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Welcome to MBA Podcaster, the only broadcast source for cutting edge information and advice on the MBA application process. I’m Catherine Girardeau. On today’s show the current economic environment and what it means to MBA applicants and MBA students. It’s official, the US economy is in a recession and economists predict it’s going to worse before it gets better. Oh and by the way experts don’t know when that might be. With the job market tightening, large companies and even entire industries that used to snap up MBAs as soon as they graduated are instead laying off workers or even shutting down entirely. What does this mean to currently enrolled MBA students, to MBA applicants and to freshly minted MBAs? What are test preparation companies doing to help applicants set themselves apart? What are schools doing to help students pay for their education as financial aid dries up? How are school recruitment specialists helping their students find internships and jobs in a tightening job market? And is there a silver lining for MBAs and would be MBAs in this dismal economy?

Are tough times steering more applicants toward to business school? Yes. As you’ll hear in this show, for most schools application numbers have been steadily increasing over the past five years. Growth is expected to continue as the recession deepens. But schools aren’t necessarily increasing their class sizes to accommodate. According to Business Week, a recent survey of 245 business schools conducted by Kaplan Inc. found that more than half were considering increasing program size. The survey covered the range of programs from top tier to less selective. The schools we’ll talk to in this show are all making some changes to stay in step with the economic down turn but none are currently increasing their class sizes.

First to give us a big picture of what is going on, here’s Dave Wilson, President and CEO of GMAC, the Graduate Management Admissions Council, administrators of the GMAT exam, “We expect to finish this year at 250,000 test takers worldwide, that’s actually up 12.2% through October, year over year. There are a number of factors that come in to play, Katherine, at the core there is still value seen and there continues to be values seen all around the world in the MBA as a degree. And so recruiters are finding value and recruiting young people who have earned their MBAs and are paying the necessary payments to attract them. That causes a set of variations, it does move with the economy but it moves in an interesting way. The tightest correlation we have had is an inverse correlation to the number of jobs lost through October of this year. We were down about 1.2 million jobs in the United States. That has driven what is currently the highest volume ever in the history of GMAT.”

Scott Shrum is Director of MBA Admissions Research at Veritas Prep, a test preparation company. He concurs that the recession is driving people to consider going for that MBA, “When our phones start ringing more it’s usually a sign that things are starting to slow down on the job market.” Shrum says that part of the uptick in MBA applicants is coming from people who may have had a MBA in their future plans but due to the job market are choosing to apply sooner.

Dave Wilson of GMAC agrees, “What happens during an economic slowdown or any form of turmoil in the markets is the young people will use that time to go and park themselves in a safe harbor. And they’ll go back to school and study and reemerge and 2010 or 2011 or 2012 perhaps when the markets hopefully have come back out and are on a bounce back.”

The business schools we talked to bore out the statistics, Isser Gallogly, Executive Director of MBA Admissions at the NYU Stern School of Business said Stern has been seeing a steady increase in applications for the past five years. “This year it’s a bit early to tell what’s going to happen with applications but since we have had increases for five consecutive years we’re probably on pace to set our record number of applications for us.” Gallogly thinks there are several forces driving the numbers, “One of which would be demographics, more people of that age group. I think that the millennials are looking to go into more traditional roles and so probably an increase in business in traditional corporations amongst the millennials. I also think that the economy had been good and a lot of times people go to business school when they feel good that there will be great opportunities on the way out.”

With the timing of an economic recovery looking uncertain at best, is this a good time to go to business school? Does the recession present a crisis or an opportunity for MBA students? Isser Gallogly of NYU Stern comes down on the side of opportunity, “You’re making a big investment when you go to a MBA program. Right now with the market being more uncertain you’re probably giving up less opportunity cost to go right now, promotions might not be as quick in coming, raises, bonuses may be a lot harder to come by. And obviously for some people job security could be a question mark. So if you’re thinking about a good way to spend two years, you’re giving up less opportunity costs right now to go to business school and you’re going to get a tremendous amount in return. I also think that this is a great time to be learning. I think that the curriculum at Stern is evolving day by day based upon what we’re learning in the market. Often in good times you don’t know why you’re being successful. But in bad times you certainly learn a lot of the watch out, not only for now but for years later.”

According to Gallogly and to a reason piece in The Village Voice, Stern’s faculty is using the economic crisis as a teaching tool. Keeping the curriculum very, very current, “One of the students I was talking with said that his finance professor came into class I don’t know if it was the second or the third week, and he said you know that syllabus I gave you? Throw it out. We’re going week by week, I’m bringing you what’s on the headlines and we’re going to adjust because some of the theory is out of date and there are other topics that may be more important right now.”

