What to do with old folders

Our second year project is done – all 15k words of it. It’s one of those tasks that takes up a good deal of mental space, causes a small amount of worry but ultimately turns out just fine. Once you get your head down and come up with a plan, things get moving. And more significantly this marks the end of the course as a whole. Barring any strange surprises, the MBA is done and the real world is less than two months away.

What’s on the to-do list for the next two months? Some time abroad, some Excel revision and lots and lots of miscellaneous admin.

One item on the list is ‘Sort out old MBA material’. Specifically, I mean sorting out the mass of folders and paper accumulated over a year and a half.

So what are the options?

a) Throw it all away: However useful a module may be, lessons get forgotten. No everything. But enough to be significant.  Knowledge is hard to retain unless there’s a relevant problem you’re trying to solve. What really matters is the knowledge that a framework for solving a XYZ problem exists; i.e. knowing that you’ve seen a similar problem before. In this sense, the course has successfully reduced the number of unknown unknowns.

Knowing that you can look up the nitty-gritty details later, you’re free to clear away the folders on shelves for something more interesting; like a picture, or your car keys.

b) Keep them on display: Like a well polished car on the drive, perhaps a shelf full of folders gives you some bragging rights; a good conversation piece for anyone visiting you for the first time. Whether or not this is realistic depends on:

c) Be selective: As a compromise between the options above, you could hold onto a select few folders and books. Even if they don’t get used, they’ll be proof that you did once attend lectures and learn something. It’s not clear what specifically should be retained or how much, but the idea is there.

The general tone of the above text suggests that classes have been less important than MBA marketing materials would suggest. Or more accurately, their importance depends significantly on your end goals. But perhaps a willingness to dispose of old folders highlights that the course’s value can lie in less tangible matters.

Graduation for all students in mid-July. While the fate of those paper course folders is in doubt, that paper degree certificate will ge guarded like a small child!

Expectations and filling in the gaps

Psychologists and economists have lots to say about our tendency to become accustomed to situations. However shiny and exciting the end goal, once achieved, it quickly becomes the norm. It’s great to have achieved this thing or bought that thing, but that initial sense of excitement or anticipation decreases in intensity. We’re then on to the next one; the next challenge, the next holiday, etc.

It’s hard to bypass the impact of overfamiliarity with the status quo.

Another reason why that initial excitement fades is the incomplete picture we have of what the end result will look like. This issue is described by Alain de Botton’s ‘The Art of Travel’. He explains how glossy holiday brochures with pixel-perfect pictures of beaches blind us to the more annoying aspects of travel. Not least, the fact that any mental baggage you bring along with you may render the most perfect scenery meaningless. Following a petty argument with his partner, De Botton says,

“It had become irrelevant that there were soft towels, flowers and attractive views. My mood refused to be lifted by any external prop; it even felt insulted by the perfection of the weather and the prospect of the beach-side barbecue scheduled for that evening.”

In the context of the MBA, until you’ve been accepted into a school, you don’t appreciate the little annoyances that go along with that: essay deadlines, 8.15am lectures, competition for those jobs that seemed so exciting, monitoring your budget, etc.

None of this is to cast a shadow on big goals and achievements. But while we run full steam ahead towards them, there are two things we can bear in mind.

a) Find out what you don’t know: Odds are we don’t know everything that’s relevant to a situation we’ll soon experience. We have an opinion about what XYZ experience will be like; but there will be both pleasant and unwelcome surprises. To avoid surprises, we can make a deliberate attempt to fill in the gaps by speaking to new people, and finding new sources of information. Aim of the game is to go into XYZ scenario with a complete picture of the experience will be like, warts and all. Then you can enjoy things knowing you’ve taken action to mitigate possible problems.

b) It’s probably not make-or-break: If we understand that our image of upcoming events tends to exclude their more annoying facets, then we’re less likely to see XYZ goal as the be-all and end-all. That upcoming holiday or that new car might be great to have. But should you not get them, it’s not all bad. Holidays come with the stress of preparation and the need for extra gym time afterwards. Cars come with insurance, tax and maintenance needs and worries about whether someone will decorate the paintwork with some well-placed scratches.

