Yale’s Second Rate Business School

While you might think of Yale as an elite school, it's business school is ranked 21st--below Michigan State's.

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.

FILED UNDER: Economics and Business, Entertainment
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Dave Schuler says:

    As investment banks cut jobs and compensation for remaining employees in the inevitable contraction of the financial sector, some of the glitter will inevitably go off the B-schools. Like the law schools, unable to make good on the promises, actual or implied, they’ll start duking it out for the shrinking cadre of students who are willing to pay.

  2. wr says:

    Shame on Yale for trying to run a business school that isn’t a training academy for sociopaths.

  3. Drew says:

    Let’s get real. Well know that the University of Chicago is the best business school in the country.

    BTW. “Let’s stipulate……”. I take exception to that. I’ll compare the number of jobs Ive created to anyone on this blog.

  4. James Joyner says:

    @Drew: But did you create jobs to further the social good? Or because you needed employees to help maximize your profits?

  5. Drew says:

    James

    Nice straw man. As the great intellect Milton Friedman noted, (and its a slow summer; i just recently finished watching umpteen hours of Friedman interviews, programs etc) it is only through the pursuit of self gain that society as a whole benefits.

    Mother Theresa doesn’t live here. Or anywhere else.

    Cmon, you know that.

  6. James Joyner says:

    @Drew: It’s not a straw man. I posited that creating value to society was not exactly foremost in most people’s minds when choosing a business school. You’ve admitted as much.

    It’s not a criticism. Businesses don’t exist to do good. Many, if not most, businesses actually do good (providing useful services, creating jobs, paying taxes, etc.) but it’s a byproduct, not the goal.

  7. Tsar Nicholas says:

    @Drew: Stanford’s, Pennsylvania’s, Harvard’s, Columbia’s, NYU’s, hell, even Haas over at Berzerkely, would disagree with that assessment.

    As far as the Yale vs. Michigan State dichotomy goes, above all I’d say that it illustrates the folly of some of these media-based rankings.

    As far as the larger elephant in the room — whether graduate B-school is “worth it” — we’ve reached the point at which the attendant costs and presumed debt service have become so astronomical the answer in most if not virtually every case will be no, it’s not.

    In the new, new economy the school of hard knocks trumps the ivory towers, debt is a four letter word, and an extra year or two of actual experience trumps book knowledge, even over a long-term event horizon. Barring a full scholarship or major student aid I would advise any kid about to graduate college to go directly into the workforce and to eschew the MBA track.

  8. Drew says:

    @Tsar Nicholas:

    Of course they would. And they would be wrong. Nyuk, nyuk, nyuk

    This thread is too serious. Lighten up, people.

    James.

    I know. Look, if you get to be my age and do what I do, you actually appreciate and have social motives as well. Believe it or not. Profit and social well being are not mutually exclusive.

  9. Drew says:

    @Tsar Nicholas:

    Also, I’d be careful of such sweeping generalizations. There are some things only formal education can impart.

    I often quip that I have four degrees: a BS, MS, MBA and a degree from SofHK. I bow to no one on SHK. I’ve lived it. But to dismiss formalized education is, IMHO, a mistake.

  10. Peter says:

    @Dave Schuler: Things are somewhat different for business schools than for law schools. At many business schools (especially the lesser-known ones) the students often are working people who seek MBA’s on a part-time basis in order to get ahead in their current careers.

  11. grumpy realist says:

    @Peter: Well, some of us do that to get through law school as well…..

    MBA schools are something you go to to get confidence, something on the resume, and the network you create. I had to make the decision whether to do law school or an MBA and decided on the former, mainly because I felt I’d be highly bored with the latter and really couldn’t see the use of it.

    We don’t need more MBA program producers. We need more incubators to help entrepreneurs, someone to offer cheap health care for would-be entrepreneurs and their families, so they don’t have to worry about leaving their prior jobs, and free on-line training in areas like accounting and contracts so they can get off the ground and running FAST.

  12. GeoffBr says:

    “Let’s stipulate at the outset that the overwhelming number of those entering MBA programs place very little premium on the last of these.”

    James, the objections you’ve heard above are because this comment seems flippant to the point of being insulting. First of all, it’s demonstrably untrue: surveys I’ve seen have placed the percentage of applicants interested in pursuing corporate social responsibility as a topic of study at around 15% – 20%. Presumably the number who place “a premium” on the subject are a bit higher as well. More to the point, the same is probably true of computer programmers, but we don’t look down on them either. It would behoove the online community to realize that MBAs are hardly synonymous with investment bankers… or stereotypes.

    Regarding the article itself, I passed through the MBA world relatively recently and this is the first I’ve heard of Yale’s reputation for particular strength in social responsibility. (The school attempted to focus on this as a niche offering – however, it’s unclear whether they are better at teaching it than any of the other top business schools, which also have similar programs.)

    The article misleadingly implies that it is this purported reputation which has scared potential applicants away. In reality, Yale’s issues are attributable to fairly pedestrian concerns: despite their non-business reputation as an Ivy, their business school is quite new (established in the mid ’70s) and it’s tough to quickly break into a field like this without an established pedigree. They have a smaller and less prominent alumni network as a result, which are key decision criteria in applying to schools. And their endowment is correspondingly smaller, allowing for less flexibility than other schools on spending.

  13. mattb says:

    @Drew:

    As the great intellect Milton Friedman noted, (and its a slow summer; i just recently finished watching umpteen hours of Friedman interviews, programs etc) it is only through the pursuit of self gain that society as a whole benefits.

    @James Joyner:

    Businesses don’t exist to do good. Many, if not most, businesses actually do good (providing useful services, creating jobs, paying taxes, etc.) but it’s a byproduct, not the goal.

    B-I-N-G-O James!

    And it’s important to note that byproduct is not guaranteed. This is one of the areas where Friedman’s interpretation of the invisible finger breaks from Smith’s.

  14. James Joyner says:

    @GeoffBr:

    First of all, it’s demonstrably untrue: surveys I’ve seen have placed the percentage of applicants interested in pursuing corporate social responsibility as a topic of study at around 15% – 20%.

    In what world is 80%-85% not “the overwhelming number”?