Newsflash: applications to top MBAs are down by 9%, the fourth straight year of declines.    This has led to much hand-wringing and analysis of whether an MBA is still worth it.  The way that question is phrased implies that it is common knowledge that an MBA was once worth the investment.  I think that's worth a discussion.

I am no educational historian so I will limit my comments to the 20 or so years since I first took the GMAT.  Back then, at least for junior officers trained in nuclear engineering, MBAs were considered the fastest route to a career change; in exchange for $80,000 (or so), you could expect a 50%+ increase in salary and a massive recruiting advantage in specific fields, particularly consulting and investment banking.

I hit my first hurdle on my first round of application (full disclosure- I had to apply to Kellogg twice).  The feedback was, "The purpose of Kellogg is not to serve as career guidance and career placement for former military officers."  This was in response to my application which stated far too clearly that I didn't know how I was going to use my degree.  I knew little or nothing about the business world.  Other than doing a little bit of personal investing, I knew nothing about markets.  I grew up in a family of pastors, so the only education and career path I understood was that of theological training.  I thought that the purpose of an MBA was exactly what Kellogg said it wasn't: vocational retraining and recruiting support.

My second awakening was mid-MBA.  More often than not, the classes resembled "common sense".  Few exceeded what I felt could have been gleaned by reading a series of good articles or a book.  When I brought this up to my friends who already had degrees, they sort of smiled, like this was some inside joke.  "Then why do an MBA?", I asked.  "It's a union card", said one friend in the consulting industry.  "You need it to be considered."  

It was then that it occurred to me that even by the late 90's, MBA programs were just doing the hard work of screening and vetting candidates for specific industries.  Because of the churn in entry-level positions in consulting and investment banking, they needed to replenish their ranks.  They had 2 entry-level tracks; undergrad and grad.  In many cases, these employees did the same job, but one was paid more than the other and was, therefore, more willing to put up with the lifestyle challenges associated with the job.  The MBA programs represented a pool of people who were ideal for this second round: motivated, rested and in debt.  

My third surprise was once I got into consulting.  I was quite taken aback that the case-work, creativity and teamwork highlighted in business school were entirely missing in real-world consulting.  No one was interested in my opinion; they just wanted the results of my analysis.  Furthermore, the "messiness" (or what David Epstein calls "wicked" learning environments in his excellent book, Range) of real world problems bore little resemblance to the challenges we were trying to solve.  I had never imagined a data file that would exceed Excel's 64,000 rows (yes, that was the limit back then).  I just figured clients would hand us clean balance sheets and we would pontificate on how they could do better.

Which brings me to my fourth surprise: people who ran businesses were pretty smart, and few of them had the academic pedigree I had been trained to expect.  This especially came home in my 2 stints as an employee in Fortune 500 companies.  I worked for really good people, most of whom had achieved far more professionally than I had and didn't come from top MBAs (or even "top undergrads").  True, I could do a few things they couldn't and could write better decks; but, their grasp of the industry, of management, of teams and of what made their business go was tremendous.  It made me wonder what I had really accomplished with my education.

Perhaps this reflection is also conditioned on when I finished my MBA.  The opportunity for the MBA classes of 2001 and 2002 was highly affected by the collapse of the dot-com era and 9/11.  Many struggled to make up for those lost years; many of us have careers that look like random walks across the economic landscape.  But I don't think that's the answer.  I think that current MBA programs would be better split as continuing education for managers and executives; brief, intense seminars to increase knowledge in specific domains and on specific issues.  It would allow managers to apply learnings directly to issues they are facing, a far more practical approach than attempting to apply case studies 20 years after the fact.

But the greater thought is this- we all need to be lifelong learners.  Some institutions are introducing the "60-year curriculum" in recognition of the potential length of careers, the broad number of challenges faced over a career, the burden of expense and the likelihood that what I'm doing today is not what I'll be doing in 5 years.  This better reflects the needs of people and companies; instead of asking, "Should I go back to school?", many of us will be asking, "What do I want to learn next?"

Perhaps, instead of churning through undergrads and replacing them with MBA grads, consulting firms and investment banks should invest in training and retention.  Perhaps the notoriously painful rights of passage of 100 hour weeks and miserable pay could be replaced with less work, more training and a more sustainable career trajectory.  Wouldn't that be cheaper and more effective than having to replace and retrain your workforce with higher cost resources?  It might undermine many long-held beliefs; it might also be the right thing to do. 

So, has an MBA ever been worth it?  Many would say, "Yes, it set the course for my career."  But wouldn't those same energetic, curious, creative people have developed new paths and new solutions wherever they were planted.  I think yes- MBA or not.

