Is it the end of business schools?

Yesterday I read an article by The Economist called: Those who can't, teach

It's an interesting article, based on the problems that business schools are dealing with and what is the future for them. I want to know what are your thoughts about this. I had read and listen in the last years that getting an MBA is not the same that was before, say for example 10 or 15 years ago. Is in decline? what is the appreciation of IB by grad students getting an MBA? Share your thoughts.
 


Business schools are better at analysing disruptive innovation than at dealing with it
 
IN EVERY profession there are people who fail to practise what they preach: dentists with mouths full of rotten teeth, doctors who smoke 40 a day, accountants who forget to file their tax returns. But it is a rare profession where failure to obey its own rules is practically a condition of entry. Business schools exist to teach the value of management. They impart some basic principles-like setting clear goals and managing risk. They also teach how dangerous the business world has become. The most fashionable phrase today is "disruptive innovation": professors solemnly warn people that entire industries face powerful new forces and that comfortable incumbents are at the mercy of swift-footed challengers. But when it comes to their own affairs, business schools flout their own rules and ignore their own warnings.
 
Opportunities abound. Demand for good management is spreading to the emerging world and to the public and voluntary sectors. The number of business schools worldwide has increased from a handful a century ago to 12,000 institutions that now deliver some form of business education-and first-class establishments are today found in Hyderabad and Shanghai as well as London and Boston. But at the same time they face huge risks. They lack barriers to entry to protect them from changes that are sweeping through the education industry. Good management could ensure that they thrive. But it is in scarce supply for two reasons.
 
The first is that business schools have been captured by the academic guild. In 1959 two inquiries sponsored by the Carnegie and Ford Foundations argued that business schools were little better than trade schools and urged them to be more academic. Now they are little more than flags of convenience for academics. The surest way to get a tenured post is to write a PhD (on a subject only loosely related to business) and publish a string of articles in respected journals. Tenured academics are untouchable and can block any change in a school. So far the best schools have been able to thrive despite the power of the academic guild. Academic star-power helps them to attract high-paying MBA students.
 
But even at the elite level the power of the academic guild can be a problem. Professors have too little incentive to focus on teaching: the best will perish unless they publish in the right journals. And they have too little incentive to produce usable research. Oceans of papers with little genuine insight are published in obscure periodicals that no manager would ever dream of reading. Innovation is fuelled by bringing ideas from different spheres together. But academics specialise in dividing the world into tiny sub-disciplines. And when you get to the fat middle of the market these problems rise to the level of dysfunction.
 
The second problem is a herd mentality. Business schools suffer from a bad case of Harvard and Stanford envy: they dream of having fancy buildings and star professors. But the cost of participating in the arms race is going up-Columbia Business School is spending $600m on a campus-and the supply of people who are willing to pay top-dollar for an MBA is falling. The number of people taking the GMAT, which regulates admission to many business schools, fell by 50,000 last year. The number of Americans taking the test has fallen particularly sharply, forcing mid-ranking schools to dig deeper into their admission pool or rely on recruiting Asians, who will increasingly have business schools of their own to choose from. The reason for the softening demand is that returns on investment are also falling. The Graduate Management Admission Council, which conducted a survey of graduates of American business schools, found that 8% of the class of 2012 did not have a job when they graduated.
 
The obvious solution for schools outside the top tier is to compete on cost or innovation. Though the average fee for an American MBA course has risen by a third over the past four years some schools, such as Cornell and Rochester, are offering shorter courses and others, including Maryland and UCLA, are forgoing the annual fee increase. Ashridge, near London, focuses on short courses for executives. But too many continue to stick their heads in the sand. Meanwhile, they face competition from companies with a monetary incentive to control costs and expand enrolment. The Career Education Corporation, an American firm, is assembling a portfolio of business-oriented institutions. Laureate Education has over 800,000 business students in 30 countries. Private schools such as these are directly challenging the faculty-dominated not-for-profit model, employing staff to teach rather than research and making it easier to combine study with work. And some consultancies and investment banks are running in-house mini-MBAs.
 
Mind your own business school
The result is a paradox: many of the people who run business schools are approaching the future in the most unbusinesslike manner. The mood at this year's meeting of deans in Gothenburg, Sweden, was a mixture of gloom and fatalism. They talked about academic inflation, image problems and the threat of MOOCs or massive open online courses (see Free exchange). But they showed little confidence in their own ability to grasp opportunities or combat threats.
 
