What an MBA Might Teach You

Do you ever wonder what getting an MBA might teach you that you don’t already know? So often in the workplace, you see MBAs and other people with advanced degrees acting like they know it all. But of course they don’t. There’s a LOT to learn that school just can’t teach you.

Not that I didn’t learn a lot of useful things at grad school. But, as most of us know, the seeds of real wisdom are gathered and blossom in the real world. Still, knowledge is wealth. So it might help you to know some of the key concepts I learned when I got my MBA …

Basics of economic theory

One of my favorite economics teachers told us that if you put a 100 economists in a room, you would get a100 different forecasts. His point was that, while there is indeed some science to the math, there are still unpredictable human influences on what actually happens in the real world.

But there are some basic principles that hold true. At least most of the time:

Supply and demand – If people start to want more of something and the supply is limited, then businesses can charge more. Like when you see gas prices go up at the pump during disasters or supply shortages for whatever reason. An economist would say that gas demand exceeds gas supply. So the price can go up and customers will pay the price. (See price elasticity below.)

But when demand falls, companies may not be able to raise the price any more and still keep the same number of customers. At least in theory. So, if demand falls sharply enough, the price may drop until demand picks up again. Of course, things like price manipulation and greed are not part of any simple economic model.

Price elasticity — Since there is some give and take to the concept of supply and demand, price elasticity helps explain how high a price can go before people stop buying. Using our gas example again, left only to the principle of supply and LOTS of demand, considering how strong the demand is, gas prices could keep going up and up.

But, thanks to social media and 24/7 news cycles, we hear almost instantly if prices start going up. And with market forces so connected, gas prices can only go up so far before people start screaming. And buying less. Less demand, prices ease. So the elastic band can only stretch so far.

Cost-benefit analysis — Used by business, but also in our personal lives, cost-benefit analysis is a model for decision-making. You probably know it better as a pro-con list. But in this case you assign actual values / weights to each part of the analysis to see which side outweighs the other.

To give you a very simple example, you might be thinking about buying a car. On the benefit side of the analysis, you really want a car. And you work hard so you deserve it. Plus, you’ll save money on public transit and the car is always there when you need it.

But, on the cost side, you’ll be spending down your savings (or taking on more debt) to buy the car and insurance. Also, you’ll have to pay for gas and regular maintenance. And what about the pain of finding parking? Plus, since your job is on a bus route, the cost of convenience is actually higher than continuing to use public transit.

More that an MBA might teach you about economic analysis

The above example is pretty simple and probably a technique you already knew. You place a value on each part and see which side is the winner. But a well-constructed cost-benefit analysis isn’t just about the dollar value. It factors in the weighted value of each cost or benefit.

So in this case, an economist might ask: “Exactly how much weight do YOU put on getting that car?” Does the overall benefit to you weigh more than the actual comparative dollar amounts might indicate? In any economic analysis, the real-life usefulness depends on how much weight you give to each individual part of your formula.

Present value – The easiest way to think present value is the phrase “A dollar today is worth more than a dollar tomorrow.” Why? Because that dollar today can be earning you interest. Whereas a future dollar earns you nothing for sure — and it loses out on being put to work NOW.

BTW, this loss of what could have been is called opportunity cost. And it’s something we often forget when thinking about buying a house, deciding whether to get a graduate degree, or even figuring out whether to accept a new job. Is there a cost to me in what I’m giving up to get what I want?

The basics of banking

We all know something about banking. Mostly, that we can put the money we already have into a bank — or try to get some money from it. But do you ever wonder what happens to your money? And what the bank gets in return?

Banks use your money to make money for themselves by lending — in other words, creating all kinds of loan products. If you remember the film It’s a Wonderful Life, there’s a scene where Jimmy Stewart is desperately trying to stop a run on the bank. He tells the panicky customers:

No, you’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here. Your money’s in Joe’s house…

Jimmy Stewart’s character is explaining mortgages in the simplest of terms. At least the way they used to work. And they are a good example of how a bank really operates — and what it does with your money.

So where does your money go?

Your money isn’t really just sitting in the bank resting, even if you see numbers in your checking or savings account. And even though you can get the amount shown when you want it.

The bank puts your money and everyone else’s money to work in all kinds of bank products and projects, earning them even more money. And the things they invest in then become part of the larger economy. Although they don’t usually trickle back down to your pocket in the same amount.

What about bank interest rates?

If you’re a bank customer, ideally you are looking to earn as much interest as possible from your deposits. And if you have any debt [credit cards, personal loans, Home Equity Loans (HELOCs), lines of credit, small business loans, mortgages, etc.] you want to pay the least interest possible.

