A MESSAGE FROM THE DEAN

The 2008 Financial Times Ranking
 of Full-Time MBA Programs

On January 28th, the Financial Times released its annual MBA ranking.  The Rotman School placed 40th, which is down from last year’s results, but still placed strongly in a number of categories (e.g. faculty research – 18th; international faculty – 8th; and reputation for finance – 6th, to name a few). The complete rankings are available online from the Financial Times at www.ft.com/businesseducation/globalmba2008 .

My Thoughts
This was a disappointing year for us in the FT Rankings, in which we fell from 27th last year to 40th this year.  However, while I am not daunted by the fall, I am perplexed.  When I decompose the rankings, it turns out our entire fall is explained by a drop in one category, Weighted Salary Increase. That drop is not caused by lower salaries of graduates – what would be a bad thing – but rather by an inexplicably sharp rise in the entering salaries of the class of 2004 – actually a good thing.  In addition, there is a shift in the rankings toward non-North American schools.  Our ranking across the critical North American peer group has remained very stable over the past three years.

Overall, I continue to be optimistic about our future and buoyed by the many great things that are happening at the School, from the recent investment by the Province of Ontario, to the enhanced international profile recruiters, media and applicants, to great new gifts from the Rotman family and Marcel Desautels, to ever more impressive graduates, to great new professors.  We continue to aim at taking on the high standard set by the elite North American schools ahead of us.

Decomposing the Rankings
Every year, the first thing I do to attempt to understand how our overall ranking has changed is to convert all twenty FT rating categories to ordinal rankings, which allows me to calculate our weighted average ranking^[i]. I do this calculation because it is not possible to reconstruct the FT ranking directly without access to its calculations. My weighted average ranking doesn’t map precisely to the FT rankings, but uses its numbers to understand our relative position in each of the categories. Based on this weighted-average calculation, we dropped 10 spots this year, as I usually find, a close approximation to the actual FT ranking change.  And as always, I looked into what accounted for the change – and this year it was extremely odd. Of the entire drop, fully 98% was accounted for by one category – i.e. we were utterly flat relative to our peers on average across the remaining 19 categories.

The problematic category is one of the two big ones: Weighted Salary Increase (WSI), which accounts for one-fifth of the overall weighting of the survey and is defined as the percentage increase in salary from the final salary before coming to business school to the salary as at the time of the survey, which is three years after graduation. In the 2007 ranking our WSI was 125% which was 20 th best. This fell quite sharply to 99% and 68 th ranked in 2008 – and that accounted for virtually 100% of our ranking drop in 2008^[ii]

This is where it gets perplexing. For such a fall to happen, one would expect that reduced success in getting a high and increasing salary would be the culprit.  But it wasn’t: Weighted Salary actually rose from $96.6K to $97.1K – a good thing.  Other things being equal, that would have suggested a marginal rise in WSI.

The only thing way to explain the WSI drop is a rapid rise in the last salary before attending business school and that is in fact the case: in the 2007 survey it can be calculated to be $43K and for 2008 $49K.  This is perplexing because it means that after years of stability in the $40-44K range in prior years, the entering salary of the class of 2004 suddenly jumped to between $56 and 60K – an almost 40% jump ^[iii] We saw no evidence of such a dramatic shift in the admissions pool – though higher-paid admits would be a good thing not a bad thing.  The problem, of course, for our WSI ranking is that in the course of a single year, it would be hard to convince the recruiting population that suddenly we have 40% more expensive students incoming and they should be given more senior and highly paid jobs – life doesn’t work that way.

So in truth, I really don’t know what to make of this result.  I actually find the math hard to rationalize. I am happy that we stayed even with competition across the other 19 categories and wish this one hadn’t hurt us so much with our ranking.

And one only needs to compare to Hong University of Science and Technology to see the magnitude of the effect.  Last year HKUST wasn’t even in the top 100.  Two years ago, it was 47 th with a WSI of 85%.  This year its WSI miraculously jumped to 126% (essentially same as us last year) and this year HKUST ranks a stunning 17 th in the world overall.  If you look across the rest of its ranking results, HKUST is remarkably similar to us – including exactly the same Weighted Salary of $97KUS.  Essentially the only meaningful difference between HKUST and us is that its students made $43K on average coming into the school (like ours did until 2004) versus ours making $49K – that makes it 14th versus our 40th.

So had we simply maintained our WSI, we would have probably improved to between 20 th and 25 th in the world, not dropped to 40th.

