is investment banking good enough for top MBAs?

sakky
Thu, 03 Aug 2006 09:33:10 +0000

For example, someone who graduates from MIT LFM and starts a new tech. company in Silican Valley as opposed to …becoming an associate at goldman sachs is going to affect far more people (opening up new employment opportunities, etc…) than our beloved i-banker.



See, now you’re commenting on LFM again, and trust me, I don’t think you want do that to when I’m around. You can ask me what’s going on with LFM and I can tell you, but since you raised the issue, let me say that LFM’ers rarely start new tech companies in Silicon Valley or anywhere else for that matter. Keep in mind what LFM’s mission is. LFM is trying to shunt people to become operations managers of large operations companies - i.e., managing chip fabs at Intel or warehourse routes at Amazon. The top “graduate” of LFM is generally held to be Jeff Wilke, LFM class of '93. Why? Because he’s now Senior Vice President of Operations at Amazon. See, THAT is the kind of employee that LFM is trying to create. Not tech entrepreneurs.

Entrepreneurship is not considered a core competency within LFM. Entrepeneurship is not part of the LFM curricula. LFM does not bring in entrepreneurs to speak to LFM. LFM does not promote entrepreneurship. That’s not to say that some LFM’ers don’t start their own companies, because some do. But it’s certainly far far from the norm. In fact, I would surmise that a greater percentage of regular Sloan grads become entrepreneurs than LFM grads do. Keep in mind that LFM’s large corporate partners (like Intel, GM, Ford, HP, Dell, etc.) place great pressure on the program to get grads to come work for them as operations managers, and that’s clearly not going to happen if they decide to become entrepreneurs. In fact, if anything, you could say that LFM actually DISCOURAGES its grads from becoming entrepreneurs. Personally, I think should not be happening. But I have to admit that it is happening.

In fact, not to rain on the parade, but lately, more LFM grads have been going into investment banking than into entrepreneurship.



Your i-banker who chooses to quit, even though he’s offered promotion to associate/VP is but a rare spectacle. Most see MBA as their only means to getting promoted. This is not the case with engineers who apply for the most part with much more experience.



Well, yes, but that’s also true of engineers. Come on, engineers who are getting their MBA’s are also trying to get promoted too. Either that or switch careers to a better job.

Since you brought up LFM, let’s use the example of LFM. The truth is, most people in LFM are former engineers who are trying to get promoted into operations management. In fact, a lot of LFM grads are sponsored by their employers to do exactly that.



When I said be innovative, maybe I shouldn’t have said “help millions”. I should have said just help develop the American economy. More IT jobs for Americans will help increase the average per capita income. Helping the global economy, it turns out; has actually produced a surprisingly wonderful result in helping the American economy as well.



I also think you don’t see the value that investment banking provides to the economy. Ibanking makes the American economy highly flexible and provides capital to companies who are trying to expand. You talk about Silicon Valley. Well, the fact is, all of the large Silicon Valley companies would never have grown so large so quickly if there was no such thing as investment banking, as through their IPO, Silicon Valley public companies have been able to garner the capital they need to expand as quickly as they did. They also use Ibanking services to acquire companies to develop the technology portfolios they need. Almost all large Silicon Valley companies have had a long history of acquisition - with Cisco perhaps being the most acquisitive. Acquisitions are enabled by Ibankers. No Ibankers, no acquisitions, and Cisco might still be just a small router company instead of offering a complete portfolio of networking equipment.

But the point is, I don’t why you’re singling out Ibanking as being any less valuable to the economy as other fields are. Again, let’s take the example ripped out of the pages of LFM. Eastman Kodak (the film company) was a former long-time corporate partner of LFM, and employs a lot of LFM grads. Kodak is now in serious financial distress. They have good operations, in the sense that their film manufacturing facilities produce high yields and quick turnaround times (and that is what operations managers do). But Kodak is still in serious trouble, not because of bad operations, but because of bad strategy (in essence, they didn’t see the digital imaging revolution until it was too late - think about it, when was the last time you actually bought a roll of analog film?). Even if Kodak had perfect operations, they STILL would be in financial distress because of their gaping strategy problem. Kodak has laid off tens of thousands of people lately.

Hence, one could say that all of that LFM education didn’t really help Kodak very much. In fact, one could argue that all of those LFM grads who took jobs at Kodak would have been better off going to Ibanking instead. And one could say that Kodak might have been better off not hiring those LFM grads, and instead hiring some better strategists. Like I said, it’s not bad operations that’s killing them, it’s bad strategy. Having the best run film factories in the world doesn’t help when fewer and fewer people want film.

In fact, lately, Kodak has been putting some of its divisions up for sale which, yep, involves investment bankers. For example, Kodak has just recently hired Goldman Sachs to help sell its health imaging business. By doing so, it hopes to get the capital it needs to restructure itself for the world of digital imaging. So one could say that, right now, Kodak needs investment bankers more than it needs operations managers. Again, having the best-run film factories in the world isn’t going to save Kodak.