How is the recession affecting the schools ability to help students finance their educations? Back in October, Citibank canceled its CitiAssist Loans for International Students at MIT Sloan and other schools. Scott Shrum at Veritas Prep which helps students throughout the application process said, “What we’re telling our clients right now is that the last thing any school wants to do is admit you and then have you not be able to attend because of money. What we’re already seeing in Ivy League schools at the undergraduate level is they are expanding their own financial aid programs because the government assistance that picture may be getting a little cloudy. I think the last thing that any of these schools wants to do is turn away a student who they want just because that person can’t pay the tuition.”

Isser Gallogly of NYU Stern and Judith Hodara, the Senior Associate Director and Interim Director of Admissions at the Wharton School of Business both said the credit crisis is making it more challenging for schools to provide financial aid. Isser Gallogly, “We’re in the annual process this time of year of looking at lenders for next year and we’re hopeful that everything will be in good order. But we do know that you know the times are a little bit different now and could be a little bit tougher so we’re just trying to pursue as many things as possible so that people can finance their education.”

Judith Hodara, “We’re currently in discussions with other loan providers to be able to rectify the situation and we are certainly working very, very closely with our students that are currently enrolled to make sure that they are able to complete the program without undue financial burden. And as this continues to roll out we’ll certainly keep you posted. There are some things that are certainly in the works with both our alumni communities and our local communities to really help to alleviate some of the concerns around cancellation of things such as the CitiAssist loan.”

Since the financial sector has been so hard hit by the recession, our sources agreed that a larger percent of applicants to business school may be coming from financial backgrounds. Dave Wilson of GMAC, “You’re typically going to see a significant pop from sectors of the market where there has been a hard hit. And so you’re going to see that in financial services.” But Wilson said since so many finance people already have a MBA, “The financial services a very small segment for the MBA population. Of those who graduated MBAs and want to study finance, many with the corporate finance or into commercial retail banking and rather into investment banking. And so while you’re seeing a shakeout throughout the financial sector that is only a small proportion of the total MBA population.”

But let’s say you are coming from financial services, you want to get a MBA and you know there will be more people like you applying. Scott Shrum of Veritas Prep says you’ll have to work a little harder, “Coming from financial services the name of the game is really going to be setting themselves apart. How do they do that? It’s by really showing that this is the right time for them to pursue a MBA. The reality is for a lot of applicants they are going to be applying this year because they have to or they may feel that they don’t have much of a better option. But the applicant who is in the strongest position can paint a picture and say this is why, this is the right time for me to go and get a MBA. A lot of the applicants this year are going to be so hung up on not trying to appear like financial refuges what they need to show is that their very strong businesslike people who are terrific careers ahead of them, great career potential and they also convey what makes them interesting as people outside of the job.”

Shrum says schools probably won’t be admitting more finance people than they have in the past. He said for schools the question of whether to change the make-up of their class is, “A delicate balance. You know one of the things that schools look at most when they are evaluating an applicant is how employable is this person? Well you know if there are few jobs to go around then they, all of the applicants might be a little less employable than they would normally be. The other thing they consider is that although it’s not only people coming from financial services, they are probably the ones whose numbers are going to be growing the most. And a lot of the schools while they won’t ever say that they have specific quotas, historically the percentage of applicants coming from financial services for a lot of the top business schools is in the 30-40% range. Now for this year suddenly financial services people make up 50-60% of the applicant pool that starts to ruin that diversity that the schools really try hard to achieve.”

The upshot is that despite potentially more applicants coming from banking backgrounds, business schools at this point are not eager to upset the balance of their classes. Isser Gallogly, Executive Director of MBA Admissions at NYU Stern, “We don’t really have any quotas or minimums for you know what kind of background people come from or things like that. We really just sort of look at each sort of individual and make a determination as to the quality of that individual. We don’t have a specific plan to do anything significantly different with respect to the class composition.”

Neither does the Wharton School of Business, Judith Hodara, Senior Associate Director and Interim Director of Admissions, “We actually do not put our applicants into buckets so we look at the students holistically regardless of industry and we try to get an overall sense of who they are, what they have done and why they want to come to business school.”