The deans have few levers at their disposal to reorganise their schools or cut costs: more than 80% of their bills go on academic salaries. They also have few incentives to pull what levers they have: almost all of them are former academics who are appointed for a maximum of five years. Michael Porter of HBS once warned that the most dangerous place for a business is to be stuck in the middle without an obvious advantage of cost or quality. Over the next few years a striking number of business schools are going to discover just how right he was.

Source: pe/thosewhocantteach">Those who can't, teach

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Comments (20)

Feb 9, 2014 - 1:09pm

Interesting article. I definitely see the discrepancy between academia's focus on research and advanced knowledge that only PhDs in the specific field may care about, and what aspiring managers in most industries need to learn, which need to be practical. I wouldn't say that this discrepancy weakens today's business education, however... bschools typically either have grad non-disclosure policy or it is incredibly hard to get bad grades in bschool classes, assuming you put in work. This is in stark contrast to law school and medical schools, where class ranking determines the caliber of internships you get / ability to get into competitive residencies. I would say most bschools have found the right balance of academic studies / development of soft skills / development of professional network into their programs.

snfuenza:

I had read and listen in the last years that getting an MBA is not the same that was before, say for example 10 or 15 years ago.

Yeah, but then I hear this more from law school / medical school folks these days. The job market for law graduates have become incredibly competitive with so many law schools and people with law degrees, and I believe the pay scale for doctors have declined significantly in the past few decades. Sure, ROI of business school degrees have come down significantly as well, but I think degrees from top programs are still very worth the time and money.

Feb 9, 2014 - 11:49pm

I think MBAs from the top 10 or so programs are still very much worth it, but I think there is more question about the value of the top 25ish and beyond calibre of schools. Unless you're getting recruited by Wall Street firms or by Fortune 500 management training programs (which usually only occurs out of the top programs) it's difficult to justify foregoing 2 years of salary and spending $100,000+ to get a business degree. I've got a co-worker who is 28 this year and has the job and seniority of someone who is 33 or 34 (she's basically a half decade ahead), and her line of work doesn't require an MBA and yet she's going to spend $100,000+ to attend a top 25ish MBA program and I can't wrap my head around why.

The other topic at hand is what really demonstrates that most MBA programs are complete bull sh*t with regard to actual learning. When your professor has virtually no real world experience then you have to step back and ask yourself, "What exactly is this guy going to teach me?" I think having a PhD professor in an MBA program is pretty much indicative of the joke that the MBA programs have become. It's easier for a PhD in organizational behavior to land a top MBA professorship than it is for a former CEO with no PhD. Shows how obsessed academia is with "pedigree".

The best model for graduate level education, IMHO, is a model that is relatively inexpensive and can be completed while the student continues to work; at the end, the student should receive some form of degree/certificate/accreditation from a reputable source. To me that's ideal--a real credential that is inexpensive, targeted, and that has more credibility than MOOCs. If the wider market would ultimately accept it, I think the graduate certificates from credible universities that are focused--forensic accounting, finance, management, programming, statistics, data mining, etc.--makes the most sense.

Best Response
Feb 10, 2014 - 10:37am

What I find frustrating about this topic is that, in the end, it's impossible to actually come up with an answer because of the intangible benefits of an MBA, and the frequent need to check the MBA box. It's almost like arguing about what school is "better" - there really is no way to actually have an answer. Moreover, unlike law school, for example, which is a necessary degree for an industry with a limited number of jobs (and obviously less jobs than before), there is simply no clear industry that an MBA is required for. It gets very difficult to actually analyze the importance of a degree. After saying that, however, I do have a few bone to picks as someone who is generally "pro-MBA" (at least right now as I think about forking over my income plus $120k in the next two years). I also like to think I have decent perspective as someone who got into three top programs, but also has a wife who is about to graduate from a top ~50 program.