What is Corporate DNA?  In general parlance, your corporate DNA is a mixture of culture and strategy but we want to be a bit more specific.  Like biological DNA, corporate DNA is the underlying coding that dictates your organization's response to issues, questions and challenges as well as guides your internal decision making.  Like biological DNA, corporate DNA is unconscious; sometimes, it will manifest itself in unusual and surprising ways.

Sometimes the easiest place to see corporate DNA at work is in conglomerates or companies that have multiple (but dissimilar) operating units.  Take, for example, the distribution company that owned a large information technology business in the same industry.  The combination of these assets made sense on paper; much of the information technology fed efficiency in distribution and streamlined the ordering process, increasing opportunity for the distribution business.

When the parent business reported quarterly results, one of the key measures they reported to the street was margin percentage.  In high volume distribution businesses, squeezing margin out the business is key; margin improvements are measured in basis points (or hundredth of a percentage point).  The impact of this was stark on the non-distribution businesses.  When a business initiative was proposed in the technology business which might require investment, it was always measured on the basis of margin dilution.  If it would result in an overall reduction in margin percentage (even with a commensurate increase in profit), it wouldn't be approved. So, if a business was currently doing $10 million at 30% margin but had an opportunity to do $20 million at 20% margin (an increase in $1 million in profit), that initiative wouldn't be approved.

This is corporate DNA at work.  In this instance, there was an unwitting exchange between profit-maximization (which should have been the goal) and margin-percentage maximization (which was seen to drive the share price, an unlikely fact if the impact was an overall reduction in earnings).  Hence the need to know your DNA.

Another example.  A healthcare company had three divisions: pharmaceuticals, diagnostics (essentially an equipment business) and nutrition (mostly nutritional drinks sold in retail outlets).  The nutrition business was an international business and competed against global food companies in many international markets.  Those companies were used to selling products at 20% gross margin, leveraging marketing to drive high volumes and making money based on massive scale.  However they tried, the international nutrition businesses struggled to compete with these formidable competitors.  Why?  Because they were required to price at 60% gross margin (or better).  The presiding corporate DNA was that of the pharmaceutical business where 95% gross margins were common.  They treated the nutrition business similarly, grudgingly conceding 60% margin- but, in effect, ensuring that their nutrition business would be a niche, premium business with high margins but low share.  

There are many other examples:

• The CEO who believed that the marketing slogan "We're number 1!" meant that the company must have the largest share in all markets in which they competed, even if that meant selling below variable cost in some markets to achieve that share.
• The company CEO who said, "Lose a deal, you lose the customer", thereby instilling in his sales force a fear of ever losing a deal.  This led to discounting without restriction, even below cost, to make sure no customer ever established a relationship with a competitor.  This ignored the fact that most large customers maintained multiple relationships as a matter of course; however, rarely did they price shop once they had established a relationship with a reliable vendor with good quality.  Many of those discounts did nothing but give money away.

The point is, as leaders we need to be fully aware of our corporate DNA.  Much of it is good; much of it leads to positive action by default, to rapid decision processes in line with the corporate strategy and in alignment with the general direction of the company.  However, there are many situations where that same DNA can lead to bad business decisions, much in the same way that a mutation in our biological DNA can cause the wrong protein to be synthesized at the wrong time, leading to disastrous consequences.  The goal is to know when corporate DNA is an asset- and when it is a liability.

At i2g Consulting, we encourage people to think differently.  Different perspectives lead to different conclusions.  Let's start with healthcare.

Everyone knows that the cost of healthcare has gotten out of control.  The average cost of employer sponsored healthcare is $20,000 for a family plan.  We know that a portion of that money goes drugs, a portion to hospitals, a portion to home health and nursing.  About 16% of the money spent on healthcare goes to doctors- approximately $550 billion a year.  

To do some simple math, there are about 1 million physicians in the country.  So, physician services average about $550,000 per year.  Of course, doctors have to pay malpractice insurance, staffing costs, some office costs and other expenses.  But, the average physician salary is still around $300,000 per year. Pretty good pay, right? 

Right about now, the reader is checking the title of this piece and trying to connect "$300K per year" with "free med school".  To better understand this, we need to answer 3 questions:

• Are physicians well paid?
• Do all physicians make the same amount of money?
• What is the role of medical school in physician compensation (and, by extension, in the cost of healthcare overall)?

