What’s an MBA, anyway?
The world, it seems, is upset and unhappy with MBAs, and for good reason. We’ve just retired our first MBA President to decidedly mixed reviews. It’s easy to forget that George Bush did lots of good things– like seriously increasing aid to Africa. Bush also did lots of things that I consider bad– namely increasing and consolidating executive power, and starting a war with, at best, shaky evidence.
When I decided to get my MBA, I got a lot of push back from friends– MBA has, in some minds, gone from a management degree to a financial degree. Indeed, the “classic MBA” profile would read something like:
Undergrad in economics, business, or finance
2-3 years in an investment bank or consulting firm
A desire to work for a “better” investment bank or consulting firm.
26-27 years old.
The original MBA
When the degree was conceived, it was as a degree in general management, to develop management science and to create a cadre of managers.
As much as Dilbert’s pointy haired boss and the FedEx “Even an MBA” commercial are fun to laugh at and silly (and all too often close to reality– see GM’s infamous “Kwality Kat” initiative), many (most) MBAs do, actually, do things that provide value in companies. The thing is, they’re not Jeff Skilling, they’re not cruelly laying people off, they’re the ones on the front lines each day, working to make companies efficient and profitable, creating sustainable businesses that employ people.
MBAs study management science, which synthesises a lot of areas, from social sciences (day to day application of economic theory), to hard sciences like statistics, and apply those skills to the problems of making people work together (organisational behaviour), apply value propositions to the goods or services they sell (marketing) or to figure out what business the company is really in (strategy).
The MBA Banker
MBAs are heavily hired by banks and investment firms, and for good reason. They’ve proved that they’re willing to take a risk and have proven that they can survive academically as well as in the real world.
They’ve learned to take a situation, break it down, and offer a complete analysis of the situation and the paths and risks to conclusion.
And they know how to put values on things.
Valuation
is an art which relies heavily on science. Just as I was heading to business school, I heard that the Absolut brand sold for $2bn, and one of my colleagues (Wharton, ’09) and I had a discussion about how on earth you can come up with something like a valuation for a company.
Ultimately, you’re taking a bet. Coming up with a range of values is fairly easy, but you can’t (usually) purchase something with a range of values– you have to put a pile of hard currency in someone’s hands.
The same thing with an equity or debt investment. The same thing with a car, or boat or house.
The science gives you the language to start having a converstaion of the value of something. If you pay $2bn for the Absolut brand, you’re telling the world that you think you can make more (or at least) than $2bn of todays dollars on it in the future, somehow.
The Credit Crisis and you
Where the heck are you going with this, Glen? Pretty much, to the credit crisis and you. And there’s a later point, so bear with me.
Heres the thing. The availability of cheap credit had staggering impact across huge numbers of lives– and if you’re reading this, you with 99.99% certainty benefited from it.
You got cheaper car loans, home loans, or cheaper student loans (If you’re from the US, remember the “historically low consolidation time” around 2001? That was due to structured credit– the same thing that is close to the middle of the credit crisis). You got cheaper computers because computer companies could get debt cheaper, transports companies could get access to cheap capital to buy more cargo ships and you could fill up at Bed Bath and Beyond or Whole Foods with excellent wine or cheap towels.
Much of this cheap credit came from developing countries holding on to more foreign currency reserves after the Asian credit crisis, investing it in safe developed countries. Much of that investment helped out their economies as G8 countries went on a credit-fueled spending spree.
And now?
Yes, and now. our house of cards got too big, and everyone’s afraid. We’re remembering that diversification of economies is a good thing, and that Britain can’t just export ideas and financial services (someone will steal the ideas and handle money more cheaply). Britain must still make things of value. America can’t be a complete knowledge economy.
At the same time, globalisation is here to stay. Toyota makes more cars in the USA than GM does (even before GM’s latest woes). Using principles like comparative advantage to figure out who should make which bits and making strong, simple, understandable trade agreements to level the playing field between larger and smaller players should become the order of the day.
The role of MBAs
We have not seen the last of the Enron days, nor the abuses of power that created them. We have not seen the end of multimillion dollar exectutive pay packages or office redecorations. These are necessary evils.
Where the MBAs will be seen helping out, though, is in identifying opportunities and choosing the best ones. In picking which customers to focus on and which ones are to expensive to keep. In redeploying workforces to be more effiicent.
Yes, this will mean redundancies, but what’s better– 1,000 redundancies or 10,000 people losing their jobs when the companies go bust?
The role of MBAs in development
The world of development is shifting. People want to see ROIs and the effect of their money. People want to know that they really are making a difference, and not just on the warm-fuzzy visits when the best aid projects are toured annually by big-ticket donors flying in business class.
People want more than Sally Struthers’ pictures of healthy kids, they want a whole new generation of healthy kids. They want to see whole systems analysis of the problems on the ground and paths out of poverty.
Donors (And social investors) want more.
Entrepreneurs on the ground want more as well. I talked to two guys the other day in Mukono District who were each hauling about 125kg of charcoal on their bicycles. They’d cycled 16km out to pick it up and were walking it back to town, where they’d sell it. I asked them how often they did it (about every 2 days) and how much they’d clear from it (about 5,000/= or $2.50).
I asked them if it was worth their time, and their answer was “no, but we have to do something”.
This, on the small scale, is the same problem I see at every scale, all over Africa. Entrepreneurs work hard– 10+ hours a day, 6 days a week, and are so desparate for customers that they have trouble covering their costs.
I am working with a company here that does $2mm of business a year and they can’t cover their costs. My suspicion is that they need someone to do some market and channel analysis and help them identify the customers they should focus on– but they don’t have the skills.
I have another company that makes a product that aids digesion in cows, producing 15%-40% increases in milk and meat production while reducing methane production (one of the most significant and long-lasting greenhouse gases), and they need a hand in developing promotion and pricing strategies, as well as streamlining their operations and preparing themselves for growth.
Africa needs MBAs
Along with the rest of the world, developing and developed, Africa needs MBAs to build or rebuild businesses.
Warren Buffet warned us for the last ten years to be cautious, and now he’s being greedy. This is the time when companies can take root and flourish or wither in obscurity, remembered only by people who liked their services (Kozmo, anyone?). This is the time when the next generation of entrepreneurs will prove themselves.
The raw talent is here, the drive for success exists, the education is here (though not nearly widespread enough). There are companies to build and a generation begging to be entrepreneurs. Invest.
MBAs can help this Cheetah generation come up and put an end to Africa’s difficult legacy, to the distortions of bad economic policies, colonialism, and too-rapid shifts. More and more MBAs and business students want to do well by doing good. We could use your hands.
One Response to “MBA is not a dirty word”
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very interesting read. i cant agree with you more…
the other day i was reading complete mba in a day and i think you are right. people need an investing mentality.
though i think the last mba president was the one responsible for this
economic crisis….2 wars …and all those donations to africa