Since Wall Street is reeling from the financial shocks of the past year, where else should MBAs be looking for work? Dave Wilson, CEO of GMAC steps back to look at the trends, “There are a couple of areas that are currently quite hot, technology, anyone who with technology background and a MBA is perceived as a very attractive candidate. The pharmas and healthcare are recruiting MBAs aggressively and we’re seeing a number of specialty degrees where people are focusing on specific industries or specific markets. The MBA really prepares you well to manage any organization and whether it is the large companies like General Electric or a small company like ours many of the same schools are involved whether it’s fiscal management, whether it’s treasury function, whether it’s HR and labor, whether it is production and channel management, whether it’s pricing. All of those issues supply to pretty much any company not for profit sector and the government sector is finding an increasing need for people with management skills. Organizations are organizations whether they are for profit or not for profit whereas an orchestra, the heart association, a labor union, a department within the government, federal, state or municipal, all of them are organizations, all of them require management. So you’re finding that more and more MBAs are being wooed by those sectors.”

Scott Shrum from Veritas Prep who is in touch with a lot of recruiters at a lot of business schools says that schools have to respond to the current economic environment in order to help their students find those open positions, “When times are bad, now suddenly that’s when the career officers at the school really earn their money and help their students find jobs. Some of the schools do pretty creative things such as the Johnson School at Cornell, location wise they are in New York State but they are not exactly in New York City, they are pretty far away, they are kind of in the middle of nowhere. They have private jets that they fly in recruiters to Ithaca, New York every year. I wouldn’t be surprised to see them step that up this year. The other thing that a lot of schools do especially in down times, they’ll do these job treks we’ll see in an east coast school that in bad times is not going to draw any west coast employers or vice versa they will actually organize a trip, the students are paying for these trips out of their own pockets or a groups of them will organize a bunch of visits to companies on the west coast, fly out in mass, visit with these companies, try to drum up some job opportunities. What will often times happen is the recruiter stops coming to the school so the students will do anything they can to either bring the students to the recruiters or they will fly the recruiters in and try to make it as easy as possible for the recruiters.”

When it comes to career goals, business schools are advising students to think and look outside the box. Judith Hodara of Wharton Admissions says that students need to tap deeply into their schools alumni network. Hodara said Wharton for example has a network, “Of about 88,000 alums worldwide and many of them are in industries that our students might not have thought about. They may be in manufacturing, they may be in other kinds of consumer package goods, they may be in this sort of considered a non-traditional field. We’re seeing great growth in energy; we’re seeing great growth in non-profit and social impact management and entrepreneurship. So what we’re trying to do is encourage our students to certainly think about the more traditional path but also take a good look at all of the other possibilities that are out there and other ways that they can really make an impact on the environment, make an impact on their organizations without necessarily going down the path that they may have imagined for themselves when they came into the program.”

Phil Han, Director of Recruiting and Operations at Parker Career Management Center at UCLA School of Management and also a Career Counselor there said UCLA is taking a two-fold approach. First they are helping the current crop of students scheduled to graduate in 2009 prepare for a very tight job market, “We are working with those students really preparing them to think about what their plan A is and then what their plan B is. They are really considering what kind of activities, what kind of actions they get to take to be able to pursue those secondary opportunities that might be out there. Also we’re working with the students to really work with them to figure out okay what kind of things they can do off-campus. There are definitely on-campus activities with big companies and so-forth but what else is out there? What are some of the industries? What are some of the companies or types of companies that may not have dramatically impacted by the current economic situation and really giving them the tools necessary to do some of the job search of their own.” Han said UCLA is also shifting its recruiting focus to include not just fortune 100 companies but also small and mid-size local companies and asking students to do the same. “Especially for us here at UCLA where Los Angeles is such a big area of mid-size to small companies, figuring out how to outreach to those companies to say that they can really be benefited by MBA talent and be able to do that. So some of these companies may not hire 10-15 students at once but definitely they will be interested in hiring 1-2 students.”

What is UCLA doing to help prepare its students to compete for scarce career positions? “What really emphasize is that it’s not only the interview process that they will have to excel in. But really the connections and the networking that they need to do before the interviews happen so that they’ve already spoken and connected with the company prior to their interview. That it’s an easy interview because you already know several people there and you learn as much about the company as you can. Definitely get connected within the company. Definitely go out and meet the people so that they already know you before they walk into the interview and that they potentially have a positive impression of you before they walk into the interview so that you will stand out.” Han said small to mid-size companies may not be able to pay as much or provide the bonuses MBAs have come to expect in a stronger economy. But this doesn’t mean that the student can’t go for appropriate compensation, Han says, “It really depends on what kind of value the student can bring to the company and we work with the students to be able to express that as clearly as possible so that the company will be able to say wow this person will be bringing enough to the table that we should pay her to a certain level.”