Why are physicians so well paid?
Physicians aren't necessarily well paid around the world.  In the US, Western Europe, Australia and New Zealand, doctors are well compensated.  However, in Spain, doctors make about $63,000 while in Mexico, doctors make about $22,000.  These differences aren't in line with the difference in cost of living or the size of economies.  Doctors in the US are well paid for a few reasons:

• Medicine is a highly valued and highly respected profession in the US.  As a result, the best people consider it and the salaries reflect the intellectual and professional quality of the people in the profession.
• American medicine is considered the most advanced in the world.  While care outcomes and the general health of the population do not generally reflect the quality of this care, it is true that there are procedures, techniques, medicines and solutions available in the United States that are available in few, if any, other parts of the world.  Despite the price disparity, far more people come to the US for specific procedures than the reverse flow of US residents as medical tourists abroad.  Unique, specialized care supports higher salaries for those few physicians who can deliver these services.
• Med school is expensive- setting a high hurdle for expected future compensation.  We will come back to this point in a moment.

Do all physicians make the same amount of money?
The simple answer is, no.  In fact, the disparity between 2 doctors who may have gone to the same med school is pretty substantial.  There are 2 primary reasons for this:

1. Some specialties require more training and expertise than others.  The longer a physician trains, the longer they defer payment (residencies and fellowships generally pay poorly) and defer life in general.  Loans and liabilities pile up, requiring a higher income level to "clear the decks".
2. Those physicians with deeper and rarer specialties are able to perform more challenging procedures, which generally come with higher reimbursement.  Therefore, to hospitals at least, their time is worth more than another physician with less specialization.

You can see where this leads.  Longer training demands higher compensation; higher compensation  makes longer training more attractive.  This is a self-feeding loop because the difference in compensation more than pays for itself over time.  Deferring full salary for 6 years to essentially double lifetime pay makes a lot of economic sense, particularly in an industry that has proven to be essentially recession proof.
Medical School Role
By now, it should be obvious that the cost of medical school is part of this equation.  The "pot of gold at the end of the rainbow" is one of the reasons that medical schools can charge what they do.   The average annual cost of tuition at public schools is more than $30,000; more than $50,000 at private medical schools.  But that doesn't capture the full cost.  Students generally borrow for living expenses as well and often have to continue to borrow money through a portion of their training.  As a result, the median debt for students at private medical schools is $180,000.  That number drives behavior for years, from choice of specialty (higher compensation) to choice of location (cities or academic medical centers which pay more) to the actual practice of medicine (more patients, more volume, less personalized care).  

This necessary appetite for higher compensation directly affects both the quality and the cost of healthcare in America:

• Fewer physicians can afford to choose lower compensation areas and those are generally in the primary care arena- pediatrics, internal medicine, family medicine.  While the idea of "shortage" may be overblown, long waits for these services are not.  
• The need to pay doctors a lot of money leads to over-treatment, particularly in lucrative elective services.  For example, according to the Journal of the American Medical Association (JAMA), as many as 1/3 of joint replacements are unnecessary.
• Rural healthcare, and other high need areas like the Indian Health Service, are poorly supplied.  One doctor profiled in the Washington Post covers 11,000 square miles by himself.

The case for free medical school
Given everything we've discussed, free medical school may seem an illogical conclusion.  An industry that generates $4 trillion in revenue annually seemingly has the money to pay high salaries and absorb high costs.  However, the fiscal impact of medical school debt impacts what we pay for healthcare and where we can get healthcare far into the future.

With that in mind, consider this modest proposal:

• In each year's budget, the US Government allocates $48,000 per medical student for tuition.  
• This would cost approximately $5.75 billion per year based on 120,000 current students in medical and osteopathic schools.  This number represents about 1.5% of the total money spent on healthcare in the United States each year and approximately the same percentage of the federal budget.
• Each accredited university would have the option of "opting in" or "opting out" of the program. If a university wants to continue to charge tuition, they may do so and their students would have none of the obligations associated with the program.  However, those schools would also not be eligible for any federally funded aid programs.
• In exchange for free tuition, students register with a Medical Selective Service.  This "draft" would be used to fill high need positions in specific areas of public concern, whether rural, urban, Indian Health Service, Public Health Service or other.  Minimum commitment would be 4 years of service after residency but the solution would work more like the Reserves or National Guard rather than Active Duty.  A doctor may find that they are not tapped for service during their 4 year commitment; they are, however, active registered and available as necessary.

This is not a panacea.  However, it plants the seed for a more sustainable healthcare system,  addressing structural issues that affect our system today.  In 10 years, one would expect:

• A larger number of physicians choosing primary care specialties because they would not have the economic burden associated with enormous debt. 
• An alleviation of shortages in geographic areas based on the ability to assign doctors for several years to otherwise ignored populations.
• Lower pressure on healthcare costs overall based on physician compensation and a right-sizing of the number of specialists against true demand.

Indeed this is a bold leap.  But, it's the kind of 10 year plan that would change our healthcare future for the better.