When I saw the NYT headline (“Is Michigan State Really Better than Yale?” I presumed it was a rhetorical question. It wasn’t. While most of us think of Yale as an elite school, it’s business school is ranked 21st–below Michigan State’s.
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.
[…]
[T]he 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.
[…]
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.
This seems to confuse very different things. First, there’s simple prestige associated with being able to list a school on your CV. Second, there’s the network effects that come from having attended said school. Third, there’s bang for the buck: added earnings compared to the out-of-pocket costs of going to the school. Fourth, there’s the sheer number of people the school can train in useful business skills. Fifth, there’s whatever value the school’s graduates bring to society.
Let’s stipulate at the outset that the overwhelming number of those entering MBA programs place very little premium on the last of these.
To the extent that Yale’s business model is to charge roughly the same as its top tier competitors while spending more to do it and producing fewer graduates, it’s hardly surprising that it’s failing, relatively speaking, at the first three. Presuming that there are plenty of top tier students available to attend B-school, packing 20 of them into a room rather than 8 is not only more cost efficient but brings a force multiplier effect. That is, there’s a 2.5 to 1 advantage in the number of graduates who 1) have the potential to become superstars, thus lending their prestige to your school; 2) for other graduates to network with; and 3) donate money to your institution thus enabling it to attract better professors, attract the most promising students by giving them free rides, and creating impressive facilities.
In terms of the “commodification” argument, it’s antithetical to the first three goals as well. For a school that has no ambitions of moving into the top tier in terms of prestige, it may well be a great business strategy to put a lot of courses online to allow students from around the world to learn useful skills and earn credentials that will help advance their careers. But “commodity” and “prestige” are polar opposites; Harvard has a very strong interest in ensuring that its MBA is seen a signifier of elite status.
As a side note, it’s worth point out that Yale’s rating is much higher in some other rankings. For example, the B-school is ranked 10th by US News, same as it was last year.
