question is not straight-forward. With businesses becoming more globally integrated, business education has become globalized as well. In fact, business education itself has become a global business, with top schools opening campuses around the world. This may have led top business schools and their graduates to get more disconnected from their local environment. But maybe there is more: what if economic strength of a country has in fact little to do with business elites, but rather with economic policies, technology base, and a productive workforce. And maybe top schools produce elites that extract value, through inflated salaries, rather than generating much. Let’s take a closer look.
Business elites have become mobile and cosmopolitan. In today’s business world, more and more senior executives are recruited from around the world. A few years ago, it would have been unthinkable that someone born in India with an MBA from UMass Amherst could become the CEO of Deutsche Bank. But Anshu Jain, who served as Co-CEO between 2011 and 2015, is just one example. In fact many senior executives in Eastern Europe and emerging economies may have been born in these regions but hold a business degree from a prestigious US or European school. While this so-called ‘brain circulation’ – the increasing mobility and movement of business and other professionals around the world – has partly contributed to growth in particular in emerging economies, the effect on countries universities are based in may be more questionable. For example, many MBA and PhD graduates from Bocconi University leave Italy after graduating since job opportunities are rosier elsewhere.
Business degrees have become inflated commodities. Increasing mobility of graduates has also promoted standardization of business education. The overuse of Harvard teaching cases – no matter what school you are at – is a good example. In fact, in terms of the actual knowledge provided, there may be not much difference between schools. Not surprisingly, the Top 20 List of schools is not based on teaching quality, but rather on research output of faculty, which – as some have argued – has little to do with the content of business education. It does however influence the school’s reputation and make degrees more ‘valuable’. However, the actual management or leadership skills of graduates from an average business school might be as good as or even better than those coming from highly prestigious schools. The major difference might be – inflated – salary expectations of elite school graduates. Of course, some might say that barriers to enter prestigious schools are higher and students therefore more talented than at average schools. However, as student fees and related expectations of getting ‘A’ grades have increased, in particular at private schools, ‘getting a degree’ has become a relatively easy undertaking, as long as students have sufficient financial backing. Quite interestingly, in Germany, where college education is basically free, ‘failing’ is still very much an option. I remember management and finance classes at Free University Berlin where 50% of students would fail finals. Getting an ‘A’ was an exception rather than the norm. No wonder perhaps that while German business schools may lack prestige, their graduates can in fact be expected to be highly skilled.
Elite business schools produce business elites rather than a productive workforce. Let’s face it: The status of schools mainly correlates with the income graduates generate in their careers along with career options coming from alumni and other networks. But how does it affect the overall productive and innovative capacity of the countries these schools are based in? Germany, for example, has a highly sophisticated vocational education and training system which produces a highly skilled workforce without any college education. And for a long time, even those high school graduates who chose to go to college would make their decisions based on location rather than ‘the name’ of the school. This may be changing, but the question remains: Does a country’s economy need prestigious business schools at all? Do their graduates really create value or simply extract it through inflated salaries from the work of lower-paid staff and middle managers? And where do most celebrated innovators and entrepreneurs a la Steve Jobs come from anyway? Certainly not from business schools. Maybe a ranking of science, engineering and design schools would be a much better indicator of economic strength of a country. Unfortunately, more and more high school graduates around the world, even in India, opt instead for business degrees – because they are easier to get and provide more lucrative careers.
Perhaps economies do not actually ‘need’ elite business schools, yet there is still continued market ‘demand’ for them and the business executives they produce. Business schools exploit this paradox and students cannot be blamed either. But what if we imagine a world where the name of the school does not matter at all, where the value of the degree is based entirely on the student’s performance. Would employers suffer from that? I doubt it. Maybe they could even save a lot of money and instead pay for actual knowledge, skills and experience.
What do you think? Do we need elite business schools at all?
*Picture taken from: AP Photo/The Seattle Times, Lindsey Wasson