Friday, May 27, 2005

Collusion Behind the Ivy Walls? Harvard, Wharton, and the Business School Rankings

Business School rankings are a source of pride for students and alumni, a guide for applicants and corporate recruiters, and cash cows for the publications producing them. On the surface, rankings are a win-win situation for all participants, but two of the “industry” leaders, Harvard Business School and University of Pennsylvania’s Wharton School, don’t appear to agree.

Over the past year, Harvard and Wharton have taken steps that some in the business school community perceive as taking a stand against the proliferation of business school rankings. A year ago, both schools took the unprecedented step of refusing to provide journalists with access to the graduating class of 2004 and alumni. More recently, both schools refused to provide the Financial Times with statistical data involving their executive education programs, making it very difficult for the publication to rank the schools.

Are these actions intended to send a signal to such publications about business schools’ participation in other, more comprehensive rankings? In the past, the business school ranking issues have been top sellers for the major business and financial publications. These publications have everything to gain by conducting the rankings, but it is arguable as to whether these rankings provide actual service and value to readers. Most of the rankings are written by journalists who don’t have intimate “knowledge” of a business school’s program, relying instead on subjective opinions and data provided by the very schools they are ranking.

In the game of business education versus ranking publications, Harvard and Wharton are suppliers. By limiting the publications’ access to information, Harvard and Wharton are increasing the price of producing a legitimate ranking by forcing publications to compile the information they need through alternate channels. Rather than being supplied with this information “pro bono” from the schools, as was done in the past, publications will have to spend more resources contacting students and alumni on their own. Publications who are considering starting their own rankings may think twice, now that two of the more highly regarded institutions in the world have increased the input costs.

Or, could Harvard and Wharton’s actions be simply indicative of perceived slights by the publications? The jilted publications (Business Week and the Financial Times) cite hypocrisy on the part of the business schools, claiming that they should be held to the same transparency as public companies. Prior to the decisions made by Harvard and Wharton, neither school finished in the top two spots of the 2002 Business Week rankings, and finished out of the top ten in student satisfaction.

Whether Harvard and Wharton’s defections are merely finger-shaking at the double-standard cited by the publications or a premeditated effort to collude in order to shift the market so that business schools have more supplier power isn’t clear. In either case, though, other top-tier business schools may be incentivized to no longer cooperate with publications, collectively falling to an un-spoken “focal point.” This focal point would create an “elitist” group of business school programs with increased supplier power.
Should other top schools take this route, the responsibility falls on the members of this new group to develop a more organic marketing strategy for presenting their program to the public and sustaining their brand differentiation. Alternatively, should other top-tier schools remain in the ranking game, they may now have more power to negotiate with the publications, insisting upon a different approach to the ranking.

Elite schools having power over publications would be a first for the rankings industry. Currently, publications exert buyer power by establishing a structure for the rankings wherein much of the weight is derived from peer reviews - surveys that are filled out by the deans of other schools measuring various programs, concentrations, and specialties for each school (25% of the U.S. News rankings are based on peer review.) This forces schools to compete against one another in a “tit-for-tat” environment, where schools literally market themselves to one another by mail, often just days in advance of peer reviews. This creates a second game, where the publications are forcing business schools to compete against one another in tit-for-tat fashion.

These days, schools have plenty of reasons not to play this game. For example, in 1991, a top-tier business school only had to respond to two surveys. Today a full time employee at this same school spends approximately three-quarters of their time filling out surveys submitted by the publications for rankings and information guides. Harvard and Wharton argue that this has been an incredible time sink, pulling away valuable resources from more lucrative endeavors. Additionally, top-tier business schools already have considerable brand equity. The economic value added by participating in the rankings is highly suspect considering the opportunity cost of completing the surveys. Even after all this effort, schools are not guaranteed good “shelf space” in the rankings.

So what is the true value of these rankings? First, there are certain barriers to entry in the business school and education. Schools with low brand equity, new programs, and even new programs at established schools need the rankings to spread the word about their program and measure incremental successes in recruiting and placement. Second, even top schools’ “line extension” programs – executive education, part-time programs, and non-degree professional programs – can benefit from the recognition of the rankings. Finally, education and brand equity alone may not be enough to differentiate top schools from one another. Arguably, the strength of a school is in its network. Denying publications access to alumni and students diminishes the legitimacy of relevant information about the network power of a school. This can be incredibly damaging as schools increasingly promote its alumni network as a key differentiating characteristic.

To gain a better understanding of why some in the business school community are concerned with the rankings, one should ask who is compiling this data and doing the initial analysis. Is it seasoned industry professionals, or is the bulk of the information being compiled by journalists who are short in the tooth and lack the perspective or experience to understand what attributes truly differentiate one school from another and what is just marketing blather. Publication staff compiling the data may not know enough about a particular program to rank its merit, and may base judgments on biased actions or qualities.

We think Harvard and Wharton seek to change the way the ranking game is played. When two of the top programs are dropped from a ranking, the new ranking results can be deemed artificial and may lose relevance. This new game has a potential for new rules, where schools stop competing on rankings, and start competing on the quality of the education and culture.

By: Edward Connolly, Deborah Battat, and T.K. MacKay

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