The Problem with Business School Today
In approximately four months I will graduate from NYU’s Stern School of Business with a degree in Finance. After just 12 credits, or 4 classes in the subject I will be considered “knowledgeable” in the field.
If you would like me to explain the global financial crisis to you I cannot (I certainly cannot explain how not to make the same mistakes). I cannot explain what an investment bank does, I cannot explain why leveraging has a domino effect, and I cannot discuss what intelligent investment decisions will be for the future—your guess is as good as mine.
Despite this, I’ll graduate with honors. I will be signaling to employers and others that I have some knowledge in finance, or at the very least, am conversant in the above topics.
But this is not the case. If you too are majoring in finance, I ask you to truthfully consider if you can thoroughly discuss the above. My guess is that we share some common ground here.
That said, my inability to explain these ideas has probably been due to a lack of interest in the subject. I do not explore these topics beyond what is considered in class, nor do I have any interest in doing so.
I have little interest in finance, but I will graduate with this degree.
With this degree in hand I have been “told” that Wallstreet is my only reasonable exit opportunity—that if I don’t go through recruiting for a bank or hedge fund I’m largely on my own. Not told actually, but shown.
We are recruited through a few channels: networking events, lunches, cocktail hours, speakers and CareerNet opportunities. Everyone from JP Morgan to Goldman Sachs to PWC come to take us away.
It’s the big banks and corporations that take our “talent.” Not so much by will, than by force. We graduate from an expensive school, with a degree that doesn’t translate to much more than “has played with numbers and excel; will listen well.”
It’s not our fault either.
We come in bright eyed and eager to learn, but somewhere over four years we’re forced into believing that the only useful major from Stern is in Finance, and the only real career option we have is on Wall Street. We’re forced to believe that no matter what, you must sacrifice two years before you go on to do something you like.
We’re left uninspired, unmoved, and trapped by a system that more often than not limits the beliefs of its students, rather than promotes them to go out and change the world. We are left at the mercy of an educational system which has failed to teach us valuable skills for the future, and has instead resigned to a curricula designed for a bygone era. We need to change that, but not before understanding where the problems are.
I opened with that little story for a reason. What if at the end of your four years you were asked the following questions: if inflation goes up by 3% and interest rates by 2% is it better to lend or invest, what is the CAPM model and how is it used, what is black-scholes, what are the key differences between Freeman and Friedman? If that’s too much, define a recession and explain what the subprime mortgage crisis was. If such an “exit test” existed I’d imagine the pass rate to be less than 50%. That may be optimistic.
There’s this idea thrown around that there are only a couple hard weeks in stern. The week before finals and the week before midterms. That’s it. Because in those two weeks we need to memorize and cram. We need to read our books back to front, ceaselessly and mechanically running through every practice test from 1998. We load up on drugs and caffeine and sit and study, one because of the dreaded curve, and two because we come to believe that our GPA is the only measure of success in our lives.
Why do we do this to ourselves, and what are we doing the rest of the semester?
Well studies have shown that lectures are largely ineffective, with students retaining roughly around 15% of what’s discussed. So when attendance is 10% of the grade, the teacher sounds like a robot, and classes and slides are posted online, anyone with common sense realizes that their time is spent doing better things.
If attendance is 10% of the grade, homework is 15%, and midterms and finals make up the remaining 75%, we realize we can easily get by with the homework and don’t actually have to engage with the material throughout the semester to do well. Instead we can work tirelessly for a day or two and come out with an A- or even an A.
After it’s over we’re free to brain dump (mostly an automatic process) and rid ourselves of that information we vaguely understood. Ask any graduate of EGB to do a currency arbitrage problem and they’ll likely be stumped, or will maybe solve it out of pure luck.
In such a system, the answer is not much. “Success,” or our grades, operates as a function of past performance; more specifically, being able to memorize and mechanize in a short window of time. Grades are certainly no predictor of future performance, real cognitive intelligence, display of conceptual and deep understanding, or any characteristic which a grade should predict.
There’s a problem with this model, and students aren’t to blame. It’s the way the material is taught, explored, and tested. Mechanically we do everything, but conceptually we understand nothing. Do you want students driven by grades, or do you want them driven by wanting to understand, apply, and retain? Do you want machines, or do you want thinkers?
Looking more narrowly, what is it that we’ve supposedly learned, and what should we be learning? What are our options and how are they preparing us for the world ahead?
