Monthly Archives: January 2014

RC 2nd term

The tranquility of winter break is but a memory now, with the second semester kicking off tomorrow.  Campus is alive with returning students with massive amounts of luggage in tow, looking very refreshed.

As I wrote in an earlier post, the first year at HBS is called Required Curriculum (RC) and all students take the same courses. Our second semester course load is as follows:

    • LCA: Leadership & Corporate Accountability
    • BGIE: Business, Government, and the International Economy
    • STRAT: Strategy
    • TEM: The Entrepreneurial Manager
    • FIN2: Finance 2
    • FIELD3: Field Immersion Experiences for Leadership Development 3

As one would expect from the title “Required”, all classes are essential to business leaders, and are also known as crown subjects. FIELD 3 carries on from the first semester, and this time we venture into small startup businesses.

Term2 Cases

The first semester flew by leaving us with a high level of fatigue, but I am hoping the second semester will be more enjoyable, allowing increased time for extracurricular activities.


How competitive is to get into HBS?

The HBS MBA admission process is currently in the middle of round 2. Applicants have finished submitting applications, and are now awaiting interview invitations from the admissions office. A painful and anxiety-ridden time. The only consolation is that HBS is very transparent with its application process, disclosing the dates they release interview invitations; January 29th and February 5th this year.

Do you know the acceptance rate to the HBS MBA program? HBS discloses this data on its annual report.

Acceptance Rate

The acceptance rate has remained steady at 11-13% over the past five years. Not high, but not too low either. More than one in 10 applicants are admitted every year. Does that factoid give you a feeling of relief?

However, the competition looks totally different when you consider other factors: business background, age, nationality, etc. The most prominent one is nationality. The number of applications to the MBA program is generally affected by short-term macroeconomic trends, but is also affected by the long-term momentum of applicants’ countries.

Thirty years ago, in the heyday of the Japanese economy, the number of Japanese applicants increased dramatically. As a result, even though the overall acceptance rate was stable, the percentage of successful Japanese applicants decreased significantly. Although the number of admitted Japanese students increased, the increase in the number of applicants far exceeded it, making for brutal competition.

Now, we see the same thing occurring with rapidly developing countries – specifically China and India.

Flags

There are forty-five Indian and sixteen Chinese students in RC. The number of students from these two countries is increasing year by year. It is said that, however, there were 1,000+ applications from India and 500+ applications from China in 2013. That means, the acceptance rate for students from these countries was between 3-5%, much lower than the overall MBA program.

The key takeaway from these facts is, “Be careful. Average is just average. You may be on a different plane”.

Don't believe average


HBS Alumni: What do they do?

As this is recruiting week, I continue along in the same vein as my past two posts.

Today we explore the question, “what are HBS alums doing after graduation?” HBS furnishes students with an extensive alumni database providing a big picture of HBS students’ paths from several aspects.

(Currently there are over 44,000 living HBS alums, and following data reflects that fact)

First, we examine the positions they hold.

Alumni by Position

About one in four HBS graduates is the CEO or President of a company. Expanding our view we see approximately 40% of HBS alums hold top executive positions: vice president, chairman of the Board, COO and CFO.  As this includes all living alums, regardless of age (20s to 90s), should we narrow our scope to those in middle-age (40s to 60s), we would doubtless see a higher proportion holding these positions.

It is a widely held fact that more than 10% of Fortune 500 CEOs are HBS alums, far higher than grads from other business schools. However, as the number of students pursuing careers at Fortune 500 companies is declining, we can expect a change in this number.

 

Turning our attention to the industry in which they work -

Alumni by Industry

Twenty-four and fourteen percent of HBS alums work for finance and consulting industries respectively. This is in line with the HBS current students’ class profile. Many HBS students come from finance and consulting, and many take employment in the same industries (a caveat here – they aren’t necessarily the same people who were originally in these fields when they arrived at HBS).

Examining the breakdown of these two industries, we find the finance industry consists of various sub-industries: commercial banking, investment banking, hedge fund, private equity, asset management, and so on. However, a few top companies dominate the consulting industry. At the top, McKinsey accounts for 20% of HBS alums working in the industry. In other words, McKinsey employs in excess of 1,200 HBS alums. McKinsey and HBS appear to have a very close relationship.

 

Personally I don’t like the latter statistics. Advocating the importance of diversity, HBS is still skewed to certain industries. Starting my own company, I would like to contribute to the expansion of the gray (“other”) zone in the pie chart.


Investment Banking: It was a different world (2)

In mid-2008, right after my first annual performance review, the cocooned world of investment banking suddenly changed.

