Does business school cost too much? Is it really worth it?
Ask the dean of the most expensive MBA program in the world and not surprisingly you’ll hear a strong argument for why Stanford is worth every penny of the record $185,054 estimated cost of its two-year, full-time MBA program.
Garth Saloner, dean of Stanford Graduate Business School since September of 2009, argues that MBAs can easily recoup the costs in hefty starting salaries, generous bonuses and a boost in lifetime earnings. But Saloner maintains that not every aspect of an MBA education can be quantified, and the intangibles can amount to a life-changing experience.
Obviously, not many people need to be convinced of the worth of a Stanford MBA. Last year, 6,716 applicants vied for just 398 seats in the entering class, and Stanford turned down 93% of them. Those successful MBA candidates can expect to land some of the world’s best-paying jobs for any newly minted graduates. The average base salary for a member of the Class of 2012 was $129,652, not including starting bonuses that averaged $23,865 or other guaranteed compensation averaging $66,363.
Nonetheless, in a wide-ranging interview with Poets&Quants, Saloner mounts a vigorous defense for the value of an MBA, explains why he doesn’t think MBAs should start businesses at Stanford, goes into how the school teaches ethics, and reveals what Stanford looks for in a successful applicant. As Saloner puts it, in a rather elegant South African accent that betrays his roots, Stanford is “a place where you come to grow, change and innovate and become a big part of the solution to the world’s problems.”
Poets&Quants: The average student debt for a Stanford 2012 MBA was $79,049. With arguably fewer job prospects than before the recession, how would you make the case for an MBA education today?
It’s very easy if you just look at what happens to our students’ starting salaries. Seventy-nine thousand dollars sounds like a big number, but if you think about the change in starting salary, the bonus and what that does to your career earnings, I think it is easy to justify. We always do well in return-on-investment listings. Forbes does an analysis of this, and we are always on top.
The second point is this is going to change who you are and what you’re capable of doing. I just think that’s something that’s hard to put a number on.
Time magazine ran a story about startup schools, which promise to give aspiring entrepreneurs specialized training and mentorship for a fraction of the cost of an MBA—one program charges $20,000. Entrepreneur David Cancel of HubSpot has also said hefty debt can make students more risk adverse and limit their willingness to gamble on a new venture. How would you defend the value of a Stanford MBA?
I think the education we provide here in entrepreneurship is invaluable. All of the entrepreneurship classes are taught by combinations of tenure-line faculty and practitioners, so you’re getting an enormous amount of learning in a condensed course about how to do entrepreneurship successfully and what kind of pitfalls to avoid, with lots of data around what has worked and what hasn’t worked.
I think going out and trying to figure this out yourself one startup at a time is actually a really expensive way to do it. Most startups fail. We talk about the culture of accepting failure in Silicon Valley, but it’s very painful if you’re the person who’s failing.
If you come and you sit in one of these entrepreneurship classes, you’re going to get several lifetimes’ worth of lessons in a quarter. In every single class where we teach entrepreneurship we write a case around an entrepreneur who we know, maybe an alum or somebody we have a relationship with, and they come to class every time. The students will study the entrepreneur’s case with their professors. That person is sitting in the room while the students are explaining what a terrible job he or she did, and then that person gets to stand up and talk about whether they agree or disagree and so on. I think that’s absolutely invaluable.
But I don’t think business school is a good place for a startup. It’s way too expensive a place to start a company. So that’s not what we do. There are startups that come out of here, but it’s not because students spend two years incubating one. Students should come here to get the education, they should come here to learn. Then maybe they’ll do a little bit of startup activity on the side. We have a Venture Studio where, at the moment, there are 38 teams working on startup ideas. So it’s not that I’m anti-startup, it’s quite the contrary. This is a hotbed of innovation. But I don’t think that you want to do a startup while you’re here. You want to come to school to learn how to be an entrepreneur and then go and do a startup.
What do you offer students who simply can’t afford to take on the debt of a Stanford MBA?
One of the things that worries us is that people from developed economies can plan out how to pay off their debt. But imagine if you’re a youngster in sub-Saharan Africa and you’re looking at the total cost of a U.S. education, which is a lot more for international students. I think that’s just unbelievably daunting.