Our first mandatory class is Microeconomics. We learn about rational agents, and are told to believe that consumers make decisions based on their individual utility functions. We’re left with a number of mathematical equations and theoretical frameworks in which we’re supposed to understand human actions and market fundamentals.
The reality is that humans are irrational, and often markets don’t operate the way these equations predict. There’s an emerging field of behavioral economists and financial theorists who show us that the reason we’re all left scratching our heads after 2008 is that we relied so heavily upon these assumptions and equations to dictate how people would act and how markets would respond. Even if you go into finance, thinking about economics the way we’re taught will likely leave you thinking about the world in the same disastrous way we did pre-2008.
Beyond micro, there are 10 more classes we are required to take. They span everything from accounting to operations to macroeconomics to law and business. In these classes we briefly cover the elementary topics in the field. The justification for having us take these classes is to equip us with a wide variety of skills and give us a solid “knowledge base” for work anywhere in business.
There are two problems with this way of thinking. First, we don’t remember any of the material 72 hours after the final exam. Secondly, these aren’t helpful topics for the 21st century worker.
After finishing all but one of these required classes, I can safely say that FIFO and LIFO, or learning about US vs. Lopez are not concepts I’ll remember, nor are they helpful for anything that I’ll be doing in the future.
If infact I go on to become an auditor, corporate lawyer, operations specialist, product manager, or economist I need far more than the tools or concepts I briefly picked up in these classes.
What we really need is a means to think more effectively, a way to ask better questions and understand concepts that are relevant for the world today.
Here’s what I think we really need to know for the 21st century.
Discussion based classes need to help me answer this question: How can I understand the world around me? How can I understand how my decisions impact others—in a business context and in life in general?
To that end, why aren’t we learning about behavioral economics and psychology—why don’t we explore the inherent biases we have as humans and understand the ways in which we see the world and interact with others, after all isn’t that a fundamental and necessary understanding in business and management?
Why in four years have we not read anything from Lewis, Levitt, Lindstrom or Taleb? Why haven’t we read any Carnegie, Collins, Christensen, or Welch? Do you study philosophy without reading the works of Plato and Aristotle, or physics without unearthing the theories of Einstein and Feynman?
These authors have been active researchers in the field, renowned thought leaders, and understand the global shifts happening in the 21st century workplace. Why not listen to them instead of some PhD from UCLA? The concepts and lessons distilled by these authors will likely last much longer and will have more impact than our 9th revised edition of microeconomics.
On a more technical note, I need classes which help me understand technology and how it’s shaping the world of business. How has social media and web analytics changed marketing forever, and how do we use it to rethink how we brand and market businesses and products? More importantly, how are the most successful companies using it? To think that this type of information is specific to “tech” or “startup” companies is naive.
From an environmental perspective, what have been the effects of business operation on the world in the past few decades? What types of shifts in thinking and modes of operating need to happen in order to coexist more habitably with our planet? A few classes attempt to address this, but not nearly in enough breadth, and tend to do so by regurgitating the same concepts.
Lastly, I’m in business school and hope to one day start a business. What do I do once I have my idea? How do I proceed? How do I test my idea? How do I take it to market? How do I raise money?
I don’t need to know Porter’s five forces, SWOT analysis, how to allocate my overhead cost, or how to conduct a cash flow model for acme corp. I need more practical advice for a world far different from the stoic, “non-flat” world that existed when business school curricula was designed.
With a curriculum that focuses on teaching “technical” concepts geared towards outdated models of thinking and operating, many of us are ill-equipped to operate in the thriving businesses of the 21st century. It’s no wonder that companies outside of those who require mostly”mechanical” workers don’t recruit from business school. Big tech aside, we see that even the top consulting firms (Mckinsey, BCG, and Bain) stay away from here.
The fact of the matter is they know what we teach, how we think, and believe that our ways of thinking are too constrained. The unfortunate thing is that our classes don’t allow for much else.
There’s a tangible benefit in going to school for design, art or architecture. Over four years you develop a portfolio of work. This portfolio showcases who you are, what you’re capable of, and how you’ve progressed—the final trait being the most important predictor of the potential you hold.
Unfortunately in business we have no equivalent. There is no measure of our strategic capabilities, abilities to identify and spot opportunity, creative abilities, or even how we communicate with others. Upon graduating, finding a job is left up to a cover letter which gets little to no attention, and a resume which says little about our true abilities.
Our closest shot at developing meaningful skills comes from group projects, yet group projects aren’t the same as doing actual work. The amount of time devoted to a group project is a function of: how much does this class/project affect my GPA, and what else do I have to do that is of equal or more importance. Rarely do group projects enable some new and useful skill set, nor do they signal anything valuable to employers.
