Thunderbird: A Case Study In Organizational Decline

Thunderbird President Larry Penley

Indeed, Penley sees the agreement with Laureate as a way to fix the school’s lagging placement record. “One of the reasons for the alliance has to do with their very successful employment record for graduates,” he said. “Laureate has an employment network that is global. It fits perfectly with the global orientation of Thunderbird. It gives us the opportunity to tap into that employee network and improve our placement record.”

Laureate’s campus in Madrid boasts a 60% employment rate for students within six months of graduation, noted Penley. This is in the midst of a 59% unemployment rate for youth in Spain where competitor schools place under 50% of graduates after six months. Laureate also distinguishes itself from other for-profits that heavily rely on government-sponsored student loans with a mere 17% of its income coming from student loans.

A PIONEER IN GLOBAL EDUCATION FOUNDED IN 1946

Thunderbird, which takes its name from its location on a deactivated Army Air Training base just outside Phoenix, was offering a global slant to business education when most deans never thought international business was important. The school was founded by Lt. General Barton Kyle Yount in 1946 to help Americans enter the emerging international business environment. For some 30 years, Thunderbird could boast the only international business program in the U.S. and the only one in which graduates had to be proficient in at least two languages.

The upshot: T-Birds, as the school’s alumni are known, are an extraordinarily international lot, some 40,000 alums spread across 147 countries. They include such highly prominent executives as BP PLC Chief Executive Robert Dudley and former Morgan Stanley International Chairman Walid Chammath. And they can be a prickly bunch. Many felt angered and betrayed when the school ditched its Master’s in International Management in 2002 in favor of the more popular MBA degree.

But it wasn’t until the mid-to-late 1980s when the school truly came into its own. Thunderbird had been given, in the words of former Roy Herberger, who was president of the school from 1989 to 2004, “the gift of globalization.” With Perestroika in the Soviet Union in 1986, the fall of the Berlin Wall and the Tiananmen Square massacre in China in 1989, the doors to a new global economy opened. Other than the University of South Carolina, whose business school also focused on international business, Thunderbird was in a preeminent position to capitalize on the growing interest in global management.

ONCE UNIQUE, THUNDERBIRD’S DIFFERENTIATION WAS QUICKLY ERODED BY RIVALS

Still, the school’s differentiation as the major player in global business education was soon challenged by many of the strongest U.S. schools, including Wharton, Columbia, and Harvard, as well as by an endless steam of schools in both Europe and Asia that could legitimately claim a global focus, including London Business School and INSEAD in France. “You could see the handwriting on the wall,” acknowledged Herberger in an oral history interview. “Even though we were good at what we were doing, we could not sustain it and compete with every school trying to pick off a piece of it.”

Truth be told, Thunderbird could never match either the prestige or the cache of the big brand schools. Even in its best years, its acceptance rate—often hovering in the 70% to 80% range–was well below the most highly selective business schools which accept less than 20% of their applicants. So were the average GMAT scores of its entering classes which tended to range near 600, more than 100 points below the best schools, which typically report scores in the 700-plus range on an entrance test where the highest possible score is 800. PoetsandQuants currently ranks Thunderbird 51st among the top 100 U.S. business schools. U.S. News ranked Thunderbird 75th last year, while BusinessWeek has it 45th on its latest ranking of the best full-time MBA programs.

Besides, the school was often in perpetual turnaround mode. When Herberger took over as president in 1989, he was confronted with what he called “a classic turnaround” challenge. “It took me awhile to look beyond the lack of paint, the unrepaired roads and the old facilities,” he recalled in his oral history. “The faculty was underachieving, and the students were underachieving. The students were floating along…The expectations weren’t high enough.”

At the time, the school was unaccredited and unranked. With the exception of a language training program that brought in $300,000 a year, Thunderbird had no executive education programming at all. One study commissioned by the school showed that its alumni were more devoted to each other and not the school. “When it came down to writing a check for the school, it was, ‘What for? I got my education in spite of whatever you guys did,’” said Herberger.

Thunderbird seemed to turn the corner when Herberger landed in 2004 a $60 million naming gift from entrepreneur Sam Garvin, an alumnus and owner of the Phoenix Suns basketball franchise. Garvin did give $13 million in cash toward the $60 million pledge, but could not honor the timetable for the gift so he and the school agreed that his name should not be on the school. “That was a disappointment,” concedes Herberger. Still “it’s hard to be too down on someone who gave $13 million.”