Has the MBA Fallen Behind the Digital Age?

Editor’s note:
A recent article on the Harvard Business Review website pointed out: MBA has always been a typical business education, providing a large number of ready and well-trained managers for enterprises, more than any other master’s program. However, most of the current course designs in management still remain in the business needs planning of the 20th century and have gradually become disconnected from today’s digital age.

Over the past forty years or so, American companies have undergone tremendous changes. Today’s most valuable companies in the world are Microsoft, Meta [Facebook], Apple, Amazon, Tesla and Alphabet [Google’s parent company]. Except for Tesla with its super factories, these digital native companies regard knowledge, talent, user networks and innovation as their key assets. This is different from 20th century corporate giants such as General Electric, U.S. Steel, General Motors, Ford, Goodyear Tire and ExxonMobil. These companies rely on land, buildings, machinery, warehouses and physical infrastructure to manufacture physical products. The scale of this transformation can be judged by the following fact: according to our calculations, the value of each 21st century digital giant is at least ten times the average value of 20th century industrial giants.

But the focus of this story is not just on digital giants. Currently 80% of companies listed on U.S. stock exchanges went public after 1990 and are more likely to be light-asset digital native companies like Airbnb and Uber than asset-intensive companies like Alcoa or Walgreen.

The Master of Business Administration (MBA) has always been a typical business education, providing a large number of ready and well-trained managers for American companies, more than any other master’s program. Although MBA programs continue to evolve to meet the changing needs of businesses, we believe that the pace of change should be accelerated to ensure that MBA degrees stand up to future tests. Otherwise there will be dangerous situations like those described by Intuit founder Scott Cook: When MBAs come to us we have to fundamentally retrain them because what they learned before doesn’t help them succeed in innovation.

Some of the earliest business schools were established to meet the needs of industrial and automotive companies. For example MIT’s business school is named after General Motors’ former CEO Alfred Sloan. The University of Pennsylvania’s business school is named after Joseph Wharton a leader in industrial metallurgy. Business schools have traditionally been divided into tightly defined departments such as finance accounting production and operations management marketing human resources etc This departmental structure mimics 20th century automotive or industrial companies.

For most of the 20th century the mainstream logic of business was based on using physical assets to manufacture physical products The largest investments were in machinery and factories The cost of manufacturing products included labor raw materials energy and machine hours These costs consumed most of the revenue leaving only a thin profit Physical assets depreciated with use Therefore the main role of managers was to make wise investments in physical assets reduce production costs and get maximum efficiency from labor and physical capital Due to limitations on long-distance transportation of physical goods most companies operated in local markets meaning that many companies around the world could manufacture similar types of products This situation was subject to laws of diminishing returns that is there was a limit to how many products machinery or manpower could produce When a company became too large or too profitable competitors would emerge producing imitations at lower prices stealing market share and eroding profits.

Digital enterprises do not follow these laws For example Google’s search engine Meta’s Facebook or Microsoft’s operating system The cost of serving each new customer is negligible so every dollar of revenue can be directly converted into pre-tax profit Digital assets can be used an infinite number of times in an infinite number of places without any erosion In fact due to network effects each use increases the value of digital assets leading to increasing returns Knowledge products can be transmitted instantly around the world via the Internet so most digital companies compete globally This strategy combined with extremely low variable costs means that few enterprises can successfully cope with the entire global market Some companies earn winner-takes-all profits For example Facebook’s 2020 profit was equal to the total profit of three 20th century giant companies in 2020 including Citibank Walmart and General Motors If this surprises you don’t forget that last year Apple and Microsoft made three times and twice as much profit respectively as Facebook did in 2020 So the main strategy becomes establishing first-mover advantage expanding your market and becoming a global market leader as soon as possible In accounting terms this means growing revenue rather than managing costs.

In this context the main subjects of typical MBA courses must keep up with changes so that students are prepared for today’s business operations.

In addition to internal transformation within business schools, there is also an increasing need to break down barriers between departments. For example, at a company like Meta, marketing and strategy are spread throughout the company, rather than being the purview of specific departments.

More importantly, MBA education must continue to evolve from algorithmic learning (teaching predetermined answers to predetermined questions) to meet the higher-level needs of constantly changing businesses: creativity, empathy, leadership, conflict management, strategic thinking, understanding technological advances and disruptions, crisis management, problem solving and dynamic decision making. The degree of preparedness for this transformation can be easily judged by calculating how many newly trained MBAs are ready to face the disruptive destruction caused by the COVID-19 pandemic. The pace of transformation of business school courses we have listed will become an indicator of distinguishing top MBA programs from other MBA programs.

Link: https://www.hbrtaiwan.com/article_content_AR0010942.html

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