1. Academic nature of the classes/professors: There's no question that general frustration with teachers that have never "done" anything before is growing. I agree that pure focus on academia and obscure research is not very useful for an MBA student. I disagree, however, that that's all that business school is. First, most of these professors actually are practitioners in some way or another. Because their degrees and research is useful, they consult for some of the biggest companies in the world. Second, business school's pride themselves on having experienced students. This is huge, because in a classroom where the average work experience is >60 months, the adults in the room are not simply going to listen to and accept the theoretical viewpoints of the professor. The case method, which most schools employ in some way or another, emphasizes this even more. My opinion is that business school does an excellent job hedging against non-practitioner professors by emphasizing quality experience prior to acceptance (this obviously goes down as school ranking goes down).

2. Demand decline: They kind of butcher their facts here. They cherry pick a GMAT stat and then cite lower ROI as the reason, without even citing where they got that low ROI fact. First of all, most on WSO know that GMAT demand is way down because demand was way up two years ago before they changed the test. People like me, who planned to apply 2-3 years later, took the test before they added a section.

Addressing the ROI specifically, yes, ROI is down, but not to the point where a degree is not worth it. Per Forbes, an MBA at a top-25 school still pays itself back in 3.7 years, on average, and that was for the class of 2008, which may have entered the worst economy for MBA grads ever. What's interesting about looking at the Forbes data is that while ROI goes down with the rankings, pay back period actually remains relatively similar. For example, Northeastern, the 55th ranked school by Forbes (56th in P&Q), has a total 5-year payback of $35k, and takes 4.1 years to pay for itself. Compare that to Wharton, a degree that I'd say almost all of us agree with, which has a $74k 5-year payback and takes 4.0 years to pay for itself. There are a lot of factors that go into these numbers, especially salary before going to school and tuition, as well as the fact that they ignore long-term career earnings, but I do think that it's interesting to look at them.

3. Change: As much as this article seems to ignore it, business schools have changed a lot. They are no longer insular, American-focused classroom organizations. Whether it's HBS with FIELD or Sloan with Action Learning, just about all of these schools have hands-on learning that are real business situations. Moreover, many of these projects are international, and many programs have an international requirement, which was again an adaptation to the fact that business schools in the US were far to insular and not keeping up with the global economy.

4. Necessity: As much as this article and others might want to ignore it, the bottom line is that an MBA can be a necessity at times, and for that reason, is never going away. Yes, for the most part, this applies to top companies and top ranked MBAs. However, I watch my wife and her friends every day get opportunities at Tier 3 consulting firms, F1000 companies, government agencies, etc. that they would not have gotten before their degree. She has had offers to double her pre-MBA salary in a field that she was unable to break into before going back to school. That's huge, and while some of her class is not going to have a job at graduation, I don't think that means that the degree was a waste. Again, it goes back to individual circumstances, I just think that the degree still has some cache, and is still an excellent way to pivot and re-enter the recruiting world, even at lower ranked programs.

Listen, I agree that MBAs have lost some of their prestige in the business world. I don't think the necessarily "prove" anything anymore because of the vast supply. I do think, however, that even a halfway decent program can be very useful, both for the learning experience and the career prospects (including ROI), assuming the situation is right. I don't see how this differs from any other professional decision. I disagree strongly with the notion that it's only worth it if you're getting recruited by Wall Street or other F100 companies. What if you're making $34k as a low-level marketing person that has a history degree, and an MBA from the University of Georgia gives you a chance to make $70k at a solid company with a chance for upward mobility? Sure, it's still expensive, but it's cheaper than a top school, and your opportunity cost is lower because your salary was low to begin with.

Feb 10, 2014 - 12:08pm

I would agree that the other students' experience negates the issue of inexperienced professors if programs like Harvard weren't starting the process of "bidding down" the age/experience requirements of applicants. At the rate we're going, in 10 years the average MBA student at a top 10 program will be 23 or 24 and will be taught by a person who has spent the lion's share of his/her life conducting "research" and publishing work in periodicals that no one cares about other than the dean of the department. To me this calls into question the value of the educational experience.

I do agree that there are circumstances where an MBA-even a lower tiered MBA-can make a difference, if not a substantial difference. But I think I'm very biased given the number of clients I have had who were saddled with student debt. From anecdotal observation, when people make more money they spend more money-invariably, people raise their spending habits to meet their income. I would bet that more people than not get into a perpetual state of treading water with their student debt. They make more money, spend more money, and keep this perpetual cloud of debt over their head.

