Monday, July 26, 2010

US schools see their power begin to wane

Last month, I gave several presentations to business schools in the US about the Financial Times’s global MBA rankings and what they reveal about the US market. Of course, these data are not new – they are published each year and my colleague Michael Jacobs has written about it on several occasions.

But what surprised me was the reaction of the US business schools to the trends we had identified.

The first of these trends is a straightforward one: when the FT began ranking MBA programmes in 1999, 20 of the top 25 schools were from the US, with the remaining five from Europe; however, in 2010 there are just 11 US schools in the top 25, a further 11 are in Europe and three business schools are in Asia.

The second trend highlights a fall in the return on investment – in terms of the increase in salary five years after starting the programme – from studying an MBA in the US.

In the FT rankings published between 2000 and 2003, for example, alumni from 20 of the top 25 schools enjoyed, on average, salary increases of at least 150 per cent over that five-year period.

Today, no alumnus from a US school in the FT rankings enjoys a salary increase of more than 131 per cent (Yale).

The reasons for this are twofold. The students currently entering the top US MBA programmes are of the same professional standing as their predecessors – they hold the same qualifications and job titles.

And, as you would expect, the salaries reported by each cohort on entering their MBA have increased year-on-year by a few percentage points. However, salaries reported three years after graduation have not increased at the same rate and, in some cases, have even declined.

For example, in the FT 2003 rankings, those US students who reported US dollar salaries before and after graduation earned on average nearly $125,000 three years after graduation. Seven years later, their peer group who responded for the 2010 rankings earned salaries of $121,532.

Of course, the problem is compounded for US schools because many of them have increased their fees by 4 or 5 per cent each year over that period, squeezing the value for money they offer and resulting in graduates having anything between $50,000 and $100,000 of debt on graduation.

Money is not the only reason why the US schools are slipping down the FT rankings. As well as looking at the career progress of business school alumni, the FT also evaluates the ideas creation and academic credentials of the school and the international experience that the students receive.

The reason for this is that when the FT rankings were first established more than a decade ago, American business schools were struggling to be more than just US-centric schools and European schools were trying to match the academic credentials of their US counterparts.

What the rankings in 2010 show is that while European and Asian business schools have managed to penetrate the top echelons of the research community – three of the top 11 schools are from Europe or Asia – no US school has been able to penetrate the stranglehold that European schools in particular have on international students and faculty.

Furthermore, graduates from US schools do not enjoy the sort of international course experience or demonstrate the range of international mobility of their peers elsewhere. Indeed, only one US school in the rankings, Thunderbird School of Global Management, reports that more than half its students are from outside the US (53 per cent) and only Columbia Business School has more than 50 per cent international faculty.

So, what was the reaction of US business schools? Opinions were clearly divided – some individuals were visibly concerned by the data. Others shrugged it off.

As one professor put it: “It’s nice to have an alternative view of the market.”


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