The Evolving Role of MBA Programs in the Digital Age

Over the past four decades, U.S. corporations have undergone a transformative shift. Today, among the world’s most valuable companies, we find tech giants like Microsoft, Meta (formerly Facebook), Apple, Amazon, Tesla, and Alphabet (Google). Unlike their 20th-century counterparts such as General Electric, U.S. Steel, General Motors, Ford, Goodyear Tire, and ExxonMobil, these modern powerhouses rely on knowledge, talent, subscriber networks, and innovation as their primary assets. This seismic change is underscored by the fact that, according to our calculations, each 21st-century digital giant is at least 10 times more valuable than an average 20th-century industrial giant.

However, the transformation extends beyond these digital behemoths. Approximately 80% of companies currently listed on U.S. stock exchanges went public after 1990, and they are more likely to be asset-light, digital-native enterprises like Airbnb and Uber rather than asset-intensive firms like Alcoa or Walgreens.

The MBA program, a cornerstone of managerial education, has supplied U.S. corporations with trained managers for decades. While MBA curricula have adapted to meet evolving corporate needs, we argue that the pace of change must accelerate to future-proof the MBA degree. As Scott Cook, the founder of Intuit, warns, “When MBAs come to us, we have to fundamentally retrain them — nothing they learned will help them succeed at innovation.”

Historically, many business schools were founded to cater to the needs of industrial and automobile companies. For instance, MIT’s business school is named after Alfred Sloan, the former CEO of General Motors, and the University of Pennsylvania’s business school bears the name of Joseph Wharton, a leader in industrial metallurgy. Organized into distinct departments such as finance, accounting, production and operations management, marketing, and human resources, business schools often mirrored the departmental structure of 20th-century industrial and automotive companies.

Throughout much of the 20th century, the dominant business logic revolved around the use of physical assets to manufacture physical goods. Companies made substantial investments in machinery, factories, and physical infrastructure. The bulk of their profits came from revenues, offset by production costs including labor, raw materials, energy, and machine hours. These costs would eat away most of the profits, leaving slender margins. Physical assets depreciated with use, and companies typically operated in local markets due to the limitations of transporting physical goods over long distances. This scenario meant that numerous companies globally could produce similar products, and the law of diminishing returns applied.

However, digital businesses operate under different rules. Companies like Google, Meta (Facebook), and Microsoft deal in digital assets that can be used infinitely and instantaneously worldwide. The cost of servicing a new customer is negligible, resulting in a significant portion of each dollar of revenue flowing straight to pre-tax profits. Digital products and services are distributed globally through the internet, making competition fierce and leading to winner-takes-all scenarios. Facebook’s 2020 profits equaled the sum of the 2020 profits of three 20th-century giants: Citibank, Walmart, and General Motors. In the past year, Apple and Microsoft earned three and two times Facebook’s 2020 profits, respectively.

Given this backdrop, the structure of MBA programs needs to adapt to the changing corporate landscape. Here’s a look at the key departments within typical MBA programs and the changes they need to incorporate to prepare students for the modern business environment:

Corporate Finance:
In the digital age, corporate finance must redefine a company’s asset base to include soft assets, such as brands, first-mover advantage, information technology, talent, and competitive strategy. This shift is crucial for calculating accurate return on assets and selecting profitable projects. Moreover, asset pricing models need to explain the valuations of tech giants and loss-making unicorns.

Marketing:
Modern marketers must possess a broader skill set, incorporating information technology, data science, and econometrics. The challenge lies in understanding customer behaviour across digital platforms, calculating lifetime customer value, and navigating new marketing avenues like social media influencers.

Production and Operations Management:
The traditional focus on efficient utilization of labor and machines for physical goods production needs to evolve to accommodate services delivered instantly on the web. Companies now require experts in system architecture to improve interactions between applications, databases, and operating systems.

Human Resources:
Human resources departments must adapt to the changing nature of work, with more employees as partners and the rise of gig workers and freelancers. Managing a diverse workforce, including skilled immigrants in tech companies, has also gained significance.

Accounting:
Financial accounting should incorporate future-oriented investments in knowledge and people as valuable assets. Accounting numbers should reflect real-time data, considering the use of blockchain technology for instantaneous transaction recording and verification. Managerial accounting should distinguish between costs that support current operations and those that improve a firm’s future value.

In addition to transforming individual departments, there is a growing need to break down the silos between them. In companies like Meta, marketing and strategy transcend departmental boundaries. Furthermore, MBA education should shift from algorithmic learning to focusing on higher-order skills such as creativity, leadership, empathy, and strategic thinking.

In conclusion, the digital age of 2024 demands a swift evolution in MBA programs to equip graduates with the skills necessary to thrive in the modern business landscape. Adapting to the changing nature of assets, technology, and workforce dynamics is essential to ensure that MBA graduates are well-prepared to face the challenges and opportunities of today’s corporate world.