We need classes and projects that have us working on real and pressing business issues. Professors can identify startup companies and local businesses which could use redesign, better marketing strategy, financial auditing, operational redesign, expansion strategy, product development, and a number of other issues which span the breadth of business knowledge and applicability. Much of this work can be done pro bono by students, and companies would love to have “free” feedback and thoughts (the idea behind ISP, but with better execution).
These projects can then be designed and assigned to the class, with students spending the semester working on a live business challenge. By the end there is value created for both parties—students now have a fundamental understanding of the concepts which they learn in class (often which don’t need to be taught, but experienced), have had real experience developing a strategy or recommendation for a company, and the business now has practical solutions to some of their problems. Who knows, students may continue to work with the companies outside of class.
Teaching by doing is far more effective, especially in the realm of business subjects. We don’t need to learn the four P’s of marketing as much as we need to practice them. As they say, give a man a fish, feed him for a day, teach a man to fish, feed him for a lifetime.
It goes without saying that Stern is a finance oriented school.
We’re funded by financial institutions and alumni, and our classes are designed around pushing us into this field. I think nearly 70% of the student body chooses finance as one of their majors—after all, it offers the most courses and has the “best” teachers.
By junior year we are left with a few options: banks, auditing firms, and a few marketing names. What about tech? What about non-profit? What about being entrepreneurial and incubating student ideas at Stern? Where is Google? Where is Facebook? Where is Amazon? Where is Square? Where is Kiva? Are these not businesses as well? If we’re so finance focused, where are the top VC firms?
What differentiates corporate institutions from the thriving and promising businesses of the future is that one needs workers and the other needs thinkers. They know that our curriculum doesn’t create the latter, so they stay away until we spend some time developing those skills—and hopefully we will.
We know the reality of our exit opportunities, and most of us have felt trapped or limited by what Stern has to offer. All I can say is that if Stern wants its students to become the next generation of business leaders, stop sending them to Wall Street.
College is a time to figure out what you want to do with your life. At 18 you think you have an idea, but by 22 it’ll be completely different. In these four years we need to be inspired, challenged, and provoked with the possibilities we should explore.
Instead there’s an short-term focus on and belief that your major determines your job and career path, which is a dangerous mentality to instill in a group of 18-21 year olds. We come in idealistic and optimistic, and leave resigned. The experience over four years leads us to believe there are only one or two paths to follow. We are trapped without guidance, inspiration, or even an understanding of what our other opportunities are.
The role of the instructor and class discussion is to ask and enable the big questions: Why are you doing what you’re doing? Why are you making that decision? What do you know about the effects and implications of that decision? What are the alternatives? What are you really good at? What skills do you want to enhance? What kind of value do you want to create for the world?
Why do we have students coming in freshman year surrounded by this belief that they need to go into finance? The 21st century world is marked by distinct shift, from requiring one or two very technical skill sets to a set of interdisciplinary skills and thought processes. The workplace is no longer so rigid and segmented, so why are our institutional learnings? There is an asymmetry in how the world will look and how we’re training students to operate in that world. They need to be conversant and knowledgeable in a breadth of categories, ideas, and topics.
We have intelligent and passionate students coming in as freshman. Instead of limiting that and closing off options, why don’t we open them to explore completely new ideas and thoughts, why don’t we probe them and help guide them with the decisions they make, getting them to consider its implications and if it’s really the right choice for them?
More practically, why don’t we have them watching TED talks? There is a wealth of inspiration and a world of ideas, one which can catalyze students or a group of students to want to affect and immerse themselves in that idea and field. Why don’t we open them up to mandatory panels during their freshman year to business leaders, political leaders, builders, innovators, creators and revolutionaries speaking about their path, their decisions, and their thoughts on the future? Only then can we serve as a hub for innovation, inspiration, creation, and most importantly: action.
I don’t know about you, but I didn’t come to business school four years ago believing that finance and Wall Street was the way to go out and do something valuable for the world. I didn’t even associate finance with business really. I came in believing that business school would be an opportunity to start a business, and would give me the skills and means to discover and solve the pressing issues of our time. I thought it would be a place where I’d be inspired by entrepreneurs and teachers who forced us to consider different perspectives and opportunities. I thought it would be a place where I would work on interesting projects that could turn into something valuable. But most importantly I believed that business school would be a place that developed the movers and shakers of the 21st century—people who were inspired to go out and change the world. Perhaps I was a bit naïve.
