Peter Drucker

What's an MBA for, anyway?

September 12, 2013: 5:00 AM ET

The rise of the MBA inspired much handwringing, which was chronicled in a 1950 Fortune essay by management guru Peter Drucker. A look at the arguments for and against the degree.

By Laura Vanderkam

Peter Drucker

Peter Drucker, circa 1975

FORTUNE -- The 1950s were a heady time for the American economy. The grim years of World War II were fading in the rearview mirror, and growing corporations realized they needed a new breed of manager who could oversee conglomerates spanning borders and dozens of brands.

But rather than cultivate their own talent, companies looked to the burgeoning academic programs in management -- those granting a Master of Business Administration (MBA) -- for help.

It was a straightforward idea. Why invest in training young, budding businessmen when universities were already in that space? Still, the rise of the MBA inspired handwringing, which was chronicled in a 1950 Fortune feature by management guru Peter Drucker called "The Graduate Business School."

Among the critiques: Management was about doing, not academic study. MBA programs created "crown princes" marked for the top who knew little about the businesses they would run. Society needed entrepreneurs, not business administrators. What was the purpose of an MBA, anyway?

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Such questions no longer made universities shy from business programs -- money poured into them after all -- but Drucker wrote that "It would be no exaggeration to say that the business schools, while they have won the war, do not know what to do with their victory. The business schools have 'arrived' without quite knowing what their job is, or how to accomplish it."

How can the businessman know his function in society, Drucker wondered, "if their own professional schools do not know what it is?"

Sixty-three years later, some things have changed. For starters, women -- completely absent in Drucker's piece, where GE (GE) managers talked of the "bright lads from the Harvard Business School" -- comprised 41% of HBS's class of 2015. Women have made up north of 40% of the University of Pennsylvania's Wharton School for the past few years.

MBA students are also generally older than they were in 1950. Then, "The typical graduate student comes directly from college," Drucker wrote. "If he has any work experience at all it is as a counselor in a summer camp; or maybe he has sold subscriptions to the Saturday Evening Post. He has never lived as an adult in an adult world, has never been on his own, and, above all, he lacks business experience." Drucker was not pleased.

Six decades later, most programs take his point to heart and now require a few (two-five) years of work experience. "Companies started asking for it. Companies started demanding it," says Elissa Ellis-Sangster, executive director of the Forte Foundation, which works with business schools and corporations to increase the representation of women in business careers. "Having that work experience matures them a little more."

Other questions, though, are still being debated. Drucker explained the "crown prince" problem by noting that at business schools, "there is an inherent tendency toward the turning out of men who aim at making an end run around a large organization directly to the top, rather than proving their abilities and qualities in working their way up in competition with the rest of the organization."

This makes sense. After all, why take time off work to go to school unless you think you'll gain more than those years of seniority? Nonetheless, other employees naturally resented these men marked for greatness. And that undermined morale.

In general, today's female MBA students don't have a "crown princess" aura, Ellis-Sangster insists; "They have to be coached and advised on how to promote themselves."

But the fundamental perception is still there and may worsen as opportunities open up for people to learn skills outside of formal university settings. "If you want to do well in business, there are things that are super-valuable to know," says Josh Kaufman, author of The Personal MBA, a book that explains the major concepts taught in business schools. "But you don't have to sit in a classroom learning them." When Kaufman was doing research for his book, he talked to numerous people who were attending and had attended MBA programs, and many of them said, "'You're going to get a particular name on your diploma that means something to some people.'"

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An elite MBA can be great for networking. But there are other ways to network, too.

People also still debate whether MBA programs cover the business skills society needs. Drucker noted that "the American economy needs above all the well-trained entrepreneur. The more our economy becomes a big-business economy, the more does it need the entrepreneurial mind. It needs a steady supply of new businesses to prevent freezing. It needs people who prefer running a small business to an executive job in a big company; for tomorrow's big business can only come out of today's small businesses."

Even big businesses needed people inclined toward taking risks in order to prevent large corporations from turning "arteriosclerotic." And many business students are interested in running their own companies. Ellis-Sangster says that many of the students she speaks with are interested in starting a business of their own. "It's very attractive to them to build and be in control of their own destiny and create something that's their own."

But even if MBA programs do teach entrepreneurship, their structure may work against its practice. Tuition and living expenses run well into the six figures at top programs. If students take out loans, "that's a big barrier to stopping doing what you're doing and starting doing something different," says Kaufman.

To be sure, there are still good reasons to get an MBA. The major consulting firms of the world, for instance, hire disproportionately from the top business schools. And a degree remains a way to get a leg up at many companies. As Kaufman says, "If you're already working for a company, and they're willing to pay for it, and there are going to be barriers to promotion in the company if you don't have it, then let the company pay for the signal."

But as the cost rises, companies themselves may question the idea of paying to send talent away for two years or reconsider what is gained by pushing talent to leave the fold at all. Ellis-Sangster says that some investment banks are no longer telling people that "after two, three years, there's no future here unless you get an MBA."

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"Employers have just gotten a lot smarter in how they engage their employees," she says. "They've become very sophisticated in their training and leadership development, and are bringing in faculty to teach courses at their institution."

The result? Employees are "not getting the experience they would get in business school" -- that is, the social and networking benefits -- "but are getting the academic training they might get."

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