HOW TO THINK OF MBA RANKINGS
LIKE STOCK PRICES
By Dominic Basulto
There is no question that the release of the latest
business school rankings is a highly anticipated event for MBA students.
In September 2000, prior to the release of its biennial MBA rankings,
Business Week hosted an online chat and "countdown" on its
website in order to build excitement over the new rankings. On campus,
soon-to-be graduates view the rankings as having the direct potential
to increase their marketability in the job market, and hence, increase
their post-MBA salary. Likewise, recruiters feel pressure to land the
most highly skilled talent from the "best" B-schools.
Much as the stock price of a company reflects the
ability of management to maximize "stakeholder value," so
do the latest MBA rankings from Business Week seek to address value-creation
from the standpoints of the two major stakeholders- recruiters and students.
After all, the total ranking derives from a composite weighting of "student
satisfaction" (45%), "recruiter satisfaction" (45%),
and intellectual capital (10%). In this framework, this third component
(intellectual capital) represents the R & D ("research and
development") efforts of the B-schools to stay abreast of the leading
management theories. A high ranking in the polls is similar to a high
stock price- it represents a well-managed company that actively seeks
to address shareholder value, while marketing a constantly-evolving
product (management education) to end-consumers. In this way, Wharton
(ranked #1 in 1994, 1996, 1998, and 2000); Kellogg (ranked #1 in 1988,
1990, 1992 and #2 in 1994, 1998 and 2000); and Harvard (ranked in the
Top 5 since 1988) are the "blue chips" of the B-school world.
THE BEST BUSINESS SCHOOLS SEEK TO MAXIMIZE STAKEHOLDER
Just as large corporations must address the concerns
of stakeholders (equity holders, debt holders, and employees), B-schools
must also consistently seek to boost stakeholder value. The "student
satisfaction" metric comprises such elements as how well the curriculum
prepares them for post-MBA careers, while the "recruiter satisfaction"
metric measures factors such as how well the B-school produces graduates
with analytical or teambuilding skills. The B-school must align these
two interests. How a B-school responds to the two most prevalent forces
in the world economy- globalization and technological advance- largely
determine how well both graduates and recruiters view the B-school.
For example, B-schools might respond to the globalization trend by offering
more courses emphasizing non-Western case studies; actively admitting
a wider international mix of students; or seeking to attract more multinational
Staying ahead of the curve is a tricky balancing act.
B-schools that move too quickly risk being enslaved to trends, while
B-schools that move too slowly risk being left behind and subsequently
penalized by disgruntled students and recruiters. Current Kellogg Dean
Donald J. Jacobs epitomizes how to maximize stakeholder value, keeping
Kellogg in the Top 3 for over twelve years. In doing so, he has recognized
the developments in the business world and responded decisively. Kellogg
has been able to "turn on a dime," introducing an e-commerce
program within 1 month, while other U.S. B-schools took over 1 year.
Kellogg has also espoused innovative trends such as moving from a purely
theoretical to a practical, real-world approach in the curriculum; endorsing
a customer service approach to current students; demonstrating
a willingness to overhaul a successful curriculum to include elements
like e-commerce; stressing cooperation and teamwork rather than competition;
and emphasizing the personal element of the application process by requiring
personal interviews of all applicants. By espousing these trends, Kellogg
created value for students and recruiters alike and maintained its position
in the rankings.
EXISTENCE OF A STRONG MBA "BRAND" CREATES VALUE
For Russian applicants, the notion that a B-school
needs to conduct large-scale marketing campaigns and engage in PR tactics
may sound strange. After all, prestigious universities in Moscow such
as MGIMO, MGU, or Moscow Linguistics University do not need to market
themselves, do they? Business schools are more similar to corporations
than to universities, however. It is perhaps instructive to think of
B-schools as corporations that produce a product (the MBA) that must
be sold to a highly targeted, niche audience. There are literally thousands
of MBA programs in America and Europe, all selling the same standardized
product, and these programs need to differentiate themselves. American
industry is littered with case studies of companies with highly successful
products that failed to respond to competitor challenges or embrace
new technologies (with the end result being depressed stock prices or
even bankruptcy). The marketing campaigns for B-schools comprise elements
such as advertising in leading business journals or newspapers; dissemination
of slick brochures; production of case studies; placing of scholarly
articles in journals; sponsorship of conferences and business roundtables;
and appearance of faculty members as "experts" on news shows.
Look at the London Business School website- theres a full section
called "resources for the media" for journalists needing quotes
or data for an upcoming article.
Thus, B-schools seek to maintain their reputations
and build on their prestige in order to create a recognizable brand.
As part of their marketing campaign, B-schools seek to convince students
that they offer a cutting-edge education desirable to deep-pocketed
recruiters willing to pay $100,000 per year while simultaneously convincing
recruiters that they are paying fair market value for future corporate
managers. The major aspect of this marketing is the development of a
coherent brand- "the high tech business school" (Stanford)
or the "Wall Street business school" (Columbia) or "the
B-school of future CEOs" (Harvard). Stanford, by cultivating links
within Silicon Valley, currently places about 40% of its graduates with
Internet-related firms, and 75% in California alone. Obviously, this
produces big short-term dividends when the high-tech sector is producing
unheralded riches, but may not resonate well with "Old Economy"
firms and students desiring a more traditional management education.
Since 1994, Stanford has fallen from #4 to #11 in the rankings and applications
are down 20% since 1998.
In conclusion, the rankings comprise primarily qualitative
factors (after all, how can one really measure "satisfaction"?),
rather than easily comparable quantitative factors. True, Business Week
rankings include data that can be mathematically assimilated (average
post-MBA salary, average number of job offers, acceptance rate), but
these numbers are not directly incorporated into the rankings algorithm.
Moreover, the data points are only from 1996, 1998, and 2000, meaning
that the opinion of a Harvard grad who received his/her MBA in 1970
and is currently CEO of a multinational company is irrelevant. Think
critically about the polls, and what they really mean. Higher-ranked
B-schools are similar to well-managed corporations trading at high stock
multiples- but would you want to own a well-managed automobile maker
if the forecast for the automobile sector is for a recession in key
markets and downward pressure on margins? Would you want to own a high-flying
Internet stock when investors are relentlessly punishing these firms
in the equity markets? Likewise, would you want to attend a B-school
that is currently well-managed but is not prepared for the continued
trends within management education or that is experiencing deterioration
in its "brand"? Basing one's choice of B-school solely upon
the rankings or upon statistical measures such as average salary leads
one to think of the British statesman Benjamin Disraeli who once remarked,
"There are three kinds of lies: lies, damned lies
Dominic Basulto is a 1998 graduate of Yale School
of Management and currently works as a consultant for Pericles ABLE
(American Business and Legal Education) in Moscow. Pericles offers a
full MBA advising program.