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Friday, August 11, 2006

The MBA 'bhoot' is in full ascendancy

Over the past week I had been to visit my cousins. Now one of them is about to graduate and he wants to do an MBA - why? well, apparently if you do an 'MBA' then you make a lot of money, while if you do not then you probably do not! I am amazed. It took me a great deal of persuasion to talk my cousin out of this thought and show him the true picture of the 'MBA' phenomenon.

I had a strong belief that the MBA bhoot as I call it, was fairly widespread - but was amazed to see it in reaility. Being a part of the MBA fraternity I shouldn't be the one to spill the beans - but thats exactly what I am going to do. So here are a few MBA myths busted:
  • 'MBA' is all that matters - Its not MBA that matters is 'MBA' from where that matters. So frankly, doing an MBA from only the top 10-12 colleges is what would make a difference, rest all is frankly - crap.
  • 'MBA' pays you high salaries - True MBA gives you good salary (for most colleges), better than what most graduates might get otherwise, but what is often forgotten are the costs (explicit and implicit) that go in to getting that degree. Most colleges charge anywhere from between 1.5-3 lakhs per annum for an MBA course, so over a 2 year period that amounts to 4-6 lakhs (and this figure is increasing at 15-20%) per year. Add to this the opportunity cost of not working for 2 years (this includes both the salary and the experience) and the interest and the total comes to around 8-10 lakhs. That's a huge investment - and you need to compare the returns (that is incremental salary and growth prospects) with this investment. On doing this most people will find that they don't break even till well in their 30s (even assuming you complete MBA before 25) - not that attractive a proposition isn't it?
  • MBA salaries are high, even for not so reputed colleges - This is the biggest misconception. MBA salaries are high, but not as high as they are made public. Almost all colleges 'massage' (I do not want to use the word fudge, although that might be an appropriate word) their average salary figures. The figures stated publicly are way above what are actual figures. And since all colleges do it, no single college can back out and publish the 'true' numbers - because, the game is all about salaries!
But, I do not think this bhoot is coming off any time soon. Partly, because students and parents do not want to believe what I said above (if what you are saying is true, then how come so many students are doing this course? is a question I got repeatedly from my cousin and his parents). That's sad and yet not surprisingly. If you are into financial markets then this is the sure shot sign of a bubble - when people start justifying their actions based on what the others (read: crowd, herd) are doing.

But other than that there are serious forces at play to ensure that this bubble sustains itself for longer and longer and longer.
  • Firstly the colleges itself want more and more students to apply. Every college charges about 1000 rupees per application. Given that more than 160,000 students appeared for CAT last year -thats an annual revenue of a cool 16 crore (and growing at more than 12% p.a) and similarly for other colleges. eg. My college got about 17000 applicants couple of years back - that gives them a revenue of 1.7 crores - a tidy sum (the costs attributable to this revenue stream are essentially fixed in nature).
  • Further, this tide of applicants allows the colleges, media, coaching classes, 'career counsellor's' to attach scarcity value to the degree. A scarcity value is apparently an indication of difficulty of the exam/callibre of students who get in. Well, to an extent - but getting thousands of students to write this exam who otherwise should not - does not make the exam any tougher nor does it make the students who take the exam any brighter!
  • The coaching classes for the entrance exams for have an incentive in getting more and more students signed up for the test and by implication their classes. And the classes do not care what students sign up, as long as students keep on signing up - their cash registers are ringing. These classes will chase you - call you, write to you, invite you to seminars and tell you that how with hard work you can crack the CAT - if only that were the case, I could play cricket for 24 hrs a day and become Sachin Tendulkar.
  • Next in line is the media, which will trumpet the salary figures post final placements. It will spend entire day (news channels) on how top notch companies pay ridiculous amounts of salaries to Indian MBAs and other crap.
So, in conclusion - this MBA bhoot is about to get bigger before it blows. But blow one day it sure will. Look at what happened to the 'Engineer' bhoot. Once upon a time, a child growing up had to become an engineer and he was assured of a comfortable life - materially. Well, no its no longer engineering that matters (and even parents and students understand this) is what stream, what college and how well you did there. So the discrimination between colleges is underway. That will happen with MBA also (it is currently restricted to only the people in the 'loop'). Till then lots and lots of families will spend lots and lots of money and get lots and lots of nothing from that investment.

That's it for now....

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