Harvard Nudges Aside Stanford For Top Honors In Financial Times’ Ranking

FLAWS TO CONSIDER IN THE FINANCIAL TIMES METHODOLOGY

Rankings are controversial for many reasons but often because they put all programs in the same boat as if they are equal to each other. Just in the FT‘s top five, for example, the largest MBA program at INSEAD graduated 1,029 MBAs last year, while the smallest at CEIBs put only 158 MBA students into the market. It would almost certainly be easier to recruit, enroll, teach and place in jobs less than 160 graduates than it would be to do the same for more than 1,000 each year yet the larger schools get no credit for this accomplishment.

The Financial Times global ranking is the most closely followed in Europe and Asia, while U.S. News’ entirely U.S.-centric ranking has become the most influential in the U.S. The FT’s methodology is based on 20 different metrics, including several that tend to favor non-U.S. schools. Among other things, metrics that add score points to a school’s standing include the percentage of students, faculty, and trustees who carry passports from a country where the school is not located, whether students and alumni worked in foreign countries, whether students had an international course experience and whether the school requires students to learn extra languages prior to graduation.

What any of these criteria have to do with the quality of an MBA degree is a matter of opinion. This year is the second with a new metric added for the first time last year: Corporate Social Responsibility. With a weight of just 3%, it is based on the proportion of teaching hours from core courses dedicated to CSR, ethics, social and environmental issues.

FT PUTS A HEAVY WEIGHT ON SALARIES–BUT NOT TOTAL COMPENSATION WHICH IS MORE IMPORTANT

Often, an even greater impact on a school’s rank can be the result of the FT’s decision to use a purchasing power parity (PPP) formula to convert and count actual salary data — the most heavily weighted metric in the methodology. Such currency gymnastics favor schools that supply graduates to countries with high rates of poverty. With the PPP adjustment, for example, it’s probable that CEIBS would not have finished in the top five. The school’s latest employment report shows that the median base salary for MBAs in 2019 was $64,278. The FT’s adjusted salary today figure for CEIBS alumni three years out is $184,731, nearly three times larger. Or consider the starting median salary for graduates of IIM-Ahmedabad. They earned only $27,951 last year, but the FT’s adjusted salary today for alums is an extraordinary generous $186,866.

This adjustment has an especially negative impact on U.S. schools because the vast majority of international students who get an MBA in America want to live and work in the U.S. where their compensation would not be inflated by the PPP filter. Although 35% of this past year’s graduating class at Harvard Business School were international, for example, only 14% of the class took jobs overseas and that percentage includes some U.S. citizens.

What’s more, even though the FT is putting a 40% weight on these pay numbers, they fail to account for total compensation — just salary. In the U.S., a good many MBAs from elite schools often get stock options (at Stanford, a record 41% of this past year’s graduating class got stock in their starting packages) and significant annual bonuses that would put their schools well ahead of many of the institutions that are routinely ranked higher by the Financial Times.

THE RANKING DOES NOT MEASURE INCOMING STUDENT QUALITY

Unlike U.S. News, moreover, the FT pays no attention at all to incoming student quality in its ranking — another reason why U.S. schools do less well on this list. GMAT and GRE scores and undergraduate grade point averages, all key components of a business school admission decisions — are ignored. So are acceptance rates, which also tend to be lower at many of the best U.S. schools. At Stanford, for example, only 5% of the candidates who apply for admission get into its MBA program. At INSEAD, which consistently declines to report this number, the acceptance rate is routinely above 30%, according to insiders.

Another issue with the FT ranking is that the newspaper fails to reveal the underlying index scores that allow it to crank out the numerical rankings. Those scores show whether a school’s rank is statistically different among other schools ranked nearby. In most rankings, these index scores tend to cluster in close bands and often show that there is no meaningful statistical difference between a school ranked 45th and one ranked 50th. The FT concedes that clustering is a reality and that there are four different groups of schools on its list of the top 100.

In a footnote, the newspaper points out that “although the headline ranking figures show changes in the data year to year, the parer of clustering among the schools is equally significant. Some 170 points separate the top program, Harvard, from the school ranked number 100. (Last year the difference between the first and 100th schools was 200 points.) The schools are divided into four groups…those in groups one and two score above the average for the cohort, and groups three and four are below it. The difference in score between schools ranked consecutively is greater within groups one and four than in groups two and three. The top 10 participants, down to the University of Chicago Booth from the top group of MBA providers. The second group, headed by Northwestern University Kellogg, spans schools ranked 11 to 35. The 49 schools within the third group are headed by the University of Southern California Marshall at 36th. The remaining 16 schools headed by Purdue University Krannert at 85th make up the fourth group.” Just how close is unknown because the FT won’t publish the index numbers for each school.

(See following page for the full ranking and five-year trendlines)