Again, the goal isn’t to put a downer on exciting goals and events; just to have as accurate a picture as possible about what to expect. The fewer surprises you have, the better able you are to enjoy the good aspects of whatever you’re waiting for.

When to prepare your application

Earlier is better. It’s understandable if you don’t know exactly what you’ll be doing in a year or two. But even if you’re only half-considering more study, you can take steps to make life easier for yourself and create genuine options later down the line.

Cash: The ‘Finances’ page of most school websites doesn’t make for pleasant reading. Between fees, accommodation, flights, food, etc. you can easily spend $150k+ over two years. Not to mention foregone salary. Most schools offer loans and scholarships, but nothing is guaranteed. The sensible thing to do is build up a pot of savings over time.

In practice, you may not be planning 2-3 years ahead; I certainly wasn’t. In that case, saving for the MBA is secondary to the general principle of precautionary saving, i.e. putting away money to cover expenses we may not even expect – something that everyone with a job should try to do.

The way you fund the course can have an impact on how you think about careers once you’ve started. To some, a loan is neither here nor there. Like a pile of random magazines piled in a corner, it is something to be dealt with at some point; but certainly not something to stress about. To others, the pile may as well be in the centre of the room. It’s a load that’s always front-of-mind.       

Those in the latter category will place significantly more emphasis on cash compensation when thinking about job opportunities, which isn’t necessarily optimal over the long term. But whatever your attitude towards debt, the practicalities of a loan makes certain options like entrepreneurship, very challenging.

Don’t fear the loan. This is a long term game. That said, stash away cash while you can – whether you anticipate starting school in two years or twenty years.

GMAT, Essays, etc: Several elements of the application process rely on other people. Even though your application essays are fundamentally under your control, you’ll probably want an external opinion from family and friends. Similarly, your recommendations are heavily reliant on the availability of busy colleagues. When multiplied across all the schools you’re applying to, this level of external involvement can easily skewer the tidy timetable you’ve drawn up.

The application may be the most important thing in the world to you, but you can’t expect others to give it the same prominence on their to-do list. It’s nothing personal; just the reality of people having multiple commitments. And there’s nothing worse than asking someone for a favour, then pressuring them to do it ASAP. So build some slack into your timetable. Give yourself time to get things done properly. And with a long enough timetable, you can give friends, family and colleagues reminders without being pushy.

It’s not the end of the world if you’re a little rushed and compromise on certain aspects of the application. Perhaps you don’t have time to give your recommenders all the ammo they need to write something compelling. Perhaps you’d like to re-take the GMAT, but school application deadlines are actually next week.

You can always re-apply next year if things don’t go well….

True. You can apply next year. But in the interests of minimising effort over the long term, it’s better to take things seriously on day one. Reapplying means justifying yourself to the same schools all over again, hassling the same people for recommendations and paying more application fees. And who knows whether you’ll still be interested in a year. Things change.

It’s rare for anyone to regret planning important matters ‘too early’. Starting early on finances and on the other elements of the application, gives you much needed flexibility.

Comments on business and art

This year, I’ve popped into quite a few art exhibitions in London. After spending most of the week in the structured world of frameworks and spreadsheets, it’s interesting to be in an environment that is in some sense the opposite. As far as I know, there’s no formula or rule dictating the position of brush strokes, the use of colours, the size of a canvas, etc. And if rules exist, they’re alien enough to me that the end-result can still seem like the product of haphazard genius.

A few things have come to mind:

Volume of output: Looking at a retrospective of a given artist makes it clear how much work has been done over a career. Romantic notions of an artist’s life aside, it seems like there’s actually a lot of work involved. And what ultimately ends up on a wall is the work that’s considered ‘acceptable’. Who knows what else was been produced over the years only to be chucked away as being rubbish. An exhibition visitor sees the ‘polished’ portfolio, free of anything considered embarrassing.

It might be possible to make a name for yourself with a few pieces that are automatically recognised as masterpieces. But the more likely scenario is that you produce work year after year, only some of which will immediately be recognised as brilliant. (And hopefully the brilliant work will enhance the perception of other work that might otherwise have been considered average.)