The first blast came with the news of Bear Sterns’ financial difficulty. Since early 2008, we had been hearing negative news concerning the real estate market, but Bear’s news alerted us to the fact the crisis was close at hand to the investment banking industry. On May 30th, Bear Sterns, the fifth largest investment bank in the US, was acquired by J.P. Morgan – salvation. The next blasts occurred in quick succession that September. Following the nationalization of Freddie Mac and Fannie Mae; Lehman Brothers, the fourth largest investment bank in the US, filed for bankruptcy after many failed attempts to save the company.

I clearly remember the day of Lehman’s bankruptcy. It was September 15th. One of my colleagues watching the Bloomberg terminal suddenly screamed, “Lehman has folded up!” His voice echoed throughout our floor, and 160 investment bankers stopped dead in their tracks. After a moment of silence, some people started checking the news on their computer, and others scrambled to the Bloomberg terminal. Since my desk was next to the terminal, my desk was surrounded with my team members. The monitor was displaying market news and stock prices of the investment banks. Goldman Sachs, Morgan Stanley – all stock prices were falling by the second. $38, $36, $33, $29, $26…looking at the falling stock price of my company, I asked a managing director, “are we going to go bankrupt?” He said nothing, continuing to stare at the monitor.

Financial Crisis

Since then, the world has totally changed. All investment banks downsized, many people left the industry, and some divisions even vanished into thin air. Survivors also had a difficult time. Many deal opportunities evaporated, companies continued restructuring, and investment bankers lived with the specter of lay offs.

After several years, the financial industry now seems to have regained its footing. However, investment banks are not as “shiny” as they had been, and the lives of investment bankers are totally different from what they were in 2007. Recently I talked with an old colleague at Morgan Stanley, and he told me that the company doesn’t reimburse $40 for dinner anymore, and new hires’ expectation for their performance bonus is far smaller than their base salary. He didn’t say so, but I suspect that these days managing directors may be scrutinizing menus when they select wine.

Bull Down

That’s the financial industry. Economic upturns and downturns come on a ten-year cycle. It’s inevitable. Luck is a critical factor for success in the investment banking business.

 


Investment Banking: It was a different world (1)

In 2007, I jumped into the “real” world. I was 23. It was literally a financial bubble. Everything was crazy.

During my first month, I participated in a one-month new hire training program in NYC. When I left my office to go to the airport, my boss gave me a thick envelope, saying “go for a drink with your colleagues.” I went down to the carriage porch, and found a senior driver standing by a black fancy car. He politely introduced himself, and gave me a cold drink and that day’s Financial Times. On the way to the airport, I opened the envelope. It contained a thousand dollars in cash. I had no idea where to go for a drink with it.

MS

After finishing training, armed with a thin veneer of knowledge in corporate finance, I returned to my home office. What awaited me was an incredible volume of work. I was thrown into various deals, and worked day and night at a dizzying pace. No joke – in the morning, I settled at my desk, broke some bread into small pieces, set them on the corner of my desk, and ate a piece whenever I had a moment during the day.

My only pleasure came at dinnertime. The company reimbursed our dinner up to $40 and I spent the full $40 every day, gaining 9 pounds in the first three months. My bosses also often took me out to dine. They always went to the most upscale restaurants, and spent money like water. Ordering wine, they didn’t even bother with the menu, but just said “the most expensive one.”

The first year passed quickly, and we had our yearend performance reviews. It was also the day we were informed of our annual performance bonus. At investment banks, the performance bonus fluctuates greatly year-by-year, dependent on the economy and the company’s performance. Since it was my first year, I had no idea how much to expect. During the performance feedback, my mind was somewhere else. When the division head gave me a piece of paper at the end of the meeting, I finally came to my senses. At the bottom of the sheet of paper, I found my performance bonus for the year. The number was greater than my annual base salary.

What in the world had I come to? Is this sustainable? I was feasting on the rewards of the financial bubble, and losing my sense of the value of money in the process.

However, it didn’t last long…

 

(To be continued)


Consulting vs. Investment Banking

Given my experience working in consulting and investment banking* (3 years in each field), the most-asked questions I receive are, “What are the differences? Which do you prefer?” Standing on the verge of Hell Week, I was recently asked the same questions from some of my section mates.

Here are my thoughts.

Similarities:

The biggest common factor is the existence of a “teamwork culture”. At both consulting firms and investment banks, everything is a team effort. Teams usually consist of four to six people. For instance, at a consulting firm, a team may consist of a managing director, a project leader, a consultant, and 2-3 associates. Since the team members share good and bad times during the project, it is quite important each team member has good interpersonal and teamwork skills. When I interviewed candidates, I was always asking myself “do I want to work with this person for 20 hours a day?”

