Jun 26th 2009 | by Martin Giles | from The Economist online
WALKING up the hill from the subway towards the Haas School of Business at the University of California's Berkeley campus, I experienced a wave of nostalgia. Five years ago almost to the day, I graduated from the MBA programme of another leading American business school, where I sweated and swotted my way through course after course and exam after exam in pursuit of the coveted initials to put on my curriculum vitae. After graduating, I stepped back into a world that had rebounded from the dotcom bust and was growing like Topsy.
Today's generation of MBAs face a much grimmer scene — a salutary reminder that the business cycle will always be with us, and that great booms can be followed by even greater busts. At Haas, the school's buildings themselves seem to echo this message. Wandering around the campus, I come across the Andersen Auditorium, named for Arthur Andersen, an accounting firm that collapsed in the wake of the Enron fiasco. Then there are the Bank of America Forum and the Wells Fargo Room — both named for financial institutions that seemed invincible but now find themselves in stormy waters.
I wondered whether I would find today's students at Haas depressed by the downturn. Will they be lamenting that they have wasted their time and a considerable amount of their money on a qualification that might be worth a lot less than it was in the past? And will they be worried about finding a job at the end of their studies?
But these and other questions will have to wait; first I am scheduled to attend a class taught by Teck Ho (pictured, centre) a professor of marketing. He is lecturing on conjoint analysis — a marketing tool that allows companies to work out how much value consumers attach to various combinations of attributes in a product, such as the battery life, screen size and processing speed of a portable computer. As formulae fill the blackboard, I casually survey the surnames of some of the students on the cards in front of them: Palan; Duang; Bornheimer; Menendez; Kim; Cronk; Lakhami. Like its peers, Haas boasts a remarkably diverse student body, allowing students to learn from each other as much as from their textbooks and professors.
Some of the students' faces are hidden behind their computer screens, which reminds me of a classmate at my alma mater. While pretending to take notes during lectures, he was in fact surfing online gambling sites, one of which he joined after graduation. But even my former classmate would probably have listened carefully to Professor Ho, who knows exactly how to get and keep students' attention. Early on, he notes that he has used conjoint analysis frequently in lucrative consulting jobs. Drooping heads snap to attention. Later he emphasizes another point by saying "This is ching, ching, ching." The onomatopoeia signaling that serious money can be made here provokes furious tapping and scribbling.
There is also another guaranteed method of getting students' attention. Refreshing the class's memory of a statistical technique known as regression analysis, Professor Ho brings up something he calls the "The Marital Happiness" function. Deadpanning, he claims this is 1.05 + 0.49 x (S-F), where S is the number of times a married couple has sex and F is the number of times the couple fights. The room promptly dissolves in laughter. But the class is no joke: in the space of an hour and a half, he has provided a brilliant primer in a core marketing skill and multiple examples of companies that have profited by using it in the real world. This combination of theory and practice is what makes spending all that money on business-school tuition fees worthwhile.
Later in the week, I get acquainted with the Haas "Consumption Function." Throughout the year, the school hosts a series of these after-hours celebrations at which students from a particular region or country get together to present aspects of their homeland to the rest of their classmates. The one I attend has a Chinese theme, with delightful demonstrations of regional music, cuisine and artwork. As the drinks start to flow, Professor Ho, who hails from Singapore, turns up in traditional dress, much to the delight of the students. I'm careful to leave after only a couple of drinks so that the consumption function doesn't interfere with my personal-utility function.
ARRIVING on campus, I take a quick look at the after-hours events, which are listed on an electronic screen in Haas's main atrium. There is a "Sunset Cocktail" for Bay Area alumni and a session on "Budgeting the Bailout for California" — perhaps Arnold Schwarzenegger, California's governor, should attend that one! One meeting in particular catches my eye. It's entitled the "Real Estate Speed Networking Forum." Even though "ching, ching, ching" isn't a sound many property folk are likely to hear for a while (especially in California), MBAs still seem fascinated by bricks and mortar as a route to riches.
They also want to know more about how entire economies can run into trouble, a subject that comes up in today's class on "Macroeconomics in the Global Economy." Taught by James Wilcox, it covers international trade and capital flows, touching on everything from balance-of-payments deficits to the impact of exchange rates on trade flows. Inevitably, the discussion turns to how America has become a big net importer of goods and has been running whopping balance-of-payments deficits. Cultural differences quickly surface, as a Chinese student points out that in China people have been led to believe that a deficit is something one should be ashamed of, whereas a healthy surplus is a source of pride.