The takeaway? Keep producing/doing ‘stuff’. Not all output will be amazing despite best efforts. But not all of it needs to be.

Making a change: As well as churning out work, there’s value in doing something different over time. A gallery with room after room of the same style of painting would be tiresome. From the artist’s perspective a portfolio of identical work might be equally tiresome to produce. In a creative field, there’s an understanding – perhaps an expectation – that the artist/writer/whoever will do something weird, wacky, and wonderful. For someone in a more traditional field (take your textbook accountant), there a little less appreciation for unpredictability. In the world of the accountant, too much creativity is a recipe for going to jail.

But there’ still hope. Given that we’re all living longer (with no prospect of retirement), multiple divergent careers may become the norm – it’s unlikely that the 18 year old version of you was in a great position to pick the ‘best’ path for your next 50 years of work. Alternatively, people may start to put place more emphasis on having outside ‘projects’ alongside a steady day job; something more substantial than a casual hobby.

Concept of value: The financial environment has raised many questions about who is deserving of cash. Are bankers and investors worth more than nurses? Shouldn’t people be paid based on effort and value to society? The art world certainly isn’t responsible for the recession, but it still highlights the nebulous concept of what is and isn’t value. A great David Strigley sketch at the bottom of this post illustrates this.

In 2010 a Picasso set a new record, following its sale for over $100m. This is a painting whose inputs could be purchased with a teenager’s weekly pocket money. With a few months/weeks of saving, perhaps that same teenager could purchase a pretty good replica. The original painting’s value has no real link to the actual image portrayed, the physical effort that went into the painting, the cost of production, etc. It’s valuable because however cheaply it can be reproduced, it remains unique. And to someone, somewhere, that’s important. The notion of value is hazy indeed. Those who think hard graft should drive financial rewards are in for continued disappointment.

Diversity in the student body. Does it matter?

One of the professed advantages of LBS is the international student body. Schools shout from the rooftops about the number of nationalities represented

But does this really matter? Is a school with 60 different nationalities better for you than one with 30?

I think diversity matters and that it makes the student experience better. But it matters in ways that aren’t easily nailed down, tangible and predictable in advance.

Some of the most important things we want to get out of school, such as a job and business knowledge, aren’t necessarily impacted by being in a school with higher than average levels of diversity. As such, it’s understandable if other factors play a larger role when deciding where to study.

So onto the practicalities of life at school:

Academic life:

Verdict – In general, the lessons learned from cases will be the same, irrespective of whether the class is particularly internationally diverse

Wherever you choose to study, the majority of cases are US-focused. Whether its marketing or operations, whether you’re in London or Singapore, odds are you’ll spend your time reading about American protagonists in American companies. This isn’t a big issue in that we want to learn fundamental principles; principles that are substantially true whether you’re working at headquarters in Texas, or a subsidiary in Italy.

If the class is made up of many nationalities then general discussion should bring forth any region specific nuances where they are relevant. Our first year Ethics class comes to mind – debates about issues like bribery were definitely made livelier by the range of first-hand experiences in the class. In a more homogenous group, this class would have been missed something important.

Rather than relying on class composition to highlight cultural differences, they might be teased out more forcefully by basing cases outside America and Europe in the first place. But the market for business school cases doesn’t really allow for this. Most schools use the same old material. So the ideal of an international school that addresses issues from an Asian, African, European and American perspective just doesn’t exist.

But for the modules we cover on this course, how many cultural differences are there to elicit? A regression is a regression. Porter’s 5 forces don’t get whittled down to 2 forces when you cross a border. And are any differences significant enough, and relevant to enough people to warrant significant extra attention?

For the core modules a typical course focuses on, I suspect not.

Social life:

Verdict – Lectures aside, being in an international group can make life more interesting. There’s no structure to what you’ll learn, but you’ll learn something; provided you actually want to.

