60 Years Later: A GMAT Test With Profit Margins Better Than Apple

Dave Wilson of GMAC

‘A HEALTHY BUSINESS BECAUSE OF THE GROWTH OF THE UNDERLYING INDUSTRY’

Such generous compensation and treatment in a non-profit can be paid largely because of GMAC’s near monopoly hold on the entrance test for graduate business programs. “It has been a very healthy business because of the growth in the underlying industry,” explains Paul Danos, dean of Dartmouth College’s Tuck School of Business. “People have to take the test to apply to the best business schools. But several thousand schools don’t require the test. The question is: Do schools see a value in it, especially schools that will grow in India, China and Latin America. That is the big question they have to work out.”

In fact, many of the newer business schools in developing economies do not require the GMAT—in part because of the test’s cost. Devanath Tirupati, dean of the Indian Institute of Management in Bangalore, estimates that as much as two-thirds of the global market for business programs doesn’t require the exam. “The GMAT is too expensive and not accessible,” says Tirupati, who notes that the cost of the more widely popular Common Admission Test (CAT) in India is about 1,500 rupees, or less than $25, compared to about 15,000 rupees for the GMAT. Nearly 175,000 students took the CAT last year in India. The upshot: 195,000 people took the CAT exam in 2012, while only 22,803 Indian residents took the GMAT.

Some business deans also express concern that the GMAT fails to measure attributes of candidates that are as important as the quant and verbal skills the test assesses. “I think we need different instruments to identify different skills today,” says Santiago Iniguez de Onzono, dean of IE Business School in Spain. “If we want to attract entrepreneurs then the GMAT is useless. It mostly measures analytical skills, but if you think about the importance of leadership, innovation, creativity and entrepreneurship, the GMAT doesn’t measure that. The whole system is based on an outdated scheme.”

MUCH OF THE SUCCESS OF GMAC CAN BE TRACED TO FORMER CEO DAVID WILSON

Much of the success of the organization behind the test can be attributed to David Wilson, a tall, lean Canadian accountant who was recruited to become president and CEO of GMAC in 1995. Wilson, who in his early career had been a B-school professor at such schools as the University of Texas and Harvard Business School, had just taken an early retirement handshake from Ernst & Young. He had left his job as national director of professional development and was thinking of returning to teaching when he got a call from a Korn/Ferry headhunter during the Thanksgiving Day holiday of 1995.

Though GMAC was little known outside the business school world, its early roots could be traced to a meeting between nine business school deans and the Educational Testing Service in 1953. The pow-wow was arranged to discuss the possibility of an exam that would assess applicants on their potential for success in business and management courses. But it wasn’t until 1970 when the deans of 30 graduate business schools launched the organization independent of ETS. GMAC, however, didn’t even have an office until 1982 when the council hired its first president, Bill Broesamle, then an associate dean at UCLA’s business school. He worked out of a small office in Santa Monica, CA., with five employees who largely oversaw one very large external contractor, the Educational Testing Service. “Many people didn’t know what GMAC was,” says Broesamle.

Wilson, who has an MBA from UC-Berkeley’s Haas School, glimpsed the promise of the opportunity, interviewed with board members in Los Angeles, New York and Cleveland, and was eventually offered the job to become the second president and CEO of the organization. Now 72 years old, Wilson, recalls that the organization’s total revenues in 1995 were about $14 million, of which $12.3 million went to ETS. “Even the guidebooks and budget was prepared by ETS and they managed our money, too,” he says. “We would ask for a couple of hundred thousand every month to pay for payroll and our lease.”

Wilson moved the organization to an office park in the Washington, D.C., suburbs of Virginia and set out a three-pillar strategy for growth: 1) To go global, 2) To embrace technology in all aspects of the business, and 3) To put GMAC on a solid financial footing. Back then, the organization had little more than 45 days of cash to run its business. GMAC insiders say that one of Wilson’s often-repeated phrases was, “Without margin, there is no mission. You need those resources to deliver what we do.”