What is the Return On Investment of the Executive MBA?

By Kristin Polito, Director, Executive MBA Program, Suffolk University (Boston, Mass.)

Recently, I had a conversation with a colleague regarding Executive MBA programs who had heard of an alarming trend:  Many companies in corporate America are not as financially supportive of employees who wish to pursue an Executive MBA program as they once were in the past.  The reason?  Lack of Return on Investment (ROI) to the employer. 

While many students choose to pursue an Executive MBA program for professional development and advancement, many are paying the bulk of their tuition themselves, carrying the burden of tuition costs ranging from $50,000 to $130,000.  In addition, there is a misconception that all Executive MBA students receive significant employer tuition sponsorship or reimbursement.   In many EMBA programs, only one-third of students are 100% reimbursed and far less receive even partial reimbursement. 

This seems to be very subjective thinking.  Is corporate America measuring ROI strictly in terms of profitability and contributions to the bottom line by their newly minted EMBA employees?  More importantly, is corporate America taking a short-term view on professional development, viewing the prospect of sponsoring potential EMBA students as an unnecessary budgetary expense rather than a long-term investment in executive training, managerial advancement, and succession planning?  Or will corporate America take a more holistic approach to business and value-creation when measuring the ROI of an Executive MBA?.

According to the Executive MBA Council, on average, it takes 17 months from the start of an EMBA student’s program for a company to gain its return on investment.  Notice that this is from the start of an Executive MBA Program, not upon graduation.  So if we are looking at the amount of money companies are spending for partial or full tuition sponsorship for an employee to pursue an Executive MBA degree, how is the cost of the degree justified?  The answer:  ROI measured by corporate America can take on many powerful forms of value to the organization that go well beyond profitability.

1.  Fast-track means to improved job performance.
Many students enrolled in EMBA programs view the EMBA as a fast-track means to an end:  Improved job performance, greater marketability within their firms or industries; and the ability to expand their opportunities for advancement.

According to a recent survey by the Executive MBA Council, 43 percent of recent graduates indicated new responsibilities, compared to 34 percent from the previous year.
In addition, almost 80 percent of Executive MBA graduates said that their value to their organizations increased as a result of entering an Executive MBA program.  In addition, on average, one-third received a promotion while enrolled.  According to GMAC research, graduates of Executive MBA Program are the most likely to receive three or more promotions that involve both a change in job title and pay range. 

Another compelling statistic:  In most EMBA programs, 75 percent of current students plan to make a job change either internally or externally after graduation.  Larger employers are catching on to this and are more willing to sponsor employees for EMBA programs.  As a result, the number of students coming from larger employers to EMBA programs has grown over the last three years.

Consequently, the ROI quickly increases for students during time of enrollment in EMBA programs and at graduation, where they can expect to boost their earning power by 20 percent on average following graduation, according to the latest statistics by Percept Research.

2.  Curriculum that covers and integrates all functional areas of business.
Some of corporate America views Executive MBA programs as “MBA-light,” given that the timeframe  in such programs can range between 15-24 months full time, often completing such programs only on weekends.  Therefore, they may consider this a risky proposition.  However, given the depth and intensity of such programs, their employees will be working with other seasoned professionals and executives throughout their EMBA experience, getting coaching from top professors, and quickly learning the values of time management, efficiency, and effectiveness.

Many EMBA programs place students in a cluster- or modular-based - curriculum which mirrors different functions of the business environment, ranging from a macro perspective involving Marketing and Statistics to more of a business acumen perspective which includes Finance and Accounting.  These modules comprising several business functions mirror the dynamic and fluctuating business environment, encouraging students to break out of business silos, where they learn to work in cross-functional teams, leverage relationships between functional areas, and think more strategically when problem-solving.

The curriculum often goes well beyond the functions of traditional business.  Working through conflict, dealing with ethical issues, assessing emotional intelligence skills, analyzing leadership styles, coaching on effective presentation techniques, building consensus in lukewarm or sometimes hostile environments by assessing body language, speech intonations, and business jargon, can expand the employee’s skills from manager to executive.

As a result, the impact to the ROI is 3-fold:  The classroom can serve as a training ground for the board room, teaching executives to deal with problems in a simulated environment in preparation for the real thing; encourage planning and execution through cross-functional teams to create greater efficiency and economies of scale; and, finally, fostering a deeper understanding on how corporate-wide strategy or change can affect the organization across all levels.

3. Expanded professional network.
What is the value of a professional network?  Exponentially compelling!  Many Executive MBA programs feature a cohort-centric structure that promotes the personal development of each student within a collaborative group environment.  A great metaphor is to think of the cohort as a “school of fish” who start off and end their journey together despite obstacles, experiencing learning in minutes and seconds, rather than just from a  balance sheet.

Most Executive MBA programs seek diversity, and eagerly recruit not only business managers, but physicians, engineers, educators, physicists, mediators, journalists, and non-profit professionals to join their entering classes.  In addition, there is a sharp increase  in women joining EMBA programs, on average comprising 25 percent of entering class students, while within the more progressive business schools comprising one-third of the entering class.