Perhaps the benefits of an international class are principally to do with new perspectives on non-academic matters. I couldn’t give you a clear syllabus-like record of things I’ve learned about other cultures. But there have been innumerable lunches / dinners / drinks sessions etc. spent talking with people about their time spent outside the UK – discussions about work life, leisure, traditions, all sorts of things. The diversity of the student body may impact the range of overseas treks that get organised, and perhaps make those trips a little more fun.

But these are differences at the margins.

If you’re interested in new travel, learning about new cultures etc. then you’ll seek out relevant experiences independent of what school you attend. Indeed, taking 6-12 months out to travel is would be a quicker and significantly cheaper way to get exposure to new environments and people. Conversely, if travel etc. isn’t your priority, then even the most diverse school in the world is unlikely to change your decisions and attitudes much.

Work life:

Verdict – The number of passports and visa stamps in the class probably won’t affect your job prospects either way. The student body’s skills and professional experiences are what will drive companies to come knocking on the school’s door.

The primary promise of the course is to help you professionally; to spur progress in your existing company, to help you get a better job, etc. What matter most here, is the relationship careers services teams have key employers. Employers (particularly t hose recruiting for multiple geographies care about diversity, but first and foremost, they want a pool of capable people. The latter is determined by the school’s selection criteria. You could create that pool of capable people using only people from the UK, or only people from Asia, etc. Or as in the real world, you can use a mix of people from everywhere. But beyond a certain point, the decision about whether or not a school is worth visiting, is likely to be determined by perceived capabilities; by matters independent of where someone’s passport is from.

Conclusion:

In writing the above, I’m comparing a school of average levels of diversity to one with significantly higher levels. There’s a bar that should be met to deliver a good experience,  and I think most schools do that just fine; both US and Europe. Speaking as an LBS student, I’m happy that brits comprise just 10% of the student body and wouldn’t want to be surrounded by people with exactly the same background as me.

So in each of these areas – academic life, social like, and work life – there is something to be gained from having an international student body. But in my view, the benefits are primarily non-academic. They’re important but can’t really be quantified. But in certain important areas, more diversity is probably not going to help you. As such, diversity is just one of many criteria to be considered when making a decision.

Working part time while at school

I’ve spent a good part of the course working part time; about nine months in total. The school doesn’t recommend it, but many people manage to fit it in. I’ve enjoyed it, and would happily make the same choice again. But there are a few things to consider. Namely, opportunity costs.

You’re paying a significant sum to gain access to the school’s tuition and resources. From an academic perspective, those who get most value from the course are those who’re actively engaged with the content; those doing the core reading, additional reading, assignments, thinking about how lessons apply to real-world problems, etc.

Everyone lies on a continuum from:

a)      the perfect student (described above)

b)      the student who forgets he is actually a student

Wherever you place yourself on that spectrum, an hour spent working is an hour spent not doing what a student is normally expected to do. And whatever you’re being paid for a term-time role is likely less than what you’re paying to be to attend school.

So the decision to work should be based on some serious analysis of what you’ll gain in return. Because taking 2-3 days out of your week will reduce your focus on academics and club activities. Even if you’re working in what used to be ‘free time’, you’ve now lost the option to do spend that time on whatever ad-hoc events may arise – sleep, a coffee meeting, an interesting talk, or just hanging around with friends.

Building the CV is the main reason why people choose to work. Particularly for those wanting to switch career, anything that demonstrates an interest in a ‘new’ field, is beneficial. If part time work is instrumental in landing a job post-graduation, then it is worth its weight in gold.

Specifically, this ‘new’ field should be one that doesn’t already have a long history of recruiting on campus and accepting career switchers. Investment banks and consultancies regularly hire people with no prior finance/consulting experience. For a summer internship role in these sectors, your time is better spent networking than doing a part-time gig.

However even when part-time work is appropriate, just remember the end goal. It’s important to do a good job and make a strong impression – but it’s perfectly reasonable to moderate any instinct you have to put in extra days, overtime, etc. Again, there are other school-related demands on your time.

In general, I’ve been surprised at the number of opportunities available for part-time projects. Opportunities in finance, marketing etc. appear on the careers board on a regular basis. And some deliberate networking might throw up other options at companies that hadn’t previously considered hiring.

