(Cross-posted on The Official GMAT Blog.)

Why do business schools ask you to take a standardized test like the GMAT? In fact, there are many reasons, but only about three of them are profoundly germane to your decision as to which test to take. The first reason is, quite simply, that a standardized test provides the only objective element in your application. Undergraduate performance is measured by the grading scheme of the institution.

In a recent conversation with Dan Muzyka, the dean of the University of British Columbia’s Sauder School of Business, he remarked that Canadian universities are still parsimonious in their awarding of numerical grades when compared to schools from the United States. It does not mean that either one grading system is superior, just that they are different and are not comparable.

Letters of reference are the opinions of those whom you, the applicant, have chosen. As a competitive applicant, you will only invite those referees who admire you to write such letters. Again, the value of these letters is in the subjective opinion of the writer—there is no objectivity.

And what of your own essays? Student responses to essay topics are so varied that it becomes difficult to compare an applicants’ responses—or to know whether these were written by the applicant alone or with some help. The essay may be a good representation of you, but it can’t be relied on for a comparison.

The standardized test alone is objective. But why is it important?

Equilibrium occurs when supply meets demand. Equilibrium for a graduate school of business occurs when the class cohort meets the school’s criteria and each candidate is able to perform and thrive in that school’s classroom. When a member of the class is unable to meet the demanding standards of the classes and must withdraw from the program before graduation, it is a loss for both the student and the school.  The student has uprooted his or her life to attend the program and now returns home without the degree sought. The school and the cohort sit with an empty seat in the class and an empty chair around the case discussion group.

Of late, there seems to be a lot of noise in the channels suggesting that someone contemplating an MBA or other graduate management degree ought to eschew the global standard, the GMAT, and opt for another test, the Graduate Record Exam, the GRE. Before leaping into this abyss, I would encourage anyone considering graduate business school to undertake some serious due diligence. The decision that you will make in going into an MBA or other master’s program is one of the most important in your life. And, in all likelihood, it is the greatest investment that you will have made to date.

Only the GMAT has years of research that will support its ability to predict the performance of a student in the first year of the MBA. Schools know that and rely on it, and that is why the GMAT is accepted by more than 4,700 MBA programs. It is also why all 4,700 have the ability to search for you in our Graduate Management Admission Search Service.

But there is another equally important reason for the global acceptance of the GMAT, and it goes back to a school’s desire for equilibrium. Schools see an applicant who has taken the GMAT as motivated to study business. In their experience over many years, candidates who are not committed to studying business, who perhaps really want to earn a PhD in economics, are more likely to drop out voluntarily. There is no doubt that many of the students in this set are intellectually exceptional and they could easily master the content of the program. But equally, their heart is not in that field of study.

Why put yourself through one or two highly demanding years to gain a degree that leaves you with an empty feeling? Schools recognize this dilemma and are frequently reluctant to bring into their MBA cohort candidates who, while academically qualified, are not really interested.

Why the GMAT? Because it positions you with fellow applicants who are both interested and qualified—and bcause the GMAT alone has demonstrated predictive ability of your performance.

Am I biased? Yes, I am. But I base my recommendations to you on a belief that my role is to bring the right students to the right programs…to change lives…and to give many a chance to study in schools that they may not have known were open to them. The GMAT opens that door for you.

Recently, I had the honor of speaking at the University of British Columbia for the opening of its new MBA House, a residence that is dedicated to students in its MBA Program. The visit brought me back to my roots—102 years ago, my father was born not far from here; the son of the minister of Saint Andrew’s Presbyterian Church, now St. Andrew’s Wesley. I was born and grew up in Toronto. And so, I returned with a warm heart and a sense of genuine excitement about the Sauder School’s Centre for Sustainability and Innovation. I share my comments from that evening here.

UBC is unquestionably one of the world’s finest research universities, but I was especially fascinated in my visit to see that the university’s research mission had two primary emphases. It was to position the university on the cutting edge, but it was also clearly focused on leaving this world a better place.

The Sauder School of Business’s Centre hews closely to that mission. Its scope is wide ranging, embracing issues beyond corporate social responsibility—those of poverty, famine, and illiteracy; global warming; and human rights abuse.

There is no question that the issues addressed are broad. As one who relished the all-night debates in my undergrad years in residence at Queen’s University, I expressed a hope the residents of Sauder’s new MBA House will see midnight oil burned as they wrestle with issues of sustainability, corporate social responsibility, and the role of the MBA in society.

