According to the Graduate Management Admission Council, which has a membership of 165 graduate business schools, nearly eight in 10 full-time MBA programmes overall reported that they received more applications during the 2008 – 2009 application cycle than they did in the previous year’s cycle. “This is the largest proportion of programmes to indicate such an increase in the past five years,” said the GMAC authors. In addition, the number of students taking the GMAT test was up more than five per cent this year over last year.
Part of the reason for the reported increase in MBA applications is the global crisis. Those immediately affected by the layoffs hitting the financial sector, including traders and investment bankers, are using the opportunity to apply to business schools. Many others in the sector have been warned that their positions will soon be terminated. Far more people in the banking industry sense that advancement is a thing of the past and, even though their jobs are not threatened at the moment, are opting for a MBA now rather than wait until stability returns in the next few years.
The upsurge in MBA applications highlights the counter-cyclical trend of MBA admissions: i.e., when the global economy goes into recession, MBA applications start accelerating at an even faster pace than before. According to Bart van Ark, chief economist with the Conference Board, the economy is likely to get worse before it gets better. “Business has hugely contracted in terms of investment,” he said. In the past, many students would only consider careers in investment banking. At schools like the Stern School of Business, New York University, as much as 40 per cent of MBA graduates go into investment banking. But with the global financial and economic crisis, this mindset is changing quickly. The collapse of Lehman Brothers in September 2008 is driving MBA candidates into new directions and often into uncharted territory such as smaller investment companies where positions have often gone unfilled in the past.
“My wife was in the air on the way from our home in Iceland to Rotterdam when the Icelandic banks started collapsing,” said Gumundur Kristjansson, who started an MBA at RSM in October 2008. “I am certainly not thinking of going into investment banking after all this, but rather to deepen my profile in high technology.”
Few MBA candidates are putting much confidence in the banking sector. In the wake of the crisis, even the surviving big-name banks are not recruiting nearly as many MBA students as in the past. HSBC, Morgan Stanley, Credit Suisse and Nomura, the Tokyo-based Asian bank that took over most of the London operations of Lehman Brothers, all announced major layoffs recently. The cuts come as investment banks around the world are slashing costs to adjust to falling markets and a gloomy 2009.
Some banks were far more exposed to the sub-prime housing crisis than others. Having lost $2.5 billion by the end of November 2008, Credit Suisse is shedding about 11 per cent of its workforce, principally in investment banking. Credit Suisse has said 5,300 internal jobs will go, along with a further 1,400 jobs with contractors in support functions, such as information technology. About 3,500 of the lost jobs will be in investment banking, mainly in New York and 650 positions in London.
Many banks have already scaled back the fixed-income businesses most directly affected by the credit crunch. However, cuts are now coming more widely as the slump in equities erodes trading revenues, while the shrinking economy hits demand for investment banking services.
This has opened the door for students to rethink their post-MBA plans and focus on consulting, private equity and corporate finance positions within traditional manufacturing or technology companies. MBA students are looking at alternative avenues than investment banking.
Having started her 12-month MBA at Cranfield School of Management in September 2008, Joannah “Jo” Rachael Kelly had considered changing careers but is now 90 per cent sure she wants to update her field skills in the international development sector with better management profile. “I see myself as a future CEO of an international development or humanitarian relief charity,” Jo said. “If I had wanted to switch out of charity work to a blue-chip career path, I would have probably chosen the London Business School.”
While there is a direct relationship between educational achievement and salary growth, the financial impact of earning an MBA at a top business school can be exponential. MBAs can put students on the right track to career success and high salaries. According to PayScale, a market leader in global online compensation data, MBA salaries are much higher than salaries for those without an MBA degree.
Furthermore, earnings on the job increase as the amount of time since graduation increases. On average, the most recent business school graduate currently earns $92,360 annually, according to the GMAC 2007 Alumni Perspectives report. Alumni who graduated in 2000 now earn 78 per cent more than that—$164,628 per year, on average. With such a huge salary advantage, it’s not surprising that prospective candidates want to earn an MBA degree, despite the time and financial investment that obtaining it entails.
In a difficult economic environment, an MBA is even a bigger investment in lost earnings, tuition and room and board, and the payback for that investment becomes more important than ever. Every year Business Week ranks the best international business schools by their return on investment. In 2008, Business Week ranked the 13-month full-time MBA programme at IE Business School # 1 for ROI.
According to the Business Week statistics, the estimated total cost of the full-time programme at IE Business School, which includes tuition, lodging and food is $151, 450. Students who earned a full-time MBA at IE Business School reported that they could earn this investment back within just over a year and a half. This astonishing rate of return is based on the fact that IE students reported that their annual salaries jumped on average by $96,500 in their first year upon earning the MBA. In the year before the MBA, the median salary was only $53,000, but it leaped to $149,500 in the year after.
Likewise for the one-year MBA at the Cranfield School of Management, the 18-month MBA at Manchester School of Business and the one-year MBA at Cambridge Judge Business School, respectively ranked #2, #3, and #4 for ROI in the 2008 Business Week rankings. MBA graduates at the three top schools took about three years to pay back their investment, largely because graduates reported salary increases of $50,000 for Cranfield and Judge and $60,000 for MBS in the first year after graduation.
RSM has recently reduced its full-time MBA programme from 15 months to 12 months, a move which will reduce not only the cost of room and board for three months, but also any lost earnings. In fact, the ambitious Gumundur Kristjansson, who is currently on 15-month programme, would have preferred only one year away from the job. “In five years’ time, I want to be a chief technology officer with someone like Microsoft or Google,” he said.