Phil Han says that UCLA advises its students to think less in terms of the industry that they want to work in as the functions and skill set that they want to use, “So if investment banking involves a lot of quantitative analysis and financial, analytic work and they want to continue doing that type of work well that can be really applied to any and all industries, really. So we work with the student to really talk about and think about what industries are interesting to you. Is it technology? Is it healthcare? Is it consumer products goods and so forth and you can apply still those functions that you have been working on that you have been interested in developing to any of those fields in the corporate financial or treasury role within a lot of these companies because everyone of these companies have financial positions or MNA divisions that they can definitely use these types of students and so that’s more of the conversation that we’ve been having with the students in terms of focusing on the function that they want to be a part of.”

Is there a silver lining in this recession for MBA students and recent graduates? Many of our sources said yes. Scott Shrum, Veritas Prep, “One silver lining that we might see coming out of this economy right now is I think we may see more MBA grads going to non-profit work, starting green venture funds, anything that would benefit the environment or the community. The opportunity costs are just lower for them because they are not walking away from a six figure job if that six figure job isn’t even there.” Judith Hodara of the Wharton School of Business thinks it is a great time for students to step back, take stock and emerge in two years to a potentially stronger economy. “We’ll hoping that our students will sort of see the myriad of opportunities out there not just sort of think well Wall Street is the only answer. There are incredible ways for students to find their niches geographically, industry wise all over the world and we hope that they do take advantage of those kinds of possibilities that are becoming readily apparent.” Dave Wilson of GMAC agrees, “It is certainly a good time to invest in yourself and build your intellectual portfolio by adding an MBA to your quiver of arrows”

What words of wisdom did our sources have for people considering MBAs? Current MBA students and recent graduates? “Do very well on the GMAT that will certainly help you. Take the time to prepare. Do four weeks of good solid prep to it. But as you write your application essays first of all think of the kinds of schools that meet your profile as to what you want to do, think about what you want to do upon graduation and find out whether or not those recruiters are actually coming to that campus. As you apply to it, apply to a school that really meets the core of what it is you want to be. Don’t think of the school by necessarily by rankings, or anything else, think about a school that meets your needs and whose classmates are going to be valuable peers to you for the rest of your life.” “I think a lot of applicants who are doing everything as they should and this is the right time for them to apply, that are going to be less affected than they think they are going to be affected. If they are applying to the right school for them, they built up the right track record, they put a lot of thought into their essays, they’ve got the right people writing their letters of recommendation, regardless of what the economy is their chances are going to be good.”

Isser Gallogly, Executive Director of MBA Admissions at NYU Stern advises people who are applying to Stern to get their applications in earlier in the process rather than later. “You know it’s a rolling process of admissions, there is more seats available in the class at the start of the process than there are at the end. And the other thing I would say is you really need to put together your most competitive application and you want to do as well as you can on the test, as well as you can undergraduate.” Gallogly said now more than ever you need to have a very clear focus in your application, “Why do you want to do a MBA? Why at this time? What is your intended career? What is your plan to achieve in that intended career? And then also for us fit is important. Is Stern the right business school for you and why? What research have you done that says that Stern is the right fit? How will you excel in our environment? So we’re really looking for people who have a good sense as to who they are, why this school matches with that, and their future career. I would say one thing that people probably want to consider this year is from a career standpoint it’s their first choice opportunity does not materialize what is their back up plan. I think any good manager of any kind of business has a contingency plan in place and if economic times are a little bit more difficult what would that contingency plan be? So for example someone who thought about investment banking, perhaps their contingency plan this year would to be do a corporate finance job in a manufacturing firm. And they may want to think about those kinds of things and be able to address them in either interviews or in essays and really think about it.”

Judith Hodara, Admissions Director at the Wharton School gave her checklist of musts for would-be MBAs. Hodara said applicants need to be sure that, “Their goals are clear and realistic, that they make sense, that not everybody can become a venture capitalist overnight. For example you know that tends to be a pretty hot topic these days. And that we do encourage students to really take a good look and not just sort of follow the crowd that there are so many schools out there to think about. It’s a great time to really take stock, figure out next steps and you know make a decision that is going to have wonderful long-lasting effects, personal and professional development.”

Finally, Isser Gallogly of NYU Stern said it’s never too early to start networking. “There is no better time than after you submit your application to start working on your virtual rolodex, getting in touch with friends and family, possibly colleagues or alumni from your undergraduate program and start to network with them in their field that you are trying to go into and start to work on your story and building context because it can only serve to help you.”

For more information, a transcript of this show or to register for your weekly MBA podcast, visit MBAPodcaster.com. This is MBA Podcaster. I’m Catherine Girardeau, thanks for listening and come back next time when we explore another topic of interest in your quest for a MBA.