Paul Oyer: Just How Important Is Previous Experience in the Job Hunt?

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Applying for that dream job despite a lack of experience? It might be easier to try for an internship first. | Reuters/Rick Wilking

This won’t come as a shock, but if you want a job as an investment banker after getting an MBA, you’re better off if you’ve already worked in investment banking. But just how important is this background? And is there any point in applying if you have, say, a consulting or even a nonprofit past?

In a recent study, Paul Oyer, an economist at Stanford Graduate School of Business, found evidence of just how much hiring companies value industry experience, and which factors make them more or less risk-averse.

Along with University of North Carolina Kenan-Flagler Business School’s Camelia Kuhnen (who earned her PhD at Stanford GSB), Oyer examined how MBAs at a top business school applied for and received offers for summer internships and then full-time jobs. Their findings support the assumption that companies want to minimize risk when it comes to hiring decisions. For example, they found that a candidate with industry experience is 1.66 times more likely to land an internship than one without. For full-time job offers, the odds of securing an offer jump to 2.38 times more likely for a candidate with industry experience. On the other hand, the research also pinpoints the types of companies that are more willing to take a chance on someone with less certainty around their specific industry fit.

Oyer’s research has direct applications for anyone looking to make a career switch via an MBA program. We talked with Oyer about his findings; the interview, below, has been edited for length and clarity.

What made you want to study the processes companies use to hire MBAs?

Labor economists have done a very good job over the last 20 years or so of studying incentives within firms. But the hiring process is a little more of a black box. We have a lot of really good models, but we haven’t seen a lot of facts and really understood exactly how that process works.

What aspect of the hiring process did you look at, in particular?

We ended up focusing on industry experience because a lot of people come to business school thinking they’re going to change industries or learn something so they can go back to their old industry. Anecdotally, I’d always seen from students that changing industries, even in a top business school, is harder than you think it’s going to be. If you come in with a nonprofit background, you’re going to be less attractive to Goldman Sachs than if you came in with a commercial banking background. The data bear that out quite well, it turns out. Some of that is preference on the student’s part — people who came from banking want to go back to banking. But a lot of it appears to be on the firm’s side.

So is industry experience the primary driver of hiring?

It’s one of the primary drivers, but it’s not the primary driver. One thing we can’t measure is the degree to which the interview process itself drives who gets hired and who doesn’t.

Do companies behave differently when deciding on summer interns than when considering full-time employees?

As people know, it’s easy to hire somebody but hard to fire them. If they’re summer interns, it’s not very hard to fire them. They leave anyway at the end of the summer. There’s really very low cost of making a mistake. But one of the things an internship is about is experimenting so both sides can gauge if this is a good fit or not.

When a firm goes to hire somebody who’s coming out of their second year of an MBA program, it’s a much bigger commitment. Firms are much more conservative. If it doesn’t work out, they will have given up the chance to hire someone else and will have to figure out a way to gracefully get rid of that person.

The key thing to think about here is that we have, as economists would call it, a two-sided matching process going on. Firms and workers are trying to find the best fit for each other. It’s not just the firms trying to find the best person. If it were that, everybody would be going after the same people. It’s trying to find the right match — somebody who’s going to be productive at your firm and find the job rewarding either financially or intrinsically, or some other way. So both sides are going to be somewhat risk-averse about that.

How do qualities of the hiring firm — like its size or prestige — change the equation?

Suppose you’re a huge firm that operates in lots of different businesses. Suppose there’s actually a good job somewhere within your business for every reasonably talented person who comes out of a top MBA program. That firm doesn’t have to worry so much about your industry experience. That firm can move you around and find the best place.

Another proxy for how willing a firm might be to take a chance on a person is the prestige of the firm. Let’s take a historically very prestigious firm hiring MBAs. Consulting is no longer the hot industry, but historically a place like McKinsey was a place everybody wanted to work. They could take a chance on people who seemed really smart and creative because if it didn’t work out, they could just go hire somebody else instead. There were 10 more people waiting in line.

Whereas if you’re Joe’s Startup Consulting Firm and you only have five people in your firm and nobody really knows your firm very well, if somebody doesn’t work out, suddenly you have only four people to do the work of five. And you need to go replace that person, but nobody’s ever heard of Joe’s Startup Consulting Firm, and it’s difficult.

That all makes sense intuitively. What do you see in the data? You see that firms that are bigger and firms that are more prestigious are willing to take more risks on people from outside their industry.

What’s the takeaway here for MBAs?

The big lesson for MBAs is if you came to business school to change industries, spend your first year taking classes, orient it toward the industry you think you might want to get into, and try to get a summer job that’s going to help you break into that industry. I think the career office has been telling students that for a long time. The data are suggestive that that’s true.

The other thing I would remind people is to think carefully before you jump into business school about whether switching industries is as realistic as you’d hoped. Have some backup plans, or be willing to take other steps to get from point A to point B before you invest two years of your life and hundreds of thousands of dollars.

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