How America's Business Schools Can Save Themselves From Irrelevance

A business education has never been more important. But b-schools need to learn some new tricks.

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MBAs -- both the degrees and the people who have them -- are an obsolete waste of time and money. An irrelevant recipe for failure. At least that's what all the cool entrepreneurs and venture capitalists are saying. So what's next? Learning to code and "lean startups." Accelerators are the new b-school.

There's just one problem though.

While creating a product and starting a company have never been easier, building and sustaining a business have never been harder. And lean is not everything. That means business education has never been more important. But first, both b-schools and companies need to learn some new tricks.

The Cult of Innovation
Right now, "innovation" is the hottest thing in business. Google searches for the term have grown almost 500% in the last five years. It's not just entrepreneurs, either. According to The Wall Street Journal, public companies mentioned it 33,528 times in SEC filings last year, 64% more than they did five years ago. This obsession with innovation matters because it's changing how businesses and people operate.

Entrepreneurs and corporate executives are starting to shun traditional approaches to new product development and growth. And most of those outdated approaches are closely associated with MBAs. Instead, they're embracing new methods of innovation, like the lean startup, accelerators, hackathons and growth hacking. And in a world where anyone with $9.94 can learn to work like a lean startup, no one needs an MBA, right? Well, it's not quite that simple.

That's because failing fast--the crux of the lean approach--doesn't make succeeding easier. It just makes it cheaper and less risky. As serial entrepreneur, Howard A. Tullman notes, "all these innovations, and the continually lower costs and lower barriers to entry that they bring, are a very mixed blessing ... They make it much more difficult to create sustainable competitive advantages, which, in turn, makes it much more difficult to succeed."

The numbers back him up.

Growth Is Hard

Even in better times, building a business was hard. At least 75% of startups fail. Only 6% grew to $10 million in revenues within 10 years. Fewer than 2% hit the $50 million mark. And it's just as hard for big companies.

Two-thirds of new products launched by established firms fail within two years and only 9% of big businesses consistently grow faster than 5%. In fact, the average lifespan of S&P 500 companies is plummeting. It's now just 15 years. Now, it's only getting harder.

It's getting harder because business is getting more complex. By 2020, as many as 60% of companies will be sourcing, producing and selling more in foreign markets than they do at home. That includes small ones. The global economy, meanwhile, has become permanently turbulent and hyper-competitive.

The result, the Boston Consulting Group calculates, is that volatility in both revenues and profit margins have tripled in the last 50 years. Disruptions to competitive positions are occurring twice as frequently as they used to.

And while cheap technology and lean methods do enable disruptive innovations, they are rarely the reason new launches fail, small businesses can't scale and big ones die-off. According to technology giant, IBM (pdf), as well as the Sloan Management Review, at tech mecca MIT, those things are usually traced back to not understanding or defining customer needs properly, unclear business strategies or insufficient resources. And for all their virtues, these new startup methods don't completely address those issues.

Lean Is Not Everything
The lesson here is that strong leadership and solid management will always be essential. If anyone can create, then continuously iterating and pivoting aren't enough to buck the odds. If they were, we'd have thousands more thriving, valuable businesses and a lot fewer would-be entrepreneurs frittering away their life savings creating 1.5 million mobile apps (paywall) that no one needs, wants or even knows exist. But we don't.

That's because building a real business requires not just creating things, but also getting people to pay for them; and to pay more than they cost. To do that, though, you need to do more than define a vision and discover a viable value proposition. You also need to secure scarce resources, develop cohesive teams, assemble collaborative networks and build lasting customer relationships.

All those skills--also known as strategy, finance, accounting, HR, operations, marketing and sales--aren't completely addressed by accelerators and lean methods. But they are exactly the type of things that formal business education, especially MBAs, can develop. Unfortunately, the MBA critics are right about one thing. MBA curricula and formats have lost touch.

So, What's Next?
Startups say they're reluctant to hire MBA graduates because they don't learn the techniques that today's entrepreneurs actually use. And big employers say they lack the skills required to effectively manage today's diverse, globally-dispersed, super-connected and resource-constrained organizations--things like strategic thinking, leadership and interpersonal communications. That's all starting to change, though.

Presented by

Todd Tauber heads business development at Nomadic Learning, a leadership-education startup. He previously co-founded The Economist's education division.

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