Given the variety of backgrounds and distinct experiences of most class participants, the cohort structure fosters a valuable networking environment that is both powerful and exponential.  At first glance, while relationships are normally made within the cohort, many schools give students access to a diverse and influential group of alumni as well as program contacts in the local and global communities.  As a result, the ROI can make a powerful impact, when measuring time wasted in connecting with the right industry or functional expert, money saved avoiding high fees paid to head hunters to recruit qualified managerial talent, and energy leveraged in building new and lucrative business relationships.

4.  Global vision of corporate leadership across borders.
Globalization takes place in many forms and venues.  Not only can corporate America’s managers experience this through case studies and textbook learning, but witnessing globalization first-hand.  International exposure to industries and companies that feature  engagement with expatriot managers, U.S. State Department officials, members of the American Chamber of Commerce, specific multinational companies and, in some cases, state-owned enterprises, give EMBA students coveted opportunities to meet and network with senior corporate managers as well as build future business development.  The majority of Executive MBA programs offer an international residency and, in many, this is required for graduation.

Whether hearing a compelling presentation about a Brazilian cosmetics company’s commitment to economic and social sustainability, or experiencing the dramatic growth of the industrial revolution that is currently taking place in Shouzou and other tax-free zones in China, where newly developed industrial parks are available to multinationals at reduced tax rates, globalization is taking on forms that allow us to glimpse business development in remote areas of the world.   While political or currency risk may be higher, the ROI for this exposure is lucrative and can attest to the Chinese saying, “May you live in interesting times.” 

5. Access and encouragement of innovation and ideation.
Taking an idea from concept to prototype is a challenging prospect.  But working on virtual teams while having to cope with time changes and cultural relationships, establishing business opportunities with international firms, researching new patents, and articulating the value of state-of-the-art products or services in business plans are now part of the new curriculum  recognizing  innovation in many Executive MBA programs, such as Suffolk University’s Executive MBA.

Several have taken their cue from the Massachusetts Institute of Technology (MIT), who launched the $50K Entrepreneurship Competition several years ago to help contribute to economic growth and new business creation.  There is now a trend of several schools hosting business plan competitions across the nation to host and assess ideas ranging from product to process or service innovation. 

Succession planning.
Most of corporate America takes a short-term view when anticipating succession planning of its C-level leaders and executives.  Encouragement of employees who plan to pursue an Executive MBA helps to strengthen the employee’s prospects for advancement, training these up-and-coming executives to “think globally, act locally,” and to better understand how the executive’s role fits in the overall organization.

An EMBA degree reflects a broad and sophisticated level of knowledge and skills that involve many contemporary management topics and theories, and the opportunity to practice these skills among peers in the classroom in preparation for future application in the board room.   It also implies a well-developed understanding of strategic thinking and planning that can involve global competition and is a primary means of developing the requisite skills needed to gain additional management responsibility.  In a nutshell, corporations will continue to invest in these programs, and in those who do  there is more specific commitment to succession planning in conjunction with the career path expected for the employee who pursues an EMBA.

Professional mentorship.
Many EMBA programs are creating professional mentorship programs which encourage students to take advantage of networking with a B-school’s broad alumni base, attend discussion forums that feature topics dealing with work/life balance issues, career development, and coping effectively with deadline-driven environments. 

The intent of these programs is to enhance the student’s experience through mentoring relationships that emphasize helping executive students manage their expectations by providing insight with respect to balancing family, work, and academic requirements; encouraging students to establish realistic goals both during and post-EMBA program; guiding and responding to student-specific needs; fostering career development by providing advice on post-program career strategies; and networking capability by providing students with access to new network and contacts, not only within their specific school or cohort, but throughout the student’s respective industry.

The ROI is compelling:  Mentorship programs that are an integral part of EMBA program delivery not only create improved efficiencies with the executive student’s time and energy, allowing for more focused activity at work and at school, but they also foster a supportive environment that allows the student to recognize and get through difficult situations both personally and professionally.   Such programs create greater differentiation and professional marketability for the students, and embrace an esprit de corps that boosts their commitment to learning and application both personally and professionally. 

For corporate America, such executives can return to their work environments ready to approach job challenges in a new and innovative ways, increasing employee retention, fostering new business development, and introducing a powerful network of professionals throughout the organizations. 

Conclusion
The Executive MBA will continue to create a substantial ROI for corporate America, if it is willing go beyond prospects for short term profitability to recognize the full value of those who pursue this path.  A commitment to investing in employee EMBA education to improve leadership and managerial skills, increase their employees’ chances for promotion, and foster new business development will have a long-term impact, both locally and globally. 

But as the best executives from Bill Gates to Warren Buffett have demonstrated, first and foremost, an environment must be created that is willing to foster management training and succession planning through the Executive MBA.  As the late management guru, Peter Drucker indicated, “The best way to predict the future is to create it.”