Wednesday, August 15, 2012

The Yale Plan To Unseat Harvard From The Biz-School Catbird Seat

Holding his nose at the rising stench of corruption in big-time college athletics, this blogger saw something of interest in the NY Fishwrap that didn't reek. Yale trails Harvard (badly) in the biz-school rankings. So, Yale is developing a game plan to grab the brass ring among biz-schools. Stay tuned. If this is today's (fair & balanced) biz-buzz, so be it.

[x NY Fishwrap 'Zine]
Is Michigan State Really Better Than Yale?
By Adam Davidson

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During the M.B.A. gold rush of the past three decades, the Yale School of Management accomplished the unthinkable. As the number of prospective business-school candidates shot up to more than 750,000 a year and tuition payments cleared $100,000, Harvard, Stanford, the University of Chicago and other schools hired star faculty members, built gleaming buildings, established themselves as global brands and brought in tens (and sometimes hundreds) of millions in profits to their universities each year. Meanwhile, Yale somehow lost money.

Specifically, Yale “lost $15 to $20 million over the last 15 years,” says Edward Snyder, the new dean of the Yale School of Management. It remained small (400 students), maintained an unusually low student-to-faculty ratio of 8 to 1 (most top schools are closer to 20 to 1) and offered only limited versions of some of its industry’s most lucrative products (like part-time and executive M.B.A.’s). Most significantly it developed a reputation as a bastion of socially minded do-gooders who were less focused on maximizing profit. According to Bloomberg Businessweek’s latest rankings of the top M.B.A. programs, Yale placed 21st, right behind Michigan State.

Snyder has become the top hired gun in the business of business schools. An academic economist by trade, he built his reputation through successful stints as a deputy dean at the University of Michigan and dean at the University of Virginia. Snyder then turned the University of Chicago business school into the top-rated program in the country. In 2008, he reeled in a $300 million donation from David Booth, a hedge-fund manager and alumnus. It was the school’s largest gift ever and enough to change the name to Chicago Booth. Now he’s hoping to pull off a similar turnaround at Yale. That will almost certainly require shedding its do-gooder reputation.

Successful business schools have become major businesses themselves, but as I spoke to Snyder, I realized that the ones that bring in the most money might be doing the least for the global economy. It wasn’t always this way. In the early 1950s, my grandfather paid around $800 a year to attend Harvard Business School. The course work gave him some practical skills that helped him move up from assistant foreman to full foreman at the same machine-tool company. These days, though, the value of your M.B.A. is as much symbolic as practical. With increased global competition, the real money is in résumé polishing and status, not supply-chain management. Harvard Business School now costs about $120,000, which, after taking into account room and board and two years of lost wages, comes to around $400,000 in real cost. This year, more than 10,000 people applied for fewer than 900 slots.

Harvard and the other top schools can charge their students (or customers, really) a huge markup for the same reason that Nike or Apple can. This leaves the hundreds of lower-tier business schools competing as something of an undifferentiated mass. These commodity-level players, like the Ourso College of Business at Louisiana State University, are effectively stuck with the increasingly difficult task of trying to distinguish themselves.

It is important to remember, though, that the basic tools of business are commodities. There are countless courses, books and on-the-job programs that teach the proper rules of accounting, the best practices for developing strategy and the key components of a business plan. Harvard’s basic accounting course might be a bit better than, say, the University of Wisconsin’s, but is it so much better as to justify three times the price?

Placing a value on intangibles is inherently squishy, but the Bloomberg Businessweek rankings have tried to cut through the murkiness by ranking the top M.B.A. programs two ways. Its prestige-and-overall-quality ranking garners the expected results (Chicago, Harvard, Stanford, and so forth). But its best-value-for-money calculation, which ranks the schools based on a ratio of debt and earnings for recent graduates, finds that the costs of the top-flight schools eat away most of their value. Graduates of elite business schools, the survey found, make an average salary of $160,000 one year out of school. In 20 years, they averaged around $200,000 a year. That’s a lot of money, but probably nowhere near what many were expecting. Graduates were also likely to be heavily in debt and trying to get by in expensive cities. On the other hand, graduates of Ourso at L.S.U., the poll’s top-ranked value school, earned about $60,000 a year on average, but they were more likely to live in lower-cost regions and less likely to be in debt.

