Tuesday, January 28, 2014

When the brand trumps the product

In strategy, we often debate the cause and effect of success: how much is the product, and how much is the perception of the product? Fortune 500 companies spend billions trying to build the brand, in hopes that builds loyalty beyond (or instead) of anything the product does.

This question has come up in higher education, but I’ve never hear the brand value put so starkly as in this FT article this morning:

“A degree has value only if the degree is scarce, and the MBA is completely unscarce,” says Jeffrey Pfeffer, professor of organizational behavior at Stanford Graduate School of Business.

Prof Pfeffer has published on a wide range of topics but is well known for taking on the industry in which he works – business education. He argues that schools’ reputations have suffered from promoting themselves as a route to enhanced future salaries. The professor has been pointing out for a decade that the value of a degree is linked to the prestige of an institution rather than what it teaches – but few people have been listening.

“People don’t hear what they don’t want to hear,” he says, adding that he nonetheless believes that unless you go to an elite school – by which he means one ranked in the top 15 worldwide – an MBA is a complete waste of money.
So, Prof. Pfeffer’s argument goes, the value of the MBA is the transfer of the elite brand to your resume.

My coauthor, fellow blogger, former Apple and Palm executive and entrepreneur Michael Mace listed the bundle of services in a degree:
universities bundle several services in that thing called a degree:
--Teaching the students
--Credentialing (ensuring that the students have learned the material)
--Giving the students social connections (Yale, Stanford)
--Helping young people turn into adults in a semi-safe setting
The latter was on Mike’s mind as the parent of an undergraduate (now two), but the other three certainly apply to MBA programs.

By Pfeffer’s theory (or conjecture), the value of Stanford MBA is the credential, not the actual content of the courses. This is consistent with what other academics have wondered — are Stanford MBA students successful because of the selective admissions, i.e. is all the value of the MBA added by the admissions office letter?

In fact, in the FT article a soured MBA graduate recommend just that. Author of The MBA Bubble, Mariana Zanetti told the FT:
“But I don’t think it’s the MBA that adds the value – it’s the selection process that makes the difference,” she says. She would even recommend getting a place at a top school and turning it down to prove you were of a high calibre without wasting money.
Even if Pfeffer is correct, he leaves out a crucial factor in calculating the net value-added: cost, both out of pocket and opportunity cost.

Some MBA programs are more expensive than others. Obviously for the same cost-benefit, a low cost doesn’t have to deliver as much benefit. Forbes calculates the ROI on Stanford, which has the second highest prices (after Harvard). The public schools on the normal top 25 lists are charging market prices, but the Forbes list identifies some state schools (like Iowa, Michigan State or Washington) that gouge their students less than others.

The second cost is the opportunity cost. No one would argue that Bill Gates or Mark Zuckerberg would have been more successful if they had finished Harvard. During the dot-com mania, Stanford and Harvard MBA students were dropping out to start companies — both learning on the job (in a way new graduates rarely do) and getting lottery tickets (stock options) that could allow them to retire before 30.

Whether or not the (self-serving) observations of elite b-school professors are correct, the question of the value added by education is one that needs to be addressed. However, students who don’t get an elite credential might get other value from they bundle of services, i.e. if they actually learn something in college or grad school. To me, the acid test is what middle-aged students do with their own money: their careers are determined by their prior experience, not any burnishing of their resume by a mid-career degree. Instead, they go to school to improve their own human capital. These students are a breath of fresh air for any teacher.

And overall, I think Pfeffer’s analysis (true or not) sets a terrible example for his students. It’s a serious mistake for any business — including a nonprofit — to focus strictly on the brand and forget about the quality of the product. Even Apple — held out as a master of PR and branding — was left for dead in the 1990s due to its product execution, and only came back (and once again changed the world) because it made stuff people wanted to buy.

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