The Rise of the Non-North American Schools
The other thing that became increasingly evident in 2008 is the rise of the non-North American schools in the FT ranking.  If we go back to 2005 when we were 21 st ranked, we were behind mainly American schools: 11 US private schools, 4 US public schools and 5 European schools. By 2008, the weighting of schools ahead of us has shifted dramatically to non-North American – 19 NA, 16 Europe, and 4 Asia-Pacific ^[iv]  We are behind the same US schools plus Emory has moved meaningfully ahead of us (26 th) and Cornell, Maryland and Georgetown have slipped marginally ahead (36 th, 37 th, and 38 th).  So in many respects, our NA position has remained quite stable and that is good because I believe that our dominant competitive set for applicants is the elite NA schools (plus probably INSEAD and LBS).

Internationally, there is a proliferation of business models and some of the business models are friendlier to the FT rankings.  The Australian Graduate School of Management (AGSM), which managed to move to one spot ahead of us at 39 th, is a great case in point. We are slightly ahead of it on WSI (99% to 96%) and whip it on most of the rest of the categories; some like research and doctoral program by a wide margin. So how does it outrank us?  It is by being way ahead on Weighted Salary - $122K versus our $97K. How does it do it?  It is by running something that is more analogous to our EMBA than our MBA.  Its tiny class is the size of our EMBA (60 students) and it has students, who on average are several years older than our MBAs and make $62K versus our $49K in pre-school salary.  AGSM don’t help them increase their salaries by as high a percentage as we do, but since they are at a much higher salary level coming in, AGSM makes up for numerous other shortcomings across the survey in one fell swoop with a higher Weighted Salary.

Concluding Thoughts
For us, the challenge has been and will continue to be the heavy weighting of the delayed categories (61%) from the 3 to 5 year old student surveys versus the current categories (39%).  Our weighted ranking in the current categories is much superior to the delayed categories and improved again this year – with our research ranking of 18 th being a highlight.  Our delayed category ranking fell, again almost exclusively because of the WSI drop.

If indeed our entering salary rose dramatically with the 2004 graduating class, it is going to take a few years to get the WSI back up.  So I am going to have to convince myself to be patient in waiting for our delayed category performance to come around.

Our main task over the next three years is to overtake the NA peers in the category just ahead of us from 24 th to 33 rd place – Darden, Haas, Fuqua, Ross, Goizueta, Anderson and Kellogg.  And that will position us to go after the bottom half of the nine elite American privates.  To do that, we have to keep pushing on the same levers – great students, great professors, great curriculum, great profile and great placements. We are making progress on all fronts and this odd result on WSI isn’t going to slow us down.

Roger Martin, Dean

[i] Nine categories (such as Research Ranking) are already in the form of a ranking from 1 to 100, but the other eleven are absolute numbers (e.g. Weighted Salary). I convert the absolute categories to rankings and calculate a weighted average using the FT weights (from .01 for % of Women on Dean’s Advisory Board to .20 for both Weighted Salary and Weighted Salary Increase). My weighted average doesn’t equal the final FT ranking because the absolute difference between (say) 18 th and 19 th ranking on a given category may be much smaller or larger than (say) the difference between 19 th and 20 th. But for me it is a helpful measure of whether we are moving forward or backward relative to our peers on categories individually and collectively.  And it isn’t possible to reconstruct the FT ranking in any event because you would need their calculations.

[ii] WSI is one of the nine delayed categories rather than one of the eleven current categories.  The nine delayed categories are compiled from the results of student surveys from the classes 3.5, 4.5 and 5.5 years earlier.  So for the 2008 WSI (and the other eight), the result is compiled as 25% based on the survey from the graduating class of 2002 (collected in the summer of 2005), 25% from 2003 and 50% from 2004. The 2007 WSI is based on 25% class of 2001, 25% class of 2002 and 50% class of 2003.

[iii] For 2007 survey, the entering salary can be calculated as $96.6K/2.25 or $42.9K and for 2008 $48.8K ($97.1K/1.99).  These numbers are perplexing because they are three-year averages with 2007 and 2008 sharing the 2002 and 2003 cohorts in common with the only difference being 2007 included the class of 2001 and 2008 included the class of 2004.  Because the amounts for pre-business school salaries are rolling averages and FT doesn’t release the components of the rolling averages, we can’t know them exactly.  However, for the several years prior to 2008, the rolling average was almost entirely flat, so we can estimate the final pre-school salaries of the classes of 2000 to 2003 and they are almost certain to have been within the range of $40K to $44K.  Anything higher than $44K for 2003 is pretty much not mathematically possible.  The mathematical implication, therefore, is that for the 2008 survey average of $48.8K to be possible, after four years of stability in the $40-44K range, the entering salary of the class of 2004 jumped to between $56 and 60K – a 38% jump.

[iv] The schools in the three categories are: 1) Harvard, Stanford, Wharton, Columbia, Chicago, Stern, Tuck, Yale, Sloan, Kellogg and Fuqua; 2) Anderson, Ross, Haas and Darden; and 3) LBS, INSEAD, IMD, IE and IESE, respectively.