Feb 10, 2014 - 10:44am

@DCDepository I totally agree with some of your points, especially about people considering other (and potentially better) options to a two-year MBA. A lot of people still get an MBA because they think that's a good thing to do, without actually thinking about why they want one and whether or not there are better, more cost-effective ways to go about achieving a similar goal.

To ask you a pointed question though, and as my post above clearly indicates, I still think an MBA is a very good way to change directions in one's career, but what does that coworker of yours want to do? Sure, she may have a good job with above-average responsibility and no need for an MBA and that specific track, but does she want to do that? If you work in finance, does she want to work in marketing?

I have no idea what the answers are to my questions, and maybe she's an idiot or just wants to take a break, but I do think that someone in her situation could be making a very reasonable decision to go to a top-25 school if the situation is right. I actually think I'm in a pretty similar situation - I've been promoted a few years ahead of my coworkers that are older than me, and would have a clear track to a leadership position at my firm within the next ~5 years if I stayed, with no one expecting me to get an MBA. However, I have literally no desire to keep working at my firm, and don't really like what we do. I'm looking for a career switch, so to me, it's a pretty obvious decision. Depending on my goals, I absolutely think a top-25 degree could have been a reasonable answer.

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Feb 10, 2014 - 12:34pm

The real important question is: Why do you want MBA status? When your young you have the Dream. When you get old you realized you could of went to the library and learned many skills for free and just did it on your own. Do what makes you happy irregardless of it being a dead end job or an extremely hazardous job or very competitive. Life has many lessons, some are hard and some come easy. Don't be afraid of change. JUST BE HAPPY.

Feb 10, 2014 - 1:37pm

@DCDepository Agree again. I disagree wholly with moving the experience curve down, and unfortunately, if HBS is doing it, it likely means that most others will follow suit. I sort of think HBS just does things for the sake of doing them though, and I could easily see them reversing the trend.

The student debt relation to spending habits is an interesting point that I didn't think of. It very much negates the benefit of the pay raise or even the ROI. I probably tend to think of all decisions was what would benefit me if I were in that situation, but I am probably not the typical person with my feelings about debt, etc.. It reminds of that blog that went "viral" a couple years ago by an HBS alum that was paying the minimum on his student debt, and realized that he was spending like an idiot despite making ~6 figures plus.

http://nomoreharvarddebt.com/

I guess, going back to my original thought in my first post, this topic is frustrating because the answer is obviously no (to business school totally dying) and it depends (to whether or not one should go to a full time MBA program). There's not right answer, and a lot of people will continue to go when the benefits will not be there, while others make more prudent decisions to save money and keep working while still bettering themselves. These articles seem like they're obligatory for all professional schools every now and then.

Feb 13, 2014 - 12:06pm

I'm noticing a lot more MBA appeal from Europe these days. While historically it was looked down upon, I'm seeing more and more colleagues in Europe taking the GMAT and hoping to live in the US for a few years for the experience. I'm always amazed by the kids with 2 European business degrees, going to America for an MBA after... they must really love learning.

Feb 14, 2014 - 12:21am

The MBA is losing relevance because Wall Street, a formerly big hirer of MBAs, is reversing that decision in certain departments, such as sales and trading. However, investment banking still strongly recruits.

Outside of our bubble of Wall Street, the employment picture is bleak, period. It's more of a systematic problem than an issue with the MBA degree. Further, just like with any degree, education quality has been watered down by "low tier" schools offering degrees to any and everyone that can write a check. And when they can't write a a check, the government is there to loan money. Oversupply of anything will bring down quality, which will hurt compensation, which will reduce payback periods, if you can even get a job because of oversupply of grads... It's a vicious cycle.

Lets also not forget the people that can't figure out what the want to do. The grass is always greener attitude makes them leave their job without knowing what they even want to do. But it's so easy to think you can "figure it at" at school. You see it on THIS WEBSITE all the time. And school always makes it seem so easy. If you do as you're told and go through the motions, you've "earned" the "right" to get a job at the end. Again, how is everyone going to get a job if you never were focused on what you wanted to do, never have thought to the economics of your decision to pursue a grad degree, never had a problem financing your degree, and are encouraged by schools with open arms ready to take your student loans?

Just like anything, business school is totally worth it when the economics make sense. The intangibles are only worth it if you can AFFORD to not get a payback on the because you have the cash sitting around, or you've reasonably attached a value to it based on somewhat verifiable anecdotal experience. Like I said, most people lie to themselves and tell themselves things will be better when they get out, but don't have a clue 2,5,or 10 years out of business school.