The university has declared its commitment to a “triple bottom line”: Social, economic, and environmental. I can think of no more noble framework for a university.

And as a school within the university, the Sauder School, I assume, embraces it. But I think that it may be worthwhile to explore this assumption. How does the “triple bottom line” apply to MBA students?

As a framework for this intellectual journey, let me turn to UBC’s President, Stephen Toope.  President Toope has said that, as an undergraduate, he asked himself three questions:

1. Where do I fit in?

2. Will I fail?

3. How will I know the right path for me?

Let me suggest that the MBA ought to ask himself or herself those same three questions. Many will go and serve society directly, bringing the skills and knowledge that they learned here to nonprofit organizations. But most, I suspect will go or have gone into the private sector.

I would like to suggest another question as well: Should the MBA program espouse a triple bottom line or a single bottom line that is subject to two constraints? Stated differently, can you function with three bottom lines? What if they are in conflict? Does one always trump the other?

Let me be so brazen as to suggest that the primary role of the MBA to build economically viable entities that can contribute to society. My sustainable business model would be defined as an adherence to “responsible sustainable growth.” I run a not for profit but to this day, I tell my colleagues that “not for profit” is simply a question of tax status. It ought not to dictate how you run the operation.

Without a margin, you can have no mission. Without a margin, you cannot grow or thrive or reinvest in the community.

That said, the responsible leader of an enterprise today must embrace with a passion the need to operate within the constraints of social responsibility and environmental sustainability. But the social and environmental elements are not the organizational objective function. Let me give you two examples.

A few years ago, Costco, the large retailer based in Kirkland, Washington, realized that when it was shipping its round 40 oz. jars of cashews to its stores, the jars left considerable space in the square boxes. They were, in fact, shipping a lot of air. And so, Costco redesigned the 40 oz container into a square jar. According to Costco, “Only 288 round jars fit on a pallet, now 432 square jars fit on a pallet. The new jars reduce the number of pallets by 24,000 per year—equal to approximately 400 truckloads.”

The second example is very close to home. In 1997, the GMAT was converted from a paper-and-pencil test to one that is delivered electronically. From test registration to the test day itself, to candidates’ score reports and all reports to schools, we targeted a paperless model. In aggregate, just by converting the test alone, it is estimated that we saved 10,000,000 pages a year—50 tons of paper. If the pages were laid end to end, the string would reach from Vancouver to Thunder Bay or Washington, DC to Albuquerque, or from Amsterdam to Lisbon. Our decision was driven by the opportunity to provide better service to test takers and schools, to provide a better assessment, and to dramatically enhance test security.

In each case, Costco and GMAC made the right economic decision, but it also had a positive environmental impact.

As a CEO, the first thought I have each morning is for the 130 people who work with me and for the 300 who count on the continued survival of the company to feed their children, provide healthcare, and pay their mortgages and tuition.

And when I make a decision, one dominant consideration is whether the decision I make will contribute to our own sustainable growth—to our ability to keep and to challenge our people.

At UBC, I learned about Pooja Visnanathan, a PhD student in computer science, who has invented an intelligent wheel chair for people who are suffering degenerative diseases. As one who has a family member suffering today from Alzheimer’s disease, Pooja’s creation has a special meaning for me. Indeed, any one of us might benefit from it someday.

UBC’s mission speaks to its role in “improving the quality of life through leading edge research.” Pooja’s research can “improve the quality of life through leading-edge research.” But for her to achieve that goal, for anyone of us to benefit from her chair, she will need support: production, sourcing, distribution, marketing, financing, capital structure, intellectual property protection.

This is the stuff MBAs do. It is these skills that MBAs bring to society. Just as Pooja used her knowledge to build a prototype, MBAs must use their knowledge and skills to let society benefit from her genius. They must give her invention a path to society.

And in using the knowledge and skills gained from pursuing an MBA to bring her genius to those with degenerative diseases, an MBA student is no less noble than a talented researcher.

For many years, Athens was one of the smaller city states. But it was a constant leader militarily, socially and economically. But its citizens also held to an oath.

“We will ever strive for the ideals and sacred things of the city,

Both alone and with the many.

We will unceasingly seek to quicken the sense of public duty.

We will revere and obey the city’s laws.

We will transmit this city not only not less

But greater, better and more beautiful than it was transmitted to us.”

To me, this defines the sustainable business model; a model of responsible and sustainable growth. This defines the dream that the MBA ought to hold. It is not to sustain but to transmit this city not only not less but greater better and more beautiful than when it was transmitted to us.