But not surprisingly, banks aim to do exactly the opposite. Profit is truly one of the most familiar of all basic finance concepts. And the larger the gap between what the bank pays for deposits and what they charge for loans, the more profit they make.

You can find more about banking & investing theories that an MBA might teach you in my finance concepts post:

⇒   MBA 101: Guide To Basic Finance Concepts

 

Some marketing basics

So what exactly is marketing?

According to the American Marketing Association “Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.”

Let’s say you have a product or service and you want people to pay you real money for it. Or maybe give you some other product or service in exchange. The wider definition also includes marketing an idea or person (as in show biz or politics) as well as an actual “deliverable” of some kind.

Your job is to figure out things like:

• what you have to sell
• who you are selling it to
• how you are going to get their attention
• what your “branding” will be
• how much to charge
• packaging (if applicable)
• where/how to distribute it
• advertising / promotional material and where to place them
• any point-of-sale info or support you will need
• how to make sure the message will stick and motivate customers to actually follow through and buy it.

And don’t forget marketing operations

You also need to have some QA (quality assurance) procedures to make sure the actual quality of the product meets the expectations you’re setting. And you need to make sure supply is adequate, should sales skyrocket. That includes managing relationships with companies in your “supply chain.”

Of course, turning back to our friends supply and demand, as with the latest iPhone, limiting supply of something that everyone wants and bottling up unfulfilled desire until it reaches a state of frenzy can also be a marketing tool. But if you don’t have a hot product, this can backfire – not only alienating customers but your entire distribution network!

And above all, make sure that there is a great customer service operation in place to handle inquiries, suggestions, and problems. Nothing undermines a good product like rotten service. This can affect your brand too — big time!

Some basics of management an MBA might teach you

Theory comes and theory goes. And, anyway, the intricacies of management theory is not my field of expertise. So I’m not going to try to cover every aspect of modern management theory. You can google it if you’re interested.

Ideally, a good manager wants to find a way to balance their business and employee needs, as well as tools and resources. All while turning out a quality product — and keeping employee turnover as low as possible.

For me, the more horizontal (rather than vertical) the management structure the better. That means not creating so many levels of organizational hierarchy that people feel like insignificant cogs in a huge wheel. And no one knows what’s really going on. Also, a more horizontal structure encourages shared efficiencies and creativity.

Delegation rather than doing it all

Good managers know how to delegate wisely. And yet still stay connected, while maximizing both autonomy and room for creativity for individual employees. This way the manager is mostly handling things like office politics and monitoring progress. Also they are tweaking things when needed, and planning for near-term and long-term needs.

Departments run more smoothly when the boss does NOT have their hands in everything. But their presence / support should be felt, as in remembering to compliment an employee or finding other ways to show your appreciation. Also important … having an open door and open ear when needed.

Long-term vs short-term thinking

Unfortunately, it’s become all too common for businesses to aim for short-term planning and quick profits. But the best businesses – the ones you’d want to invest in or work for – know the real secret for success. They take the long view, with investment in human capital, research & development, and quality products/services. Including excellent customer service!

Although I don’t want to dwell on the various theories and theorists, I am particularly fond of William Deming. He died in 1993, but left his mark on the world forever by helping give birth to the miraculous rise of the once-failing Japanese auto industry.

Although he was known as an expert in the United States, the US auto industry considered his management ideas too radical. He suggested “bizarre” things like working with employees to find out what the real issues are, long-term planning rather than short-term thinking, and consistency in management – which he saw all too often to be the root of the problem.

In fact, in 1981, after his miracle in Japan showed no signs of subsiding, Ford knocked on his door and asked for help. According to Wikipedia.com:

William Edwards Deming “questioned (Ford’s) company’s culture and the way its managers operated. To Ford’s surprise, Deming told Ford… that management actions were responsible for 85% of all problems in developing better cars.”

Human Resources

Human Resources management could be a course all on its own. While not all companies have formal HR departments, every company has some set of formal or informal policies / procedures. Even if it’s a small human resources handbook or simply accepted procedures you learn by being there.

There are way too many related and complex topics for me to go into here including: hiring, firing, compensation, and staff development. Also employee benefits, performance reviews, disciplinary actions, etc. For now, just know that these are all issues to be considered.

And, there are state policies related to at-will employment that are worth researching, since in many states a person can be fired for no reason at all. Unless federal Title VII of the Civil Rights Act of 1964 is violated. Again, worth researching for yourself.

