What Effect do Rankings Have on Business Schools?

In the wake of Bloomberg Businessweek’s surprising ranking of the top US MBA programs, there’s been a lot of debate about the merits of the new methodology, and the list that it spawned.

Duke University’s Fuqua School of Business took the No. 1 spot from the University of Chicago’s Booth School of Business, which has held the title since 2006. Yale School of Management, which in a quarter century has never done better than 14th, leapfrogged ahead 15 spots and is suddenly breathing the rarified air of No. 6. And in what may be the biggest shocker of all, Harvard Business School lost its No. 2 seat, falling out of the top 5 for the first time since Businessweek began publishing the business school rankings in 1988. Harvard’s new ranking, No. 8, was met with a collective gasp by the entire b-school world.

That was on Tuesday. But what do all the changes mean for the schools in the weeks and months ahead? A lot. Research on the Businessweek rankings over the years has established some essential truths about the impact of the business school rankings including a rise in applications and fundraising.

The knock-on effect of business school rankings success or failure

Good rankings will almost certainly improve a school’s student satisfaction scores in the next ranking. And since those scores account for 45% of the ranking, this is one reason why schools, once established at the top of the list, become fiendishly difficult to dislodge. A good ranking also has the potential to increase applications and applicant quality, allowing the school to improve on selectivity and yield. A good business school ranking can even impact the number and quality of recruiters on campus, as well as how much graduates earn in their first post-MBA jobs. Alumni give more when their school is highly ranked, making it easier to build new b-school buildings and shower graduates with financial aid.

A poor ranking can, on all counts, have the opposite effect, launching a school into a death spiral; fewer applicants mean less selectivity and lower GMAT scores; recruiters hire fewer grads, pay less, or don’t show up at all; stingy alumni leave the school without the resources it needs to pull out of the nosedive; rankings continue to decline and the situation gets progressively worse. Research has even shown that a decline in a school’s Businessweek ranking may result in a shorter tenure for the dean.

While it’s far too early to tell if the latest Businessweek business school ranking will have that kind of impact on any of the schools involved, it’s clearly a question on the minds of many deans this week.

What does Fuqua dean expect?

Bill Boulding, the Fuqua dean who finds himself suddenly in the spotlight, says he expects his program’s No. 1 ranking will result in a “positive boost” in applications and fundraising, as well as selectivity and yield, but would not venture a guess about how much. For the most recent entering class, Fuqua received 3,453 applications and made offers of admission to 25%, and of those, 51% enrolled—a profile not unlike that of No. 2 Wharton or No. 3 Booth.

“The thing that’s going to be most important is it’s going to get the message out to students that Fuqua is a different kind of business school,” he said. If that happens, he added, the school will get not just more applicants, but applicants who are a better fit for the school, “People who have the right kind of character and sense of purpose to make a difference in the companies they work for.”

As for career outcomes for graduates, he doesn’t believe the new ranking will have a big impact on placement rates, starting salaries, or the companies who choose to recruit on campus. Fuqua’s reputation among recruiters was second only to that of Wharton, an indication, Boulding says, that the school already enjoys “strong positive feelings” among the employers who hire its graduates.

This year, 94% of graduates had job offers within three months of graduation, with an average base salary of US$114,109

Where the impact of the No. 1 ranking will be felt, he says, is on the kind of narrow, self-directed job searches many MBAs have undertaken in recent years. “For those students with a specific [career] goal in mind, my hope would be that the No. 1 ranking will help those students open doors.”

Likewise, he doesn’t expect Fuqua alumni to benefit from the school’s rising prestige. The school’s name on a résumé might open a few doors, he says, but it’s not going to land anyone a raise or promotion. Although it’s worth noting that the mid-career salary for Fuqua grads, as calculated by PayScale, tops out at US$150,200. That’s virtually identical to Chicago Booth, but a far cry from Harvard, Stanford, and Wharton, which all exceed US$180,000—suggesting that if Fuqua can sustain its No. 1 ranking future salaries for alumni may have some room to grow.

Fundraising operations made easier for Fuqua dean

One area where the No. 1 ranking will almost certainly prove beneficial is in fundraising. Fuqua is in the middle of a US$100 million capital campaign that ends in June 2017. The school has already started a successful fundraising campaign garnering US$68 million, and Boulding spends much of his time trying to convince alumni to part with their money – an argument, he concedes, that just got a lot easier to make.

“This is where I think the ranking is very useful,” he says. During his stump speech, he tells alumni, “You can’t live on love alone. You need to have money to attract the best and brightest students and recruit the best and brightest faculty.”

Boulding says the number of schools Fuqua competes against for top students and faculty hasn’t really diminished. If anything, he says, it’s increased, with new schools nipping at its heels. One he cites by name is Yale.

The elite Ivy League university has a nearly US$24 billion endowment that will provide US$1.1 billion for university operations this year. And the business school has a dean, Ted Snyder, who is credited with a No. 1 ranking for Chicago’s Booth School, a No. 2 ranking for the University of Michigan’s Ross School of Business, and a No. 9 ranking for the University of Virginia’s Darden School of Business. It would be a mistake, Boulding says, to underestimate Yale.

For every school on the Businessweek list, each new ranking brings with it a chance to move up or down the hierarchy – every school, that is, except No. 1. The top school can only lose its coveted spot, as Chicago Booth found out the hard way this year. Boulding is the man who must shoulder that heavy burden for the next year, when the Businessweek ranking (until now published biennially) becomes an annual feature. Until then, he says: No resting on laurels.

QS's new regional MBA rankings are out November 19. Follow the link below to see the current rankings.