(cross-posted from the June 2009 Deans Digest)

Are holders of an MBA degree responsible for the global financial crisis, interested only in making money, and devoid of ethics and a sense of social responsibility?

If you listen to some critics, MBAs exist only for their own financial gain—and are solely responsible for the current recession. However, in real life, their motives are a lot like everyone else’s. In a recent survey of MBA graduates that GMAC conducts annually, the top criterion for selecting a job was the opportunity to do challenging work. Salary was down the list at number six.

Responses from management education graduates also revealed that the key driver of the value of their degree is the ability to develop their knowledge, skills, and abilities, not how much money they will make.

We also surveyed more than 2,000 companies that hire MBAs—from small to multinational—around the world and 98 percent said they were satisfied with their MBA employees. In fact, this hiring season these companies paid an MBA about 50 percent more than someone with an undergraduate degree.

To be sure, the deep economic recession is affecting every industry and companies have significantly curtailed or withdrawn hiring plans for all types of jobs. MBAs are not completely immune: Companies in the survey said they would be hiring, on average, about half the number of MBAs this year, compared to last year.

There is some good news for those with an advanced degree in business. Despite the doom and gloom, a greater percentage of graduates in 2009 had received a job offer compared with economic downturns in 2002 and 2004. More than half of the students in the survey who were seeking jobs in the manufacturing, energy, and health care industries had a job offer.

According to the Department of Education, about 125,000 people receive a master’s degree in business every year in the US. Only a very small percentage of this number goes into investment banking and works on Wall Street. Most are working for companies, nonprofits, government, and all types of organizations in between to help their employers succeed. And many today are entrepreneurs, applying the skills and knowledge that they developed in their MBA programs to their own company.

But whether they work on Wall Street , Main Street, or Pennsylvania Avenue*, we can be proud of the vast majority of MBA graduates who are committed to leading ethical and socially responsible lives. April was TeamMBA Month and dozens of b-schools around the country organized a variety of service projects to give back to their communities.

From repairing and renovating houses for low income residents to helping establish a program to develop entrepreneurship skills for prison inmates, thousands of MBA students across the country are contributing their time, skill, and enthusiasm in a collective effort to give back and make our communities better.

One student we spoke with summed up his, and his fellow students’, involvement this way: “We have people that are very ambitious, that want great positions in great companies, but along with those traits … we also have those that are very interested in giving back to the community. You can be ambitious and give back to the community at the same time.”

And MBAs certainly have done their share.

The real MBAs are right there in your community, living, working, and contributing in ways that we all can be proud of.

* Secretary of Education Arne Duncan earned his MBA from the Booth School at the University of Chicago and Former Secretary of State and Chairman of the Joint Chiefs of Staff Colin Powell earned his MBA from George Washington University. President George W. Bush is a Harvard MBA.

Greetings!

All of us at the Graduate Management Admission Council have been granted a gift. To some extent, our gift was earned; but there is also a generous measure of good fortune. We will be able to ride out the present storm and, we expect, to emerge on the other side stronger than ever. But we all believe that with that gift comes an obligation to share the bounty of this good fortune that we have been given with those who are less fortunate than we are.

For a dozen years now, we have elected not to send holiday cards to our friends, colleagues and business partners. Instead, we have “adopted” the children of families in the area who could use some help making the holidays merry. The nearby mall has an Angel Tree on which these children hang small cards sharing their dreams for the holidays. This year, we adopted 66 children from 26 families. They range in age from as young as six months to as old as 17 years.

And for those of you with inquiring minds, bikes are once again filling our halls here—19 kids asked for (and will get) a new bicycle this year. There is a little pink one (even the tires are pink...for the moment) with streamers coming from the handle bars at one extreme. At the other end of the spectrum is an aggressive-looking VFX, Magna Dual Suspension mountain bike. (Whatever happened to plain old red bikes with no gears and pedal brakes?) For little girls there is The Littlest Pet Shop-for the little boys, there are Leap Frog Learning toys.

All of us at GMAC want to wish you a wonderful holiday. May 2009 be a year in which your dreams are fulfilled.

Best wishes,
Dave

A reporter recently asked me whether GMAC’s recent adoption of a palm vein reader was a knee-jerk reaction to the theft of GMAT test questions by participants in the web site Scoretop.com. Her question was not an unfair one as the media had certainly offered us daily doses of stories on Scoretop.com. The comment lines, blogs, and chat rooms were replete with opinion by both the informed and the uninformed.

