As fall approaches, a new batch of students will enter thousands of MBA programs around the world. Their aspirations, aside from perhaps a passion for business, are to secure and keep higher paying jobs. The most recent available data shows that MBA degrees continue to grow in popularity, with over 190,000 granted in the 2011/12 school year in the U.S. alone. This represented 24% of all advanced degrees in the U.S., putting it on top of the graduate degree heap.
These degrees do not come cheaply. At the top schools, they can cost an average of $160,000. In many cases, students stop working to earn their degrees and incur two years of living expenses and interest on loans in the bargain. So what’s the ROI? It appears to be pretty high. Retired business school professor Ronald Yeaple, building on several years of research, shows that MBA salaries increase as much as 50% after graduation when compared to pre-MBA salaries. And, these post-MBA salaries can rise up to 80% more over a five-year period.
That said, there is a growing belief that there is a glut of MBAs as well as an increasing number of degrees of questionable value. A few years ago, there was a flurry of handwringing when the Wall Street Journal noted that median pay for MBA grads had dropped 4.6% between the 2007/8 and 2012, while tuition and fees for full-time M.B.A. programs had risen 24%.
At the end of the day, the real question both organizations and aspiring MBAs need to ask is: Does an MBA make a better leader? And, is it worth the premium they are paying? At Development Dimensions International, we recently released a new report trying, in part, to answer this question. The study, High-Resolution Leadership, involved over 15,000 leaders across 300 companies, in 18 countries. The methodology examined actual performance in assessment centers over a nine-year period.
In these centers, participants are put through simulations on the types of activities and behaviors needed in leadership positions: coaching a team member, preparing a business plan, handling difficult customer situations, and the like. Participant evaluations in these centers are used by companies to make critical leadership promotion and placement decisions, from frontline leaders all the way to the C-suite. Data collected before the assessment asked participants to indicate their educational background, enabling us to compare two groups: MBA and undergraduate business-degree holders.
In our research, we looked at eight key leadership skills: financial acumen, business savvy, compelling communications, driving execution, driving for results, entrepreneurship, influence, and inspiring excellence. Collectively, these skills predict better company financial performance. In other words, those organizations with leaders who score highly across these skills have superior business outcomes, both on the top and bottom lines.
The two groups diverged on several leadership skills. Specifically, MBA graduates consistently outperformed undergrads in classical business skills: financial acumen (+12%), business savvy (+6%), and strategic decision making (+6%). They fell short, however, on what we call people skills (interpersonal and inspirational skills) including: coaching (-3%), results orientation (-6%) and visionary leadership skills (-7%).
It is worth pointing out that even in financial acumen, a mainstay of graduate programs, the MBA degree holders only scored 12% higher than their undergraduate counterparts—not a very big gain. And while we could rationalize that coaching, driving for results, and selling the vision are not skills commonly addressed in MBA programs, we might have expected the two groups to be at least equal. Is it possible that MBAs have been trained to put the “numbers” above all else?
It would, perhaps, be irresponsible to claim the business world does not derive considerable value from their MBA hires. What the study does bring into clarity, however, is the need for a more balanced curriculum in graduate programs. Many leading universities have begun to incorporate courses that aim at building some of the people leadership skills alongside the business ones.
As a case in point, we have been working the last three years on an innovative program with Carnegie Mellon. Entering students go through a comprehensive four-hour leadership simulation. They are then evaluated on a range of leadership skills including many of the people skills. Upon completion of the assessment, they are given face-to-face feedback. Finally, they have the option to participate in a series of leadership courses that augment their standard MBA curriculum and focus on the people-skills areas. While it is too early to tell, Carnegie Mellon is banking on producing more well-rounded business leaders, the kind our organizations will need in the future.
Richard S. Wellins is senior vice president at Development Dimensions International and a co-author of the High-Resolution Leadership report. He has published six books, including Your First Leadership Job (Wiley, 2015), written with Tacy M. Byham.
Evan Sinar is chief scientist and director of the Center for Analytics and Behavioral Research at Development Dimensions International. He is the lead author of the High-Resolution Leadership report.