Project Management

I was an IT project manager for many years. While there’s a lot more to it, just know that basic project management includes but is not limited to:

• analyzing the situation
• defining scope and objectives
• creating a detailed plan
• preparing a budget
• obtaining human and other resources
• setting milestones
• communication
• monitoring progress
• testing
• training
• documentation (as in IT projects)
• implementation
• evaluation
• post-implementation adjustments (as needed)

Financial Management

Once again, a course unto itself. The key areas of financial management involve budgets and something called cash flow. Cash flow is usually shown with a monthly spreadsheet that shows when money will flow in (revenues, loans, accounts payable receipts) and when it will flow out (loan payments, payments for goods, salaries, taxes, etc.)

If things are going well, more should be coming in than going out. But if there are periods with a negative cash flow, a cash flow statement helps alert you. This way you can do something about it to prevent a crisis – like putting in some of your own money or getting a bridge loan.

If you want to start a business or submit a proposal to potential funders, a cash flow statement is critical. Funders know that most business will not be making much (or any) money for a while. And so it’s important to show you have planned for sources of money to help keep the business afloat. A good cash flow statement can help you run the business. But it can also show potential funders that you have thought things through carefully.

Balance sheets, budgets, profit & loss statements, five-year plans, etc. are also essential parts of financial management, but I’ll leave it at that. You can do more snooping online if needed. A couple posts to get you started:

⇒   Sample Cash Flow: How To Create a Cash Flow Spreadsheet

⇒  Sample Budget: How To Create a Budget Plan Spreadsheet

 

Business Law

Way too complicated to cover here, but to sum it all up: Get it in writing!

Even if you heard on some TV show that an oral contract is ok, GET IT IN WRITING. Make sure both parties clearly understand all the terms and that there is mutual agreement to each item the contract covers.

Never assume anything. Again, make sure you spell it out as clearly and as fully as possible. Discuss anything that raises even a tiny question for you. And if in doubt, especially is this is about an important aspect of your business, ask a lawyer. It’ll be worth it in the end.

Computers and Technology

I worked as a consultant for many years in IT (information technology) system development and have had several websites, but I’ll keep this short. Basically databases are like large filing cabinets that you put things into and will, at some point, need to get things out of.

Computers simply make it easier for you to retrieve and process the information in various ways. But the principle of of GIGO still rules: Garbage In Garbage Out. That means if the information someone puts in hasn’t been properly cleaned or categorized, you can’t expect the computer to spew out good information. Even if you kick it.

One other thing I want you to know … if you are a non-technical person working with a techie (or someone who talks like a techie), PLEASE don’t be intimidated. The goal for all is to turn out products that real people can use. So take the time to carefully map out what you need and let them know if something they designed doesn’t work for you – even if they’re in love with all the bells and whistles.

But also have patience and don’t get frustrated if they don’t understand you the first time around. It takes time. You just need to find a common language. The effort up front is worth it since once again this is a case of what goes in comes out the other end!

The joy of prototypes

If you’re involved in developing a new system, see if the IT team can work up a prototype to help you see how it would work. This is also a good way to create greater understanding between you and the development team.

Also, if deadlines are tight, be open to a phased-in approach so you can get a quality system that really meets your needs and not something they were forced to throw together because of impossible deadlines.

Rarely do non-IT people understand all that steps that go into developing a good system. Whether you are a developer or user, I strongly recommend taking the time to make all the steps clear, including detailed time-lines for each step and phase.

Operations

Although this is a critical part of managing a business, it’s often one of the most under-rated when it comes time to hand out the awards and kudos. The skills and attitude of the folks who work on the line are key. But so is a management team who fully understand what their workers need to achieve the desired results in the time allotted.

Often there is a disconnect here. Upper management comes up with tight deadlines and cuts corners to show the Board they are on top of things. But their line managers have to come through anyway. So, as a result, quality suffers. And the line managers are blamed for what they couldn’t possibly accomplish in the first place.

Good operations management occurs when there is smooth communication in all directions. And a willingness to listen with respect up and down the management hierarchy. While this is not always the case, it’s definitely a worthwhile goal.

Social Responsibility

When I went to grad school, this was something pretty new to the management school curriculum. More and more, companies are learning it really does pay. Not only for public image alone, but in the bottom line as savvy investors and customers pay attention to the impact of corporate policies on things like the environment, workers rights, and even executive compensation.

There are many successful investment funds now that invest solely on a set of “social responsibility” criteria. And the nice things is that these funds, and a growing awareness thanks to social media, help increase the number of socially responsible company programs.

***

I hope that gives you at least a feeling for what an MBA might teach you. Of course, there’s a lot more you can learn on your own if the urge ever strikes. But please don’t ever forget (or let anyone minimize) the true value of what you know that only experience can teach you!

~ Ronnie Ann

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