The palm vein reader that has now been installed in GMAT test centers in Korea and India will be a part of every GMAT test center by the end of the first quarter of 2009. It represents one more aspect of our commitment to continuous improvement.

The palm vein reader is less invasive and more accurate than the digital fingerprint that we have captured since January 1, 2006, when the Graduate Management Admission Council first launched the GMAT with partners Pearson VUE and ACT, Inc. Moreover, it’s a more reliable identifier than fingerprints. There are some individuals, myself included, who have fingerprints that are very hard to read. (It took me more than an hour to get two acceptable fingerprints when I was signing up for the Registered Traveler program. In the end, they chose my iris scan as my identifier, not being able to rely on the fingerprints.)

Early in the decade, GMAC uncovered a test imposter ring. A ring of very proficient test takers would take the GMAT or another high-stakes test on behalf of someone else. We were able to crack that ring and we canceled GMAT scores and notified schools.

But we also discovered that the imposter ring was engaging in document fraud. In order to pose as a test taker, the imposter needed a government-issued identification such as a driver’s license or a passport. And so for the $3,000 to $5,000 that the ring charged their clients to take the test, they also produced very convincing but fraudulent documents.

The introduction of digital fingerprinting in 2006 was a step along our path of continuous improvement. The palm vein reader is but one more step. And our journey is not at an end. We are committed to continuously improving every aspect of the GMAT—from test items to supporting materials, to the measurement of more constructs, and, yes, to even tighter and improved security.

The first in a series of occasional commentaries by GMAC CEO Dave Wilson on topical issues in management education.

Although it’s been weeks since the Olympic torch moved on from Beijing, for me, the impact continues to resonate.

In the final heats or sets, which is most of what dominated the televised coverage, we were all watching athletes who had earned their way into that final event by defeating other athletes; athletes all, but only the exceptional ones are in the medalist heat. The medalist heats are populated with peers who have proven their mettle in the rigor of earlier races.

Many years ago, I entered a 10K run in Houston to support the Houston Symphony Orchestra. As I approached the starting line, there were signs indicating where one should line up depending upon the pace per mile you expected to run. I got into my place at marker for those who would run a 6:30 pace and waited for the starting gun. As this was a small race, there were no invited world class runners, just ordinary weekend runners and joggers. I was amazed at the number of runners who were planning to set a pace faster than 6:30.

Those of you who have run in these kinds of events know the end of this story. The overwhelming majority of these alleged 6:30 pace runners were not close to that pace. They apparently suffered from an undiagnosed (in fact, never even known) condition called “numeric inversia” where a “6” looks like a “9.” 9:30 was about the pace they set.

It took more than half a mile to clear myself of these slower runners. There were no early heats to eliminate these runners or place them in a different race. Nor was there any requirement for an objective measure of ability that granted them a space with the runners who were setting a 6:30 pace.

But it also did not matter much. The purpose in our run that day was to support the Houston Symphony Orchestra, not to win any medals.

Imagine that you have decided to invest US$50,000. You are going to get an MBA. As you walk in the classroom, you have tested your abilities and concluded, metaphorically speaking, that a 6:30 pace is your level of ability; a flat course plays to your strengths and temperatures in the 70s are where you perform best. You chose the program that meets all of these criteria. You show up at the starting line. The gun cracks and off the pack goes.

But your classmates are not 6:30 runners. They are 9:30 runners. And this time it does matter. They are your peers and they will be in your case groups. They are going to be with you for a year or more as you study. They will also be in the cohort that the career services office has to place. And you have written your check for $50,000.

How does this happen? You did your due diligence on the program. The curriculum looked great. Tuition and fees were competitive. The faculty roster was impressive. How did you get this huge cadre of classmates who are not your peers?

The answer is “the same way -- the 9:30 runners lined up with the 6:30 milers.” There was no objective measure of ability that stratified the pack.

Anytime an MBA program tells a student that “you do not need the GMAT to matriculate,” those students will be running with the 9:30 milers. And this time it will be a very costly policy for the student, and the school.

Great MBA programs want students who have worked hard, trained hard, and competed. They want students who are willing to subject themselves to the rigors of the GMAT. The cohorts at these programs are indeed peers. Classmates give to each other as much as they learn from each other.

Don’t get caught in the pack where the 9:30 milers are clogging the channels for you and your 6:30 pace.

You are on the front lines of graduate business education every day. I welcome your comments about this and other topical issues in graduate business education around the world.

This forum is open and I look forward to the dialogue to come.

Dave

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