Arguably the highest academic qualification for running a business is an MBA. Possessing an MBA should, therefore, produce managers who perform better than those without. Our website is full of frameworks, many of which are studied in pursuit of an MBA. However, frameworks are only part of the MBA curriculum. A good deal of study is given over to finance, HR and business processes.
In 2015 Danny Miller of HEC Montreal and Xiaowei Xu of the University of Rhode Island studied 444 US chief executives, some with an MBA and others without. They found that the CEOs with MBAs were worse in their performance than those without. The MBA CEOs sought to expand their companies with acquisitions rather than organic growth. As a result, earnings and cash flow suffered and yet their personal compensation rose much faster than the non-MBAs.
The two researchers carried out a further study, this time of 5000 CEOs. This larger study confirmed the difference in performance of the MBA and non-MBA leaders. Those without an MBA had a longer view about building value in their companies. For example, they spent more on R&D whereas the MBAs preferred financial accounting techniques and acquisitions as tools to boost earnings. These different ploys meant that the CEOs with MBAs enjoyed a sharp jump in profits followed by a big fall in their companies’ market value compared to those without an MBA.
What is the reason for this apparent poor performance of the MBA accredited CEOs? It is possible that the problem is hubris. Undoubtedly the cost of acquiring an MBA (eg £115,000 or $145,000 at London Business School) is likely to result in lecturers telling their students that they are now or soon will be masters of the business universe. With such an expensive investment you would expect this may be the case. Also, it must be exciting for the students to learn how to make a fast buck from financial engineering or acquiring companies. It surely must seem easier than the long haul of organic growth.
Thinking about the frameworks that we are proud to present on this website, most of them guide CEOs and managers in business strategy. And most of the business strategies are about beating the competition by better serving customers. In our view, this is by far the best way to build a company. Like any good stew, it needs to cook for a good while.
More than 20 years ago Professor Henry Mintzberg made the comment that MBA graduates are “a menace to society”. Harsh though this may be, it hasn’t harmed the interest in his framework; Mitzberg’s 5P framework is regularly in the top 10 on this website. See https://www.b2bframeworks.com/frameworks/mintzberg's-5ps
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