The issue of trade-offs is particularly stark as term-time roles may not offer much cash. Many firms will cover expenses only. (Formal summer internships are a different matter). For better or for worse, firms are aware that students want/need experience, so aren’t under pressure to bid up wages. Indeed smaller entrepreneurial firms may not have the budget to offer a large salary even if they wanted to.

None of this is to say part-time roles should be avoided. You just need to be clear about what you’ll get out of it career-wise and what you may need to sacrifice.

Problems with application essays

Sitting in a folder on my laptop are various application essays. Those essays took many hours of writing, editing, deleting, re-writing, etc. Not to mention time spent on them by the kind people who reviewed them prior to submission. For something that absorbed so much effort, the lack of attention I’ve given to those essays over the last two years is surprising.

Among other things, application essays typically discuss why you’re doing the MBA, what you intend to do immediately afterwards and where you see yourself in 5, 10 and 20 years. If you have a firm idea of what the future holds, then this is a piece of cake. If you’re pretty relaxed out about future options, then there’s a little more work to do.

These essays are part truth, part marketing tool.

You’d like to be an entrepreneur? That’s great. Everyone loves entrepreneurs.

But what if your ideal business is one that generates just enough to cover the mortgage, a few months of overseas travel each year, and some savings for a rainy-day?

Then we have a problem. Well in fact, we have a few problems.

Problem one: This won’t get the admissions office particularly excited

Problem two: You may come across as a little lazy

Fundamentally, I don’t think there’s anything wrong with that goal. On the contrary, it sounds like a pretty nice plan.

But as the basis for an admissions essay, it is pretty terrible. And so what you actually end up describing will be your ambitions to build…

 “…a £100m turnover empire in XYZ field that’s also a generous sponsor of various charitable causes…”

That’s a goal that an admissions office can get more enthusiastic about.

An extreme example, I know. But my guess is that for all of us, there’s a gap between the message presented in those essays and outcomes that would be acceptable to us in practice. My own essays talked a lot about entrepreneurship, given that my parents run a business. And yet I find myself still in the clutches of the financial services industry. And I’m happy with that. Entrepreneurship is interesting. Finance is interesting. Pizza is interesting. Normal people have a range of interests and goals. Just as our hypothetical entrepreneur above may be satisfied with either a £100m business or one which merely allows for a relaxed lifestyle with regular skiing holidays.

Some people will be on-track with the plans describe in their essays. Some may have consciously switched tack. Some may have put the plan on hold for a little while, or perhaps totally forgotten what the plan was. Given that they took a while to prepare, it’s worth revisiting those essays to see what category you’ve fallen into.

More on networking and finance

In the last post, I wrote a little about what I’ve learned about the networking and relationship-building process over the course of the MBA studies. That post focused on careers. This post is about building a networks and relationships from the perspective of someone working in finance. To anyone already working in the sector, the descriptions will be nothing new. But for others, they may highlight the importance of those coffee chats…

Scenario one: Perspective of an investor: I’ve spent close to a year working for a mid-market PE fund. We hear a lot about entrepreneurs and companies seeking money. But on the flipside it’s not a trivial matter for a VC or PE investor sitting on cash to get money out of the door. An investor doesn’t hoard cash for the sake of it. They want to put it to good use, asap.  But to do that, you need access to potential deals; good deals at a good price; preferably deals none of your competitors have seen. As such, you need to be building relationships with intermediaries (e.g. the corporate financiers, accountants, lawyers etc. who interact potential targets on a daily basis) or with management teams that may need your cash either now, or in the future.

Opportunities brought to you by intermediaries are likely to be seen by other investors operating in your space too. As such, they’re not ‘special’. But they’re opportunities nonetheless. If you’re a prominent investor in your space, many opportunities may land on the desk irrespective of your efforts to go build relationships. However to be sure of this and to be seen as a trusted/preferred party, you still need to stay engaged with the community. You need to take meetings, with advisors, keep them updated on major internal developments, etc.