INSEAD has been a leader in this respect since its first MBA graduating class in 1960, having created its full-time MBA programme on the one-year model with an accelerated 10-month format. INSEAD’s model works well across both its campuses in France and Singapore. Three months after members of the 2007 class graduated, 92% reported having received a job offer, choosing positions in 350 different companies and in 55 countries. The median base salary was $115,000, and over 70% of the INSEAD 2007 class received a signing bonus (the median sign-on was $23,500).
The GMAC 2007 Alumni Perspectives report, which surveyed nearly 3,000 MBA alumni, noted that about six months after graduation, the surveyed alumni recouped 47 per cent of the investment made to earn their MBA and about half of the alumni recouped the full investment within seven years.
“In the view of Cranfield, the MBA is a programme that prepares an individual to work at a senior management level,” said Sean Rickard, Director of the Full-Time MBA Programme and also Director of MBA Admissions, Cranfield School of Management. “Our career statistics show that 97% of our MBAs are in their chosen employment three months after the programme, commanding some of the highest MBA salaries in Europe.”
By doing an MBA, graduates learn highly prized leadership skills and come to the table with organizational skills, renewed powers of persuasion, and the ability to work in teams. According to Kirt Wood, Recruiting and Development at RSM, “Highly motivated, MBAs are determined more than ever before to reach satisfying management positions with major companies and organizations. But in today’s volatile market, it is the sense of adventure and global scope that makes the MBA unique. MBA students can leverage their professional and life experiences, but also make the most of their language skills; in the emerging countries having even a limited grasp of Arab or Chinese counts for a lot.”
This sense of adventure and global scope is exactly what is needed in today’s upside-down market. At top business schools, MBA students are turning to the Gulf region for job opportunities. Financial centres in emerging cities like Dubai are now attracting MBA students because the Middle East appears to be more resilient to the global financial crisis than Europe and North America.
The Middle East and Asia are indeed strong growth areas for the top b-schools. INSEAD recently held its second annual Leadership Summit Asia on its Asia campus in Singapore, drawing more than 300 business and global leaders. “This is a critical time for Asia and the rest of the world,” said J. Frank Brown, Dean of INSEAD. “The Asia growth engine is still travelling at a remarkable speed despite the uncertainty in the financial markets and a global economic downturn. Collaboration between leaders in the East and West will be the lifeline in creating sustainable growth in what has become an increasingly unstable marketplace.”
Hosting job treks to the region have also become popular at many top b-schools. Of its three Global Alumni Forums scheduled in 2009, Wharton will hold the first one in Dubai in March and the second one in Beijing. Wharton is keen to invite its admitted students to these forums so that they can meet faculty, alumni and current students.
With three terms to go at the Cranfield School of Management, Jo Kelly is not going to wait until the day before graduation in September 2009 to start looking for a job. “I intend to start looking as early as possible,” Jo said. “There are some students who are applying for jobs now. I have a friend who is travelling around Asia on a job trek. Others started looking for jobs in January 2009. I will start my job search in April 2009, when I will signing up for job alerts.”
Applying to, and finding, internships with top employers is also a key asset of any MBA programme. Internships take all sort of form. At the Manchester Business School, Bernardo Gustavo Borbollo, who graduated in the class of 2008, said he worked with American Express during his International Business Project and was offered a full-time position with the well known company right after finishing his MBA.
When you start your first day on an MBA programme, have you ever thought to ask yourself about the alumni who continue to benefit from the same MBA programme? The men and women who preceded you will form a lifelong network that you can count on for years to come. Wharton alumni, for example, number more than 84,000 individuals in 140 countries, with 3,900 alumni in Europe. Wharton’s alumni network forms an active and powerful global community that fosters lifelong professional and personal connections and supports Wharton’s reputation as a leader in business research and practice.
Likewise, UCLA Anderson School of Management’s full-time MBA puts a lot of stress on entrepreneurial leadership. It has a solid class size of 360 students per graduating class, with about 100 students from 43 countries. Hence, its size ensures diversity, but at the same time fosters an exceptionally strong network in the post-MBA period. Add this to the existing 33,000-strong alumni network based in 80 different countries and you have lifelong relationships upon graduation.
INSEAD has nearly 38,000 alumni worldwide, consisting of 18,500 from the MBA programme, 19,000 from Executive programmes, and 219 from the five-year-old Executive MBA programme. INSEAD alumni participate actively as volunteers, interviewing candidates, serving on its 43 national alumni associations and reunion committees, and organising events and forums around the world.
From these examples, it is clear that a graduate from a top MBA programme will have a direct line to influential business decision-makers around the world. At the same, a b-school alumni network provides a framework for building ongoing relationships between the organizations where alumni are employed and the current MBA participants. It’s a win-win situation. This is especially the case where companies have endorsed a business school. The HEC Paris Foundation, for example, is made up of 45 companies that help guide HEC’s strategic orientation and provide a direct link between the management education and the needs of business executives.
In short, now is the time to start an MBA. The current global economic crisis will stimulate the learning process and transform your profile onto a higher profile.
According to the 2008 GMAC report, nearly three-quarters of students on European full-time MBA programs were extremely or very satisfied with their school’s culture. This indicator would make most marketing gurus in other industries green with envy. How do the MBA programmes consistently do it? The key drivers are the diverse student community and the high-quality learning environment.
A critical element of top MBA programmes is their dual emphasis on rigorous, professional business training in the classroom and developing personal capabilities in the workgroups. Business schools produce graduates who are able to innovate, change and lead. Hence, programmes focus on students learning about business and about themselves and others in diverse environments, enabling graduates to achieve excellent results at home and abroad. The level of satisfaction that graduates feel towards their schools is so high that most of them recommend their school to others seeking an MBA.