“Up or out” is also an important common factor. Consultants and investment bankers are required to dash up their career steps and can’t stay at a step longer than a specified period of time. Usually they need to be promoted to the next step within 2 to 3 years (UP), and if they cannot do so, they have to leave the company (OUT).

Another common factor is “top management issue focus”. Both consulting firms and investment banks always deal with CEO agendas, and the team frequently interacts with the client company’s executives. In a meeting, even if you are a junior analyst, the executives ask you “what should we do?” with the expectation that you will answer. Inevitably, consultants and investment bankers have to hone their general management and decision-making skills. This is why these jobs attract many MBA students.

Differences:

The biggest difference is the acquirable skills gained through the two jobs. If you spend your career as an investment banker, your core skill would be hard skills – financial modeling, due diligence, accounting and corporate law. On the other hand, if you work for a consulting firm, you would acquire soft skills – strategic planning, project management, and critical thinking. The important thing to note is that these skills are all essential for business management, and they complement each other.

From a business perspective, there are many differences. While investment banks usually work on a success-fee basis (plus a retainer fee); consulting firms work on a monthly fee. Junior investment bankers work on multiple projects (2-5) simultaneously, but junior consultants usually focus on 1 or 2 projects. Deal origination and execution are different careers at an investment bank, but consultants work on both types of projects. And so on.

Other frequently asked comparisons are as follows:

Consulting vs. IB

To get a clearer picture, you may want to view this classic video.

YouTube Preview Image

 

Personally I prefer consulting.


*: Here, investment banking refers to so called Investment Banking Divisions, which provide M&A advisory and financing services to corporate clients. Other divisions, such as Capital Markets, Equity Research, and Asset Management, are not included.


Hell Week

Successfully finishing the FIELD 2 program in Shanghai, I returned to Boston after a month’s absence. I was fortunate enough to miss the heavy snowfall in early January while I was in Chile. The ice on the Charles has melted, but snow lingers on campus.

HBS Winter

The remaining two weeks before the start of the second semester, February 27th, have varied meanings to HBS students, depending on their situation.

For some students, this period is called “Hell Week”. During this period, more than a hundred companies come to campus to interview HBS students. To make students focus on academics, HBS prohibits recruiters from interviewing students before Hell Week, but this week they arrive with a vengeance.  At this time of year, almost all the hotel rooms around HBS are reserved by companies, and used for the interviewing of prospective employees. Students go through multiple job interviews from early morning to evening, and attend recruiting dinners at night. As these are incredibly intense times, many students go up the wall.

It is said that 30-50% of students get offer(s) for summer jobs during Hell Week, while other students continue recruiting activities until May.

However, this period has a totally opposite meaning to other students: company sponsored students, students with family business background, and students aiming to start their own companies after graduation. For these students, it’s “Heaven Week”. To soothe their fatigue from the FIELD 2 trip, they usually go to beach resorts, such as Miami, Caribbean, and Jamaica.

Heaven Hell

Fortunately I’m in the latter group. However, since I’ve already traveled a lot during the winter break (flew 67 hours!), I decided to stay in Boston this time.


FIELD 2: Shanghai!

After finishing an adventurous two-week South American trip, I am now in Shanghai, China. At this moment 940 HBS 1st year students are spread all over the world experiencing an exciting time in developing countries under the FIELD 2 program.

On Monday, 48 students from different sections gathered in a conference room of a local Chinese hotel, and the much-awaited field trip finally started. Although it is a field trip to developing countries, the setting is very upscale. We stay at a five star hotel located in the center of Shanghai, each student is given an iPhone, and each team provided a team driver and a translator. Hmm, HBS always spoils us… The first day was spent sightseeing (to familiarize ourselves with the local market, of course).

DSC02556

DSC02555

Currently, we are busy conducting customer research and collaborating with our client partner. The good thing is – Chinese people are really nice; very friendly and patient as we conduct our interviews. We are constantly hearing of the amazing, rapid change China is now experiencing. A telling expression from an HBS alumnus (class of 1981) who is running his own company in Shanghai – “A generation in China lasts for five years.” It’s like we are seeing, with our own eyes, the turbulent days experienced in Japan 40 years ago.

The bad thing is – it’s very smoggy. We see people wearing anti-dust masks everywhere. I guess it was not as bad 3 years ago, but now it can be likened to wandering around in an early morning fog after a rainfall. Another result of rapid development.

Anyway, we are enjoying Shanghai life and the project is going well so far.