Monday, November 17, 2008

The trauma of business school rankings

Apparently Business Week released their business school rankings last Thursday. Although I had their blog on my RSS reader, I hadn’t heard about it until today when a friend of a friend had to cancel a meeting due to a college-wide crisis brought on by a traumatic fall in the rankings.

In the new rankings, Chicago repeated at #1. This time, it’s with the donation by stock fund manager and alumnus David Booth, that renamed it the “University of Chicago Booth School of Business.” (“Chicago Booth” for short.). The gift “is valued at $300 million” although that seems to include some pledges and NPV calculations that make it different from $300m cash.

There are a lot of rankings for full-time MBA programs: Business Week, US News, the Financial Times and (most recently) the Wall Street Journal. Although I’ve seen schools tout the one that makes them look best (UCI was once a fan of the FT list), my sense is that Business Week carries the most weight in the US and the FT everywhere else.

They nominally use similar constructs: input quality, output quality, faculty quality. But how they operationalize that may differ: for example, Business Week measures both pre- and post-MBA pay, which is fascinating because (they report) Wharton grads go from $80k to $120k but Darmouth grads climb from $65k to $115k.

There are some important differences. The FT uses the most transparent measure of faculty quality, by counting research articles in a well-known list of "Top 40” journals. The WSJ (working with Harris Interactive) puts a heavy emphasis on recruiters, allowing them to punish the snotty, self-important (but probably smarter) hotshots at schools like Harvard and Stanford.

The face validity of some is also more suspect than others. Normally Harvard and Stanford are vying for #1 — both in the reports and in the minds of b-school academics — but Harvard has been #4 or #5 most of the past few years and Stanford has rarely cracked the top five. (This informal reputation does tend to lag by several years changes in the real world). The WSJ rankings are hard to figure out.

The FT had the advantage of being the only study that put European schools on the same scale as the Americans, to provide some elements of comparability. In 2000, Business Week has added international rankings, but not on the same scale. They have the usual suspects — INSEAD, Western Ontario, London, adding fast-rising IESE from nowhere to the #2 spot. Still, the decision to rank Queen’s ahead of Western Ontario

Business Week helpfully provides a table of the biennial rankings over the past 20 years, which nicely proves a point I’ve been trying to make for eight years. When I visit a top 50 b-school, I find rankings are always a concern. When I hear some dean (or faculty member or donor) say “we’re going to get into the Business Week top 30” (or the US News top 25 or top 50), my question is always: “who’s going to volunteer to leave?”

This year, four schools added to the list: SMU (#18), BYU (#22), UW Seattle (#27) and Georgia Tech (#29). All are informally considered top 50 schools, and both SMU and Tech had been in the BW rankings before. To make room for these four schools, four also left the top 30: Georgetown (top 30 for 4 of the past 5 surveys), Michigan State (3 of 5), Purdue (6 of 8) and Rochester (6 of 11).

Looking at the list, I would expect 2 or 3 of the schools ranked #23-30 will be gone in 2010, but otherwise the same cast will be jockeying for position among the each other.

Is this healthy? Does it matter? It certainly has consequences: I predict that at least one (probably two) of the four deans will be forced to resign in the next year. But do these metrics make schools better? Probably not — schools are now “teaching to the test” in hopes of improving their scores on the various metrics.

Still, I don’t see the b-school deans calling for a boycott of rankings the way law school deans have. Accountability and external metrics — however flawed — force organizations to be more effective and/or more efficient. Plus there’s the “prisoner’s dilemma” — if the top 10 schools unilaterally disarm, then schools #11-20 will exploit that to become the new top 10. The lawyers think they can organize collective action to destroy the rankings, but I think they ought to go back and read their Mancur Olson.

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