Relationship building is more important for potential investments that aren’t actively being promoted by an advisor. The odds are low that a company chosen at random needs your cash. Maybe the management team isn’t interested in growing the company. Or it has other sources of cash. Or it just doesn’t like the sound you. But in the event that a management team is interested, the timeframe between initial contact and deal may be months or years. Changes may need to be made to governance structure. Operational milestones may need to be achieved. Major shareholders convinced, etc.

It may be depressing to think that a relationship with a management team may not lead to anything immediately. The solution is to have a pipeline of these ‘lukewarm’ investment opportunities. Come the day that one of these companies is firmly in the market for investment, the relationship you’ve built will hopefully put you in an advantageous position. (Assuming of course it’s a deal you still want to do). If the company chooses not to actively seek other partners, you as an investor have successfully secured a deal without outside competition (which would otherwise drive up the price). Even if competing firms are brought into the picture, you’d still hope to be in a preferred position assuming there isn’t much difference in the terms various investors are offering the company.

In summary, investors that have well developed links with advisors and potential investee companies are better placed to do better deals than their competitors. And perhaps the start of those links is a simple

Scenario two: Perspective of an advisor: During the year, I also spent a couple of months doing an investment banking internship. Life revolved around Excel and PowerPoint. Lots of Excel and PowerPoint. In contrast, life for the Managing Director of my team revolved around the telephone.

Calls with internal parties and call with companies in the sector we’re covering. All the while, gathering intelligence and figuring out where opportunities for transactions lie.

It’s interesting to see that an MD’s value is largely determined by who they can pick up the phone to. If tomorrow, everyone stopped returning your calls, you have a problem. You’d have no clue what your (ex) clients are thinking about. If you don’t know what they’re planning, you can’t position yourself to advise on deals. With no deals, the bank makes no money. If the bank makes no money, you make no money. Many people can manage Excel, but relatively few have the contacts to bring in business.

Working in that environment full time, it would be many years before I’d be responsible for hitting the phone, day in, day out. But the experience was a good reminder of how quickly the job can turn from being focused on technical matters to being focused on sales, meeting people, etc.

On business cards and networking

A good chunk of the year has been spent collecting business cards. Far from being a strange hobby, it’s an inevitable consequence of day to day life on campus. Between interviews, presentations, meetings, etc. a pile of cards grows imperceptibly over time. Now that pile shouldn’t be confused with the number of people you actually know well; but it’s a useful bridge to the topic of networking on campus.

When starting work after university, the day-to-day focus is on doing a good job. Do a good job and you’ll do get recognised and get promoted. This is will always be the case to an extent. But the importance of friends, allies and a network of contacts became more apparent as time went on and responsibilities grew. Over a couple of posts, I’ll describe scenarios I’ve been in over the past year that brought home this lesson.

Scenario one: CAREERS - With so many people applying for each role on campus, a recruiter’s job is difficult. All CVs look good and all cover letters proclaim that ‘Company XYZ’ is the best company in the world, ever. And to top it all off, everyone ends up using the same interview guides. If everyone is equally good at the basics, then two possible ways of getting ahead are a) showing you know more about the role than the next guy, b) generating goodwill with the firm before you even have an interview.

And so last year I got started with visiting alumni working in investment banking, private equity, and various healthcare-focused roles. Perhaps you need more detail on the mechanics of this strange networking process….

…unfortunately (or fortunately!) it merely involved sitting down for coffee and asking questions. You can make things interesting by mixing up your coffee venues, or alternating your choice of beverage, but fundamentally that’s all it came down to.

And it turns out that the whole process is useful. Those meetings may give you a perspective that you wouldn’t get from reading the same sources as everyone else. And the very act of seeking an external opinion demonstrates an interest in the company/cause you’re interested in.

Whether or not any specific meeting leads to a magical breakthrough is neither here nor there. But over a large number of meetings, you certainly come with a better understanding of whatever area of the world you wanted to learn about.

The importance of these informal conversations was one of my biggest lessons from the first year. Quite aside from job hunting, gathering and sharing information is critical to getting things done in an organisation.

Smaller MBA programmes state that there is a more collegiate attitude within a class and within the alumni base. Class sizes of 800 – 900 people are make it much harder to from real bonds. It is one thing to contact an alum, and quite another to actually get a response. There’s some sense to this, but I’m not sure if any difference in responsiveness compensates for sheer numbers of potential contacts. Great responsiveness is of little value if there’s nobody actually working in the nice industry/company you’re interested in.

