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If MBAs are useless, we’re all in big trouble

Quartz Debate: The author of this piece debated the merits of an MBA with Quartz contributor Jay Bhatti. 

MBAs–both the degrees and the people who have them–are an obsolete waste of time and money. An irrelevant recipe for failure. At least that’s what all the cool entrepreneurs and venture capitalists are saying. So what’s next? Learning to code and “lean startups.” Accelerators are the new b-school.

There’s just one problem though.

While creating a product and starting a company have never been easier, building and sustaining a business have never been harder. And lean is not everything. That means business education has never been more important. But first, both b-schools and companies need to learn some new tricks.

The cult of innovation

Right now, “innovation” is the hottest thing in business. Google searches for the term have grown almost 500% in the last five years. It’s not just entrepreneurs, either. According to The Wall Street Journal, public companies mentioned it 33,528 times in SEC filings last year, 64% more than they did five years ago. This obsession with innovation matters because it’s changing how businesses and people operate.

Entrepreneurs and corporate executives are starting to shun traditional approaches to new product development and growth. And most of those outdated approaches are closely associated with MBAs. Instead, they’re embracing new methods of innovation, like the lean startup, accelerators, hackathons and growth hacking. And in a world where anyone with $9.94 can learn to work like a lean startup, no one needs an MBA, right? Well, it’s not quite that simple.

That’s because failing fast—the crux of the lean approach—doesn’t make succeeding easier. It just makes it cheaper and less risky. As serial entrepreneur, Howard A. Tullman notes, “all these innovations, and the continually lower costs and lower barriers to entry that they bring, are a very mixed blessing … They make it much more difficult to create sustainable competitive advantages, which, in turn, makes it much more difficult to succeed.”

The numbers back him up.

Growth is hard—and it’s only getting harder

Even in better times, building a business was hard. At least 75% of startups fail. Only 6% grew to $10 million in revenues within 10 years. Fewer than 2% hit the $50 million mark. And it’s just as hard for big companies.

Two-thirds of new products launched by established firms fail within two years and only 9% of big businesses consistently grow faster than 5%. In fact, the average lifespan of S&P 500 companies is plummeting. It’s now just 15 years. Now, it’s only getting harder.

It’s getting harder because business is getting more complex. By 2020, as many as 60% of companies will be sourcing, producing and selling more in foreign markets than they do at home. That includes small ones. The global economy, meanwhile, has become permanently turbulent and hyper-competitive.

The result, the Boston Consulting Group calculates, is that volatility in both revenues and profit margins have tripled in the last 50 years. Disruptions to competitive positions are occurring twice as frequently as they used to.

And while cheap technology and lean methods do enable disruptive innovations, they are rarely the reason new launches fail, small businesses can’t scale and big ones die-off. According to technology giant, IBM (pdf), as well as the Sloan Management Review, at tech mecca MIT, those things are usually traced back to not understanding or defining customer needs properly, unclear business strategies or insufficient resources. And for all their virtues, these new startup methods don’t completely address those issues.

Lean is not everything

The lesson here is that strong leadership and solid management will always be essential. If anyone can create, then continuously iterating and pivoting aren’t enough to buck the odds. If they were, we’d have thousands more thriving, valuable businesses and a lot fewer would-be entrepreneurs frittering away their life savings creating 1.5 million mobile apps (paywall) that no one needs, wants or even knows exist. But we don’t.

That’s because building a real business requires not just creating things, but also getting people to pay for them; and to pay more than they cost. To do that, though, you need to do more than define a vision and discover a viable value proposition. You also need to secure scarce resources, develop cohesive teams, assemble collaborative networks and build lasting customer relationships.

All those skills—also known as strategy, finance, accounting, HR, operations, marketing and sales—aren’t completely addressed by accelerators and lean methods. But they are exactly the type of things that formal business education, especially MBAs, can develop. Unfortunately, the MBA critics are right about one thing. MBA curricula and formats have lost touch.

So what’s next?

