A Shorter, More Specialized MBA May Be the Best Option in a Downturn

Conventional wisdom holds that during economic downturns MBA enrollment increases at an inverse relationship to the availability of jobs; and there is plenty of evidence to support this theory.

But contrary to historical trends, a recent study conducted by the Graduate Management Admissions Council (GMAC) reveals an interesting phenomenon taking place in the current economic crisis: The median number of applications for two-year MBA programs worldwide fell 22 per cent in 2012, after a nearly 10 per cent decline in 2011.

It was the fourth year in a row that applications for two-year, full-time MBA degrees declined. At first glance, it would appear that there is a growing perception that an MBA is no longer as valued as it once was. However, a closer look at the GMAC study suggests something else: 68 to 82 per cent of specialty MBA programs for 2012 admitting classes – mainly Master in Management, Master in Accounting and Master in Finance degrees – reported steady to increased application volume compared with 2011.

This statistic clearly reflects the advantages still associated with enhancing your career potential with an MBA. But there is an important caveat: Whereas a general two-year, full-time MBA from a top school may have once conferred automatic prestige and thus greater earning potential, this is no longer necessarily the case because of the current volatile business climate.

Consider the recent lay-offs within M&A teams at major banks including UBS, Bank of America/Merrill Lynch, Morgan Stanley, Citibank and other high-profile financial institutions. According to GMAC president David Wilson, the growing complexity of global business means that “one size no longer fits all” – business schools and students must adapt to these changing needs.

Low beta is better

Understanding the value of an MBA can be explained by applying finance theory. A two-year, full-time, general-management MBA is expensive (higher tuition fees, longer duration and more opportunity costs) and its return on investment (ROI) is highly sensitive to economic conditions. Therefore, it poses a greater risk in terms of investment. Specialty MBA degrees, focusing on specialized training in certain business functions, tend to be shorter on a relative basis. A shorter duration means less time spent and less money invested upfront. The opportunity costs are not as great, delivering a safer ROI.

This is where the investment metaphor is quiet useful. In downturns, investors tend to place their bets on bonds (low beta) as opposed to stocks (high beta) because bonds offer a more stable income stream and are less vulnerable to a deteriorating economy. Stocks deliver much less upside potential and could return less than bonds if the economy continues its downward spiral. A more focused specialty degree (low beta), which enhances and builds upon specialized technical skills, can be far more effective and efficient in building specific functional knowledge and networks (and thus financial job opportunities) than a general-management MBA (high beta), giving it a higher, or at least a safer, ROI amid uncertain business environments.

But as tempting as it is to think of an MBA only in financial terms, ultimately its value is not 100 per cent quantifiable. Its intangible benefits are rooted in things of a more personal nature. Success in an MBA is highly dependent upon the fit between a student and a particular program, which is why it’s important to think beyond getting into a particular school based on prestige alone.

Deriving the maximum value from a degree flows from understanding what your goals, needs and working style are. The better an MBA applicant knows her/himself, the better the long-term benefits of the degree.

Hong Kong-based Vince Chan is the founder and CEO of AlphaPowerMBA.com. A Yale MBA alumna and former MBA admissions interviewer, she works with candidates across Greater China, helping them to pursue their goals in education and career development.