Feb 14, 2014 - 11:26am

@CreditAnalyst85 Good points all the way around, especially about Wall Street and the changing business landscape. The bottom line is that things, as a whole, are not the same as they once were and might not be ever or for quite some time. I still think that point is far more applicable for the law industry than it is for business/the banks, which tend to rebound and forget quicker, but it's definitely still the case.

However, despite all of that, I think you're a bit too bearish on the overall reasons for going to business school. I absolutely agree that going to a ~50th ranked business school with no idea what you want to do, simply under the assumption that you'll both figure it out and be able to land a job in whatever you figure out, is completely insane. At the top schools, on the other hand, especially top-15, the average starting salary is in the six-figures. Moreover, 90%+ of students are employed at graduation. Looking at Tuck, specifically (where I'll be going), there are actually far more recruiters on campus than jobs that they give out. I believe this year there are 130+ companies on recruiting on campus with a class size of 270, and 20% of the class goes to three companies (MBB). I guess all I'm trying to say is that at the better schools, you can stumble into an awesome job that pays you $100k+, while also getting a degree that looks nice on paper and all the other intangibles.

I still think it's a bit crazy to go to business school, even HBS, without a solid idea of what you want to do. It just seems to be too much to figure out and too much risk of not getting on the right path. That being said, you can take out 100k of debt, have no idea what you want to do, and still be in excellent shape when graduate, depending on quality of the school.

Feb 22, 2014 - 10:52pm

MBA's don't add much value and they cost a lot. You basically gain an unsophisticated exposure to separate fields that are essentially unrelated. It's a degree designed to train CEO's/sole proprietors but targets people who want to work in consulting or high finance. It's a relic of the 50s and 60s where business was much simpler and where managers were in short supply. The current trend, namely the decline in MBA apps and revenue, will continue and the U.S. will increasingly resemble that of Europe (specialized masters programs) with respect to bschools.

“Elections are a futures market for stolen property”
Feb 24, 2014 - 11:27am

I was going to write a long post about how many issues there are with this article, but BGP2587 beat me to it. I love how they state that 8% of students don't have a job at graduation. First off, that isn't a bad stat, especially given that the employment rate is always a few points higher for the 3 months after graduation. Compared to the national unemployment rate of 7% it isn't bad but compared to the 50% unemployment/underemployment rate for recent college grads, 92% employment at graduation is amazing. They don't even state how the MBA employment rate has changed since last year, whether it is up or down. This article is all smoke and mirrors.

Feb 24, 2014 - 11:28am

Is it the end of business schools? (Originally Posted: 02/09/2014)

Yesterday I read an article by The Economist called: Those who can't, teach

It's an interesting article, based on the problems that business schools are dealing with and what is the future for them. I want to know what are your thoughts about this. I had read and listen in the last years that getting an MBA is not the same that was before, say for example 10 or 15 years ago. Is in decline? what is the appreciation of IB by grad students getting an MBA? Share your thoughts.
 


Business schools are better at analysing disruptive innovation than at dealing with it
 
IN EVERY profession there are people who fail to practise what they preach: dentists with mouths full of rotten teeth, doctors who smoke 40 a day, accountants who forget to file their tax returns. But it is a rare profession where failure to obey its own rules is practically a condition of entry. Business schools exist to teach the value of management. They impart some basic principles-like setting clear goals and managing risk. They also teach how dangerous the business world has become. The most fashionable phrase today is "disruptive innovation": professors solemnly warn people that entire industries face powerful new forces and that comfortable incumbents are at the mercy of swift-footed challengers. But when it comes to their own affairs, business schools flout their own rules and ignore their own warnings.
 
Opportunities abound. Demand for good management is spreading to the emerging world and to the public and voluntary sectors. The number of business schools worldwide has increased from a handful a century ago to 12,000 institutions that now deliver some form of business education-and first-class establishments are today found in Hyderabad and Shanghai as well as London and Boston. But at the same time they face huge risks. They lack barriers to entry to protect them from changes that are sweeping through the education industry. Good management could ensure that they thrive. But it is in scarce supply for two reasons.
 