Startups say they’re reluctant to hire MBA graduates because they don’t learn the techniques that today’s entrepreneurs actually use. And big employers say they lack the skills required to effectively manage today’s diverse, globally-dispersed, super-connected and resource-constrained organizations—things like strategic thinking, leadership and interpersonal communications. That’s all starting to change, though.

More and more business schools are overhauling their programs. They’re emphasizing entrepreneurship, providing more flexible, personalized and global experiences and integrating coursework with experiential learning. And it is working.

Some startups and growth companies are already warming up to MBAs. However, business education still has a long way to go. On three fronts, in particular: who, what and how.

The next generation of business leaders

For starters, business skills should be accessible to a lot more people (that’s the “who”). And MBAs are just a drop in the bucket. B-schools only turn out 178,000 of them a year. But there are 16 million corporate managers and at least 27 million small-business owners. That’s just in the United States. Apparently, most of us aren’t very good, either, whether we have MBAs or not.

Two-thirds of US businesses report persistent shortages of talented mid-level leaders. And that feeling is mutual. Only 30-40% of managers felt well-prepared to deal with the economic crisis. That’s probably because half of them got no training or development at all from their companies, according to Bersin by Deloitte. And for those who did, it was most likely too late or already forgotten. That’s a big problem for employers, not business schools.

Every day, 10,000 baby boomers—the people still running most businesses today—retire. And there simply aren’t enough Generation Xers to fill their shoes. At least 10 million fewer, in fact. So over the next decade, more and more millennials are going to take responsibility for making decisions, allocating resources and getting results—whether they’re ready or not.

The next generation of business skills

It would be better, of course, if they were. Which brings us to the “what.” A lot of business education and corporate training is still based on ideas developed in—and for—the 20th century. Yet the world has changed a lot. So today’s business leaders need new skills for the future. And innovation and entrepreneurship are only the start. Data analyticsdigital fluency and global business are three other obvious examples, but the lists (there are actually dozens) go on and on.

At the same time, businesses need new ways of thinking about the basics. As leadership consultants, Hay Group, put it, “organizations will have to radically adapt their cultures, structures, systems and processes in order to survive the new world order.” Strategy, for example, needs to become more flexible, which is a big part of what accelerators and lean startups are about. But entire organizations also need to become more agile, teams more collaborative and reporting more holistic than they used to be. And lean doesn’t address those things at all.

The next generation of business education

And that leads us to the “how.” Most importantly, business education needs to be more practical. Moving faster means leaders have to make more decisions with incomplete, unstructured or ambiguous information. That requires a stronger emphasis on judgement and problem solving, not just analysis. And that realization is already driving both startups and established companies to ditch market research and business plans in favor of prototypes and experiments. The same thing is happening in classrooms.

Consumer behavior, multicultural teams, global markets, political risks and ethical dilemmas are complicated, messy and unpredictable. They don’t fit neatly into textbooks or case studies. So MBA programs are starting to create what Harvard Business School professor Rakesh Khurana calls, “carefully coached experiences” where “you actually have to go deliver a product or a solution, as part of a team, and apply your skills of leading and managing to that team.”

Markets, customers and competitors are constantly evolving, though. To keep up, business learning also has to shift from an occasional event to a continuous, ongoing activity. Innovation itself is a good example. Until recently, it was all about products and services. Now, it’s increasingly focused on finding new ways to operate. But as Fortune Magazine points out, “business-model innovation is a competency that doesn’t exist in most companies. It never had to.”

It does now.

Speed, agility and adaptability have become requirements for businesses of all sizes. No matter how lean or innovative they are, though, most entrepreneurs still fail, most small businesses never get big and most big companies have a hard time sustaining growth. So business education can’t disappear. In fact, it’s now more important than ever.

Follow Todd on Twitter @toddtauber or @nomadicFM. We welcome your comments at ideas@qz.com.

Join us Wednesday, May 1 at 2 p.m. EST, for Quartz’s #WhitherMBA Google Hangout with Todd Tauber, the author of this piece, and Jay Bhatti, who wrote, “If you can’t get into a top-five MBA program, don’t even bother.” Details, including how to submit questions in advance, are here.

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