Professor Wilcox begs to differ. Companies borrow money, he points out, precisely because they want to invest in long-term projects that have a positive return over and above the cost of their borrowings. In the same way, countries may run deficits to fund investments in, say, infrastructure projects, that will ultimately produce huge economic benefits. So deficits are not inherently bad; it just depends what they fund. The problem with America's deficits, he says, is that they have paid for one big consumption party whose final bill future generations will foot. The Chinese student shakes his head, though I can't quite work out whether this is in bewilderment or disgust.
To emphasise his point, Professor Wilcox points out that many of those in the class have taken out hefty loans to fund their studies precisely because they expect their MBA qualification to more than repay the investment in it. "We'll see about that," says one wag. His quip is met with some nervous giggles.
No wonder. Several of the students that I speak to after class say they are hearing horror stories from counterparts at other schools who are struggling to find jobs. At Haas, the situation is somewhat brighter. Thanks to its proximity to Silicon Valley, Haas sends plenty of graduates into the technology industry and numerous start-ups. (Facebook and Amazon are recruiting on campus today.) "Things were much tougher here during the dotcom bust," explains one veteran of Haas's administration.
During the day I get to meet some of the first year students. Most seem pretty sanguine about their prospects. "We're not worried about getting jobs," explains one. "We just have to be more open-minded about the kind of jobs we take." There is, however, some concern that internships may be harder to come by over the summer. As these stints in business can lead to job offers at the end of an MBA course, a shortage now could be a sign of harder times ahead.
The recession appears to have reinforced the sense of camaraderie that Haas students and alumni say is a particular hallmark of the school. "We've all been looking out for one another," says a second-year student, explaining that he and his classmates interested in the same industries have been swapping job postings amongst themselves. There is much talk of co-operation, teamwork and what Haas staff members refer to as an approach to business that involves "confidence without attitude." To some business schools, which laud individual effort and achievement while inculcating a certain intellectual arrogance, all this talk of collegiality may sound flaky. But I can't help thinking as I walk back down the hill to the subway that Haas's philosophy will have much greater resonance in a post-credit-crunch world.
BUSINESS schools are also businesses. Their deans are CEOs who oversee both the academic and non-academic sides of their operations. Haas's dean, Richard Lyons, seems to personify the school's confidence-without-attitude ethos. A genial chap sporting a discreet diamond stud in one of his ears, Professor Lyons is the antithesis of the buttoned-up bureaucrats I've met at some other schools. He has also worked at the corporate coalface: before becoming Haas's dean in July 2008, Professor Lyons spent nearly two years as chief learning officer of Goldman Sachs, in charge of the investment bank's efforts to develop senior management talent.
So how did Goldman and other leading financial institutions get things so badly wrong? Professor Lyons won't be drawn too much on the details of his past life, though he talks about the industry's over-reliance on "collections of black boxes," and the failure of those computer-generated risk models to identify potential catastrophic outcomes, such as a rapid, simultaneous collapse of residential real-estate markets around the world. He also cites institutional cultures that might have dissuaded some bosses from drilling down deep enough into the models' underlying assumptions.
In his current role, Professor Lyons has had to grapple with another financial crisis. Although Haas is in good financial shape — the dean hopes to add up to nine new teaching positions for the next academic year — the credit crunch has made loans harder to get for some prospective students. Those most feeling the pinch are non-American applicants, who comprise on average at least one-third of each incoming class at Haas. To improve matters, Professor Lyons says that the school is raising scholarship funds from donors and working with other schools and bodies such as the Graduate Management Admission Council to find more money for students in need.
Like the leaders of other business schools, Haas's dean and his colleagues are also working overtime to help their current crop of graduating students find jobs. Abby Scott, the school's career-services director, notes that the number of positions that companies are recruiting for on campus has fallen by 13% so far this year. But she says promising opportunities exist for freshly minted MBAs in the energy industry and technology firms.
Ms Scott and her team are also teaching their students how to project more confidence during interviews (a constant stream of bad economic news in the media has a way of dampening spirits). Shortly after I visit campus, the career services centre has arranged for a trainer to teach students how to brag effectively about their achievements — a technique that tends to come naturally to many other MBAs that I have met.
If finding a job at the end of the programme is getting harder, so, too, is getting into Haas in the first place. Each year, the school typically accepts 240 of its 4,000 or so applicants. Peter Johnson, the director of admissions for the full-time MBA programme, whom I meet at the end of the day, says that over the ten years that he has been handling applications to the school he has seen a steady growth in the number of people putting themselves forward who don't really know what they want to do with their degree. Some candidates seem to just want the badge and a glorified job-placement service. "They expect the school to help them find themselves," Mr Johnson explains. "But no business school can really do that."
Indeed it can't. Students today seem less devoted to a single career path than their predecessors, often preferring instead to broaden their qualifications and keep as many options open for as long as possible. But the economic downturn and its disastrous impact on the job market may force them to sharpen their focus earlier than they would otherwise have liked. After all, even Generation Y has to eat.