So one of the things we worry about is not how do we attract the students we want who apply. We do pretty well at that. But what about the students who can’t even imagine coming? So we’re going to offer some full-ride scholarships for students from sub-Saharan Africa, initially, to see if we can attract some extraordinary young men and young women who otherwise wouldn’t be able to avail themselves to this opportunity.
What do you look for in successful Stanford MBA candidates?
We’re a small school and we don’t take many people compared with our peers. We’re looking for a small number of very high potential students who really want to make a difference in the world. Our mantra is: Change lives. Change organizations. Change the world. We take it seriously, and we’re looking for that very select set of people who have incredible potential, who have the desire to go out and do something significant.
I think if you’re just looking to get a credential or to move up the ladder, that’s not really what this education is oriented toward. It’s for change agents who want to make a difference in the world, and we’re looking for people who have that passion.
You’ve also worked at MIT’s Sloan School of Management and Harvard Business School. What differentiates Stanford from other top MBA programs?
We’re incredibly different from other schools, and I think some of the differences are not that well understood from 30,000 feet. Stanford’s program is limited in scale—we only do full-time and it is a highly immersive, transformative process.
People really get immersed in the experience and the whole curriculum. Everything that surrounds them is oriented toward helping them become change agents. In the curriculum we emphasize leadership, critical thinking and design thinking, in addition to the mainstream functional and disciplinary education you would get at other schools.
We have other schools, such as engineering, medicine and law, all within walking distance. The beauty is we’re all co-located. Stanford is a very collaborative and multidisciplinary setting, so you get exposure not just to the business school, but to your peers at other schools.
We’re located in Silicon Valley, which isn’t to say it’s a tech school, but the innovation DNA characterizes us. The cornerstone of the school says, “Dedicated to the things that haven’t happened yet and the people who are about to dream them up.” That captures the essence of the place. It’s a place where you come to grow, change and innovate and become a big part of the solution to the world’s problems.
You led the Curriculum Review Committee that introduced the new 2007 curriculum, which change has had the most impact?
If I were to pick one, I would talk about our leadership education, which is now a required part of the curriculum. We do it in the fall quarter of the first year. This is something that every student gets when they come here.
We do experiential education around leadership. So instead of sitting in a lecture class or doing cases on great leaders, we put the students in groups, or leaderships squads, of five to seven people. They have a leadership coach, who comes from the second-year class and is supported by a professional coaching staff. The first years in these leaderships squads go through skills-based exercises where they are actually trying the stuff out. Often they’ll be videotaped, and then they’re coached on the actual skills that we think are important for leadership.
That’s a very different approach to leadership education than business schools have typically taken. It’s very intensive. It’s an expensive form of education because you’re doing it in groups of six or seven, but we’re finding that it is completely changing them. They are coming out of the school able to lead and manage from day one at a much higher level than was true a decade ago.
Following the financial crisis some critics have suggested that ethics have been largely overlooked in an MBA education. How do you effectively teach ethics in a business school environment?
We do what most schools do. We require a class on ethical thinking, but frankly, that will get you only so far. We also have a very interesting elective course called Real Life Ethics where the students are actually taken through scenarios by experienced professionals who have faced ethical dilemmas and lead students through how to think about that.
What we did in curriculum reform, which was about six years ago, is to introduce a class in the fall quarter called Critical Analytical Thinking. It’s not an ethics class, but it’s actually one of our best courses on ethics because it poses very difficult business challenges and then asks you to think critically about them. The students write a paper about the challenge, and then we put them in a seminar of only 16 students, which I think is key, for a discussion. I’ll say I read your paper and I see you’re in favor of X, Y and Z, explain to the class why. And then the class will keep you on the hook for 25 minutes or half an hour, pushing you on your argument–why you believe it, the logic behind it and whether it flows.
That’s really important. Asking our students to have a position, to be accountable for it, to be on the hook arguing for it, is how you train them to think through the kinds of issues that get people into difficulties on the job.
The problem with the 60-person classroom where you discuss these issues and students throw out a couple of comments that constitute class participation is that it doesn’t really mirror what they have to do in practice. I think teaching ethics starts by being clear about the principles you stand for and that you’re operating on and being able to articulate those.