As our latest salary data shows, post-MBA base salaries at consulting firms continue to rise to unprecedented new heights. Add in the signing bonus and performance bonuses, and MBA graduates are well on their way to earning north of $200K in their first year. But are consulting firms overvaluing MBA hires? Our hypothesis is yes.
But I thought the MBA was king?
First, let’s quickly go over what MBAs are hired to do inside of consulting firms. While the titles may vary (Associate, Consultant, etc.), candidates recruited straight from an MBA program are hired to do the work of analysts. Highly-paid analysts to be sure, but analysts nonetheless.
A standard strategy consulting team is made up of one partner, one engagement manager/project leader, and four analysts (two pre-MBA, two post-MBA).
The job of the pre-MBA and post-MBA analysts is largely similar – to own a workstream, run analysis (mostly in Excel), and develop a recommendation based upon that analysis. That recommendation should then be ported over into impactful PowerPoint slides.
So let if the job of pre- and post-MBA analysts is largely the same, consulting firms hire post-MBAs to build a pipeline to Engagement Manager and Partner. However, in their bid to capture talent and fill the pipeline, firms have severely overvalued MBAs.
Stagnant Engagement Value
Ask most Engagement Managers at top firms, and they would rather take a 2nd year pre-MBA analyst on a project versus a 1st year post-MBA analyst with zero prior consulting experience. In addition, the firm has extra incentive to invest in undergraduate hires. On top of being half the cost of MBA hires, undergraduate hires tend to stay at the firm longer, and even factoring in the cost of MBA sponsorship, pay the investment back by re-joining the firm as post-MBA hires with experience.
However, it’s the coupling of the steep post-MBA learning curve with another fact that really drives our point home. Consulting firms have neared the max of what they can charge per engagement. Wait, can that be right?
Yes, with increased competition due to boutique firms and internal strategy groups, consulting firms don’t hold the pricing power they once did. So how are revenues at consulting firms rising? They are selling a greater volume of projects than ever before, and increasing the utilization of their consultants. In a world where utilization can only go so high, firms are dealing with skyrocketing post-MBA salaries and diminishing margins on those consultants.
In fact, some firms have already begun to diminish the size of their full-time MBA intakes (here’s looking at you Deloitte Human Capital).
Summary and Conclusion
Overall, about 1/3 of MBA graduates from top schools find their way to management consulting. Will that trend die overnight? Absolutely not. But with high utilization, capped engagement pricing, and the long-term incentive to hire from the undergraduate level, MBA salaries may be in for a correction sooner than most realize.