THE MBA qualification hasn't been getting great press recently, and that's hardly surprising. Many of the Wall Streeters who led their firms into a financial abyss boasted those three initials after their names.
What, I wonder, do the MBAs of tomorrow make of all this? Several of the students I speak to today acknowledge the problem, and worry that MBAs will likely be treated with more scepticism in the future. But they also believe that much of the criticism is overdone. While the media likes to concentrate on the negatives, they say, it fails to highlight the positive contributions of business-school graduates.
I am reminded of this in the afternoon when I spend some time with several Haas students who are taking part in "The Education Leadership Case Competition," which challenges entrants from a wide range of business schools to come up with the best solution to an education-related challenge. This year's contest asks students to offer proposals for recruiting and retaining good teachers in a public-school system. The subject is dear to the heart of the judges, who include the deputy chancellor of schools in Washington, DC.
As this competition illustrates, business schools love to put pressure on their students. Competing teams have from lunchtime until 7am the next day to come up with their proposals and turn them into a compelling presentation for the judges. So this will be yet another caffeine-fuelled all-nighter for many of the participants.
The Haas team is already hard at work in a small, windowless room in the bowels of the business school when I join them. During a brief coffee break, I ask them why they chose to participate in the competition. It turns out that several of them have spent time teaching in inner-city schools, and believe that what they are learning can benefit the American educational system. "School districts are businesses, just businesses of a different type," says one member of the team. "Parents, students and teachers are the customers," chimes in another. Several team members intend to stay involved with educational issues after they graduate.
As they analyse the conundrum of teachers at public schools, there is much talk of "rebranding strategies" to make such careers more attractive, and of "shifting value chains" to give school principals more control over resources. The team also considers merit-based pay systems to reward excellent teachers. It all sounds very thoughtful and businesslike. But at the end of the day the Haas submission isn't compelling enough, and the judges award Harvard's team the first prize.
A BIG criticism of many MBA programmes is that they are long on theory but short on practice. Focused solely on academic achievement, they provide students with a plethora of equations, models and written case-studies, but little opportunity to apply what they have learnt in a real-world setting. Haas has tried to answer this criticism by launching a programme called Haas@Work, which gives many of its students an opportunity to work on an actual project for a company, and to help implement their recommendations if they are accepted.
Today, I learn more about the scheme by attending an information session being held for recently admitted students and prospective applicants to Haas. Adam Berman, the executive director of Haas's Institute for Business Innovation, leads the session. Mr Berman explains that the Haas@Work programme, which has been running for the past two years, has not only provided students with a chance to get hands-on experience in consulting projects, but has also led to offers of internships and full-time jobs. And he explains that participants have worked on everything from supply-chain management issues to marketing strategies and new product development.
To give people a taste for what is involved, Mr Berman asks the students to tackle a challenge that had already been given to a group of Haas@Work alumni by a big consumer-electronics firm. The goal, he says, is to come up with new product concepts for the emerging, web-enabled consumer-electronics marketplace that will appeal specifically to consumers who are between 20 and 29 years old.
The students in the room are divided into teams based on the tables where they are sitting and given a bunch of different materials, including pipe cleaners and cardboard, with which they can mock up crude prototypes. But first they are asked to come up with a list of needs and desires that web-enabled consumer electronics products might address for the target market.
One bright spark says that many of his web-savvy peers have to deal with older family members who are uncomfortable with the idea of an online world. So any product that helps them bridge the communication gap with their elders would be appealing. Another student points out that people in their 20s are busy building their personal brands, so any product that helps them to share information about themselves in both the online and physical worlds might prove popular.
Once this brainstorming stage is over, Mr Berman asks everyone to come up with product ideas. Much hilarity ensues, but so does plenty of creativity. One idea that emerges is to create tabletop screens that sit on elderly grandparents' kitchen tables and display messages sent by smart-phone-toting grandchildren. Another is to manufacture a picture frame that holds digital photographs which can be sent to the frame remotely by phone or computer and then printed out on paper. There are also several proposals for products that let users share biographical information about themselves electronically. Mr Berman seems impressed. "You touched on some of the suggestions that were actually presented to the client," he says.
To round off the session, he asks students if they have any questions. There are a few requests for information about the nitty-gritty of the programme. Then one student sticks up her hand and asks whether someone who comes up with a brilliant product idea gets to keep the intellectual property rights to it. "You're made for business school," jokes Mr Berman, who goes on to explain that participants in the programme have to sign over the rights to their ideas to the company they are working with before a project begins.
As the dollar signs fade from the students' eyes, I can see that they have just learnt another important lesson: in business school, as in business, you rarely ever get something for nothing.