In any case just as I’ve benefited from the alumni base over the past year, I’ll be sure to hit ‘Reply’ to any career related coffee meeting requests that land in my Inbox in years to come.

More thoughts on MBA rankings

Last post, I mentioned this sense among some, that we already know all the answers when it comes to course rankings. A good example of this is a recent post on Poets and Quants, addressing reported alumni salaries. Financial Times (FT) data tends to deflate reported salaries in the US, and inflate those in certain emerging markets. Rather than address pros and cons of these differences in a measured way, the article carries a heavy helping of cynicism and a clear bias for the status quo.

More important than MBA rankings are the general themes of how to select and interpret data, how to overcome your own biases, etc. They’re issues that affect work life, political life and personal life. A typical example from my work in M&A is the way everyone is a top tier dealmaker. Slice and dice the numbers enough and you can find a sector, timeframe, geography and deal threshold within you’re the number one advisor. Or at least top three). The same is evident in private equity. With enough creative thinking, every fund can claim to deliver a top-quartile IRR.

The above examples are benign in that the readers of a typical M&A pitch book are well informed and know the data has been massaged somewhat. And whoever prepared it is under no real delusions about what is and isn’t true.

Problems occur when the recipient of information takes it as gospel; either because the potential problems aren’t immediately apparent, or because it fits conveniently with existing beliefs. It is difficult to provide data and information without some level of bias. We make decisions about what to show, how to show it, and what not to show. This isn’t an excuse for rejecting all information as useless, because we need to take a stance and make decisions at the end of the day. We just need to realise the limitations of data we latch onto.

But back to MBA rankings. An extract from the P&Q article:

So given the importance of these numbers, you would think they would pretty much match up in both surveys, right? Turns out there can often be a significant difference between what Forbes and The Financial Times report. In fact, the differences are often so great that they should give a reader of these rankings great pause. It’s yet another reason why the rankings out today–widely read around the world–should be worth not much more than a grain of salt…..

…If you’re noticing a pattern here, you’re right. The Financial Times’ averages consistently underestimate the income of MBA alumni [In US schools]–except when the reverse occurs at a different set of schools that happen to fare quite well in the Financial Times’ rankings….

Read the full post here

After spending a whole page implying error and/or numerical wizardry on a scale not seen since the advent of mortgage backed securities, the author eventually gets tround to why differences arise. They’re driven principally by the use of purchasing-power-parity adjusted data by the FT, along with various other adjustments.

This clearly makes it harder for the reader for the reader to do some simple dollar-based mental math about earning potential. Yet no attempt is made to address possible advantages of such adjustments. Instead, we’re told that clean and simple data is always better. However,

  • Might it be useful for a candidate intending to work in India or China, to see data that takes into account differences in cost of living across countries? For such a candidate, is the ‘clean’ absolute dollar-value of average post-graduation earnings a good indication of purchasing power?
  • Isn’t it actually better to have data that isn’t skewed by the one lucky person each year who walks away earning 3 times more than the average? Or those who’re earning particularly low salaries?
  • Might presenting adjusted and unadjusted numbers be a much better solution for all?
  • How else can rankings be adjusted (if at all) to reflect a growing shift of activity towards emerging markets?
  • Is any form of global ranking fundamentally useless? Are separate tables for Asia, America, Europe etc. the only way to go?

Such questions are ignored, which is surprising. The reader is supposed to accept that a methodology which drives unexpected results is not credible. We already know what the ranking should be, so the job of a new ranking is to confirm those expectations.

Sure, we can assume that FT rankings have some underlying agenda. But it’s no less plausible to claim that established US rankings fail to use a similar methodology because they know it would be to the detriment of US schools. We achieve little by assuming only one party is dedicated to the objective truth. As discussed in the opening paragraphs, it’s hard for information not to have a bias.

Whether we’re talking about MBA rankings, M&A statistics or private equity returns, it is important to have an opinion, but keep an open mind.