Snyder’s growth plan for Yale is certainly not to offer the best value for money. He sees Yale as the one second-tier school with a real shot at making it to the top. But as I sat in Snyder’s large office in an old mansion in New Haven, I felt the need to admit that I’m rooting against him (sort of). Commoditized business education might not be prestigious, but it could produce extraordinary economic change. Some of the less elite schools, like the University of California, Irvine, are already offering free online courses in business fundamentals. Distributed digital education is still in its infancy, but it’s easy to imagine that all sorts of educational tools will eventually be offered online or, better, on the inexpensive mobile phones that are all over the developing world.

The most disruptive development in the business world right now is that billions of people in China, India, Latin America, Africa and elsewhere have joined the world’s market economies. There are hundreds of millions of small farmers, shopkeepers and potential entrepreneurs for whom mass business-educational tools could be transformational in ways that make a handful of top schools seem utterly irrelevant. While reporting in Haiti once, I met Yvrose Jean Baptiste, a microentrepreneur who made a meager living by buying groceries on the Dominican border and taking them, by bus, to Port-au-Prince to sell for a few pennies of profit. After spending a few days with Baptiste, I found it obvious that she had a sharp business instinct. The idea of giving her — and millions like her — a basic business education seems much more economically important than helping a tiny group of ambitious overachievers pay a fortune for a degree that seems more about helping people get a job than preparing them to do it.

Snyder surprised me by saying that he agrees (sort of). Offering commoditized business-education technology can help the world’s poor. But, he said, elite multinationals face unique problems that require elite training. He recently returned from China, where almost all of the nation’s 73 Fortune 500 companies are in commodities businesses. Elite schools, he said, need to teach skills that can help China move beyond commodities and create global brands. “Who is going to solve that?” he asked. “It takes pretty big insights and big execution. There’s a role for the top business schools in solving problems like that.”

As I left Snyder’s office and walked out into Yale’s verdant campus, I remembered that he has his own global brand to worry about. Yale, unlike the commodity programs, can’t offer all of its classes free and build its prestige. High-end and mass business education probably will continue to exist side by side, but the question is what their relationship will be. High-end restaurants were once an elitist pleasure, but they undoubtedly influenced the organic foods that we now buy everywhere, from supermarkets to fast-food chains and lunch trucks. In the food industry, unlike many luxury-goods businesses, the high- and low-end businesses have conspired to offer the best possible stuff to the masses. It would make a great business-school case study.


This being business school, Edward Snyder, the new dean of the Yale School of Management, has a five-step plan for how to turn any middling institution into a leader in the field.

1. Start by focusing on the sectors where the school has strong relationships and build from there. Or, as Snyder says, ‘‘Give up the undifferentiated, multi-brass-ring strategy of best recruiters, best students, best facilities, blah, blah, blah.’’

2. Embrace a mix of faculty, particularly those with real-world experience. ‘‘You’ll still want some strong, fast-ball-discipline types in areas like economics, finance and psychology to teach how markets work and function,’’ Snyder says. ‘‘But get fewer of them.’’

3. Calculate the cost of things — any things! ‘‘Be very focused on and systematic about collecting data and sharing data with other schools around the country and the world,’’ he says. ‘‘Collect data on industries and on markets. It’s really valuable for students to do that, and you’ll make your school valuable for insight and information.’’ Extra credit: ‘‘It’s good for branding.’’

4. Offer a broader mix of programs, including part-time ones. ‘‘That’s more affordable in today’s economy and where the market at business schools is going.’’

5. Book your ticket to Gdansk! ‘‘If you’re going to be global, be selective and try to identify a less well served country like Vietnam or Poland instead of China. Pick places with young populations that don’t already have a lot of business schools.’’ Ω

[Adam Davidson writes the It’s the Economy column for The New York Times Magazine. He  co-founded "Planet Money," NPR’s team of economics reporters whose goal is to translate often confusing and sometimes terrifying economic and financial news. Davidson was the Middle East correspondent for the public-radio program “Marketplace” (2003-2004). He has also written articles for the Atlantic, Harper’s, GQ, Rolling Stone and others. Adam Davidson received a BA (Religion and the Humanities) from the University of Chicago.]

Copyright © 2012 The New York Times Company

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