The first is that business schools have been captured by the academic guild. In 1959 two inquiries sponsored by the Carnegie and Ford Foundations argued that business schools were little better than trade schools and urged them to be more academic. Now they are little more than flags of convenience for academics. The surest way to get a tenured post is to write a PhD (on a subject only loosely related to business) and publish a string of articles in respected journals. Tenured academics are untouchable and can block any change in a school. So far the best schools have been able to thrive despite the power of the academic guild. Academic star-power helps them to attract high-paying MBA students.
 
But even at the elite level the power of the academic guild can be a problem. Professors have too little incentive to focus on teaching: the best will perish unless they publish in the right journals. And they have too little incentive to produce usable research. Oceans of papers with little genuine insight are published in obscure periodicals that no manager would ever dream of reading. Innovation is fuelled by bringing ideas from different spheres together. But academics specialise in dividing the world into tiny sub-disciplines. And when you get to the fat middle of the market these problems rise to the level of dysfunction.
 
The second problem is a herd mentality. Business schools suffer from a bad case of Harvard and Stanford envy: they dream of having fancy buildings and star professors. But the cost of participating in the arms race is going up-Columbia Business School is spending $600m on a campus-and the supply of people who are willing to pay top-dollar for an MBA is falling. The number of people taking the GMAT, which regulates admission to many business schools, fell by 50,000 last year. The number of Americans taking the test has fallen particularly sharply, forcing mid-ranking schools to dig deeper into their admission pool or rely on recruiting Asians, who will increasingly have business schools of their own to choose from. The reason for the softening demand is that returns on investment are also falling. The Graduate Management Admission Council, which conducted a survey of graduates of American business schools, found that 8% of the class of 2012 did not have a job when they graduated.
 
The obvious solution for schools outside the top tier is to compete on cost or innovation. Though the average fee for an American MBA course has risen by a third over the past four years some schools, such as Cornell and Rochester, are offering shorter courses and others, including Maryland and UCLA, are forgoing the annual fee increase. Ashridge, near London, focuses on short courses for executives. But too many continue to stick their heads in the sand. Meanwhile, they face competition from companies with a monetary incentive to control costs and expand enrolment. The Career Education Corporation, an American firm, is assembling a portfolio of business-oriented institutions. Laureate Education has over 800,000 business students in 30 countries. Private schools such as these are directly challenging the faculty-dominated not-for-profit model, employing staff to teach rather than research and making it easier to combine study with work. And some consultancies and investment banks are running in-house mini-MBAs.
 
Mind your own business school
The result is a paradox: many of the people who run business schools are approaching the future in the most unbusinesslike manner. The mood at this year's meeting of deans in Gothenburg, Sweden, was a mixture of gloom and fatalism. They talked about academic inflation, image problems and the threat of MOOCs or massive open online courses (see Free exchange). But they showed little confidence in their own ability to grasp opportunities or combat threats.
 
The deans have few levers at their disposal to reorganise their schools or cut costs: more than 80% of their bills go on academic salaries. They also have few incentives to pull what levers they have: almost all of them are former academics who are appointed for a maximum of five years. Michael Porter of HBS once warned that the most dangerous place for a business is to be stuck in the middle without an obvious advantage of cost or quality. Over the next few years a striking number of business schools are going to discover just how right he was.

Source: pe/thosewhocantteach">Those who can't, teach

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Feb 24, 2014 - 11:29am

K no it's not the end of business schools. I think there are way too many mid-tier business schools that suffer from "Harvard and Stanford envy" and they're accordingly over-extending themselves in their marketing efforts to attract/retain top talent (and probably in an unethical manner if you ask me - but hey I guess that's part of the game).

I think this sentence sums up the point of the article correctly: "The result is a paradox: many of the people who run business schools are approaching the future in the most unbusinesslike manner". And at the end of the day, who's to stop these business schools from using "unbusinesslike" tactics to remain competitive? Nobody as long as there's demand from prospective students for their program. And for mid/low-tier schools...I'm sure there's enough demand from uninformed and out-of-touch students.

I don't think the purpose of an MBA is to learn anything ground-breaking - most of the content is a repeat of an undergrad business program or can be learned on your own (especially now that there's MOOCs like Coursera offered by Ivy League schools). I would personally only choose to attend an MBA business schools">M7 business school - the social/networking opportunities are invaluable.

Feb 24, 2014 - 11:30am
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