Attacking the GMAT Monopoly

Exam that for decades has been required for MBA programs is getting some competition at Stanford and MIT -- raising questions about standardized testing and admissions.
January 8, 2008

It has all the makings of a great business school case study: a worldwide market, a lost contract, unexpected competition, debates over whether the best market is broad or focused.

The case study might be too close to home, though, at M.B.A. programs, which are seeing new debates over how best to test applicants to their programs. For decades, there has been one way to apply to the top programs: You take the Graduate Management Admission Test, know as the GMAT. But in the last year, two top business schools -- at Stanford University and the Massachusetts Institute of Technology -- have started giving students an option of submitting scores on Graduate Record Examinations instead. Johns Hopkins University has also been giving students the option.

According to several other business admissions officials who asked not to be identified, their schools have been accepting GRE scores quietly -- not publicizing it as an option, but not turning away applicants who want to be considered that way. And several consultants who work with applicants to business schools said that they have seen some of their clients obtain permission to use the GRE instead, on a case-by-case basis.

Proponents of the GRE option say they believe it may help business schools attract classes that are more diverse and more intellectual -- and to land students who are considering both business school and master's or Ph.D. programs in economics or other business-related fields. Applicants to business schools say that they also like the price: $140 for the GRE compared to $250 for the GMAT.

Some proponents say that they are intrigued by the GRE option but are facing pressure from the Graduate Management Admission Council, a group of leading business schools, which created the GMAT, not to deviate from requiring that test. Officially, the council's rules demand that members require the GMAT. Council officials deny that they are pressuring anyone and note that they have not kicked out the business schools that no longer require GMAT. But tensions are evident in talking not only to council officials, but to business school leaders who say they are worried about offending the council.

At stake is a key part of the admissions process. Currently, nearly 250,000 students take the GMAT, which is required for admission to more than 1,800 business schools worldwide -- about 60 percent of them in the United States. Those numbers would generate $62.5 million in testing revenue if everyone took the test once, but taking the test more than once is permitted and is not at all unusual -- it is allowed up to five times by an individual in a year.

The fight over the business school admissions market took off in 2003, when the Graduate Management Admission Council stunned the Educational Testing Service and announced that it would end a decades-long relationship in which ETS produced and managed the test. Instead, GMAC awarded a contract -- which started in 2006 -- to ACT and a division of Pearson. For ETS, the shift was seen as a major blow.

Part of the reason ETS (which runs the GRE) could come up with a new way to compete with the test it formerly ran is that the GMAT has never been full of questions about the finer points of accounting or interpreting Sarbanes-Oxley. It is (similar in many ways to the GRE) a test of verbal, mathematical and writing skills. Around the same time ETS was embarking on revising the GRE -- a process that has been anything but smooth, but that has had the testing service thinking about the markets it serves.

ETS has been making a point in the last year of calling business school officials to tell them about the revised GRE and to talk about how it might be used. But the institution most associated with the GRE experiment -- Stanford -- insists that ETS lobbying had nothing to do with its policy change.

"We were talking with faculty about whether we were attracting the most intellectually curious students, about whether M.B.A. programs were attracting students with a genuine intellectual curiosity with the subject matter," said Derrick Bolton, director of M.B.A. admissions at Stanford. The business school there has always used the GRE for admission to its doctoral programs "and someone said 'why do we require the GMAT' for the M.B.A.?'" Bolton recalled. "It's just one of those things that you accept as gospel until someone asks you the question."

The class that enrolled in the fall of 2007 was the first to have the option to submit GRE scores and only a small percentage of students -- about 3 percent of those enrolled -- did so. But Bolton said that those who did expanded the pool in significant ways. The GRE test takers are more likely to be women, he said, and more likely to be undergraduates or just a year out, while the GMAT is more popular with those who have been out a few years. "If we are able to fish in both of those pools, how can that hurt us?" he said. Bolton added that from discussions with applicants, he's sure that there are "definitely some people who would not have applied to the M.B.A. program had we put an additional barrier" of requiring the GMAT.

Stanford plans to study the students being admitted with the GRE and to track their performance in the program to see whether GRE scores provided the same sort of information about the chances of student success that admissions officers normally think they get from the GMAT.

One problem, Bolton said, is that Stanford has received pressure from GMAC not to publicize the program, and this makes it difficult to get the critical mass needed for a good study of the two tests. Bolton said that the GMAC officials are "very uneasy" and have had meetings with Stanford's dean about their concerns. "There's this 'don't ask, don't tell' policy right now. They are really concerned about us," he said.

Bolton said that he has received many inquiries from admissions officials at other M.B.A. programs who want to know about the experiment. Some confirmed privately that they would like to try something similar, but are wary of the GMAC. Bolton said he's bothered by the pressure. "This is somebody dictating your admissions policies. No outside organization should have any power to tell you how to admit your class," he said.

Richard Schmalensee, who returned to teaching at MIT last year after serving as dean of the business school, reportedly voiced concerns in discussions with other business educators about whether the GMAC rule could be an antitrust violation. Reached via e-mail in India, Schmalensee said: "On reflection I don't think it is an antitrust violation, but I think their pressure for total exclusivity seems at the very least inconsistent with academic values."

Business schools report a range of reasons for experimenting with the GRE. Rod Garcia, director of admissions for the MIT program, said he hopes to expand his applicant pool. In addition, MIT has joint programs with its engineering graduate programs, for which the GRE is required, and does not want applicants to have to take two tests. Johns Hopkins, which has a relatively young M.B.A. program, dating only to 1999, has always had the GRE option, but Hopkins has a tradition of joint programs with its other professional schools and many of those opting for the GRE have been attracted to those joint programs.

Nicole Chestang, chief client officer for the Graduate Management Admission Council, said it was untrue that the group was pressuring anyone. "We are an association of schools committed to schools," she said. "No school is in jeopardy of losing membership in GMAC for doing what they think is the right thing for their program." She defended the GMAT as being "the gold standard" in business education, and said it was designed with business schools in mind.

As for ETS, Chestang said that the business group ended its contract with the testing service because the ACT-Pearson proposal provided better security, better technology and more testing options. She said that security features are a major reason -- and an appropriate reason for the GMAT to be so much more expensive than the GRE.

As for the GRE's improvement plans, she noted that the company hasn't been able to make all of the changes it wanted on its schedule. Many of these changes are "aspirational," she said, while the GMAT "meets the mark." What the new competition means, she said, is simple: "ETS is a testing company and they are looking to expand in other markets."

David Payne, executive director of GRE programs at ETS, said that the service is reaching out to business schools right now out of the belief that they will gain from opening up testing options. He said that many applicants who aren't sure they want to apply to business school may be encouraged to do so if they don't need to prepare for another test, and he said that students who major in economics or related fields may be deciding between the M.B.A. and other master's programs.

"There's a larger applicant pool out there," he said.

While Payne said that he believes the GRE is as good a predictor of academic success as the GMAT, he said that he would like to do more research. Payne said that ETS would be willing to work with the GMAC to produce a "concordance table" -- similar to one produced by those who design the SAT and ACT -- to show comparable scores.

It's not surprising, Payne said, that GMAC would be concerned about competition because of the significant price advantage for students of taking the GRE. "Once schools start accepting GRE scores, students can make a choice and students would more than likely prefer not to have the higher priced test," he said.

Rose Martinelli, associate dean for student recruitment and admissions at the business school of the University of Chicago, said she is not comfortable moving to a two-test system without more research. Right now, Chicago will periodically let an applicant submit GRE scores if he or she is in an area where it is impossible to schedule a GMAT, but the GMAT is the normal requirement. If research shows the GRE is as effective at helping to predict success, she said, she is "not closed to the idea."

While it is easier for admissions officers to have a single test, she said that there may be advantages to considering GRE scores. "People are less fearful of the GRE than the GMAT," she said. "There are still some negative connotations about what an M.B.A. is, and the GMAT seems like it's this huge deal, and it really isn't."

Some testing critics view the ETS-GMAC feud with skepticism of both sides. Robert Schaeffer, public education director of FairTest: National Center for Fair & Open Testing, said that he doubted there was much difference in the predictive value of the GRE or the GMAT and that business schools would be better off focused on college grades. But he said that the drive by ETS to get back business school business seemed like a "desperate attempt to get back into a market ETS lost due to inept test administration." And the GMAC rule that members require the GMAT "suggests that their primary motivation is revenue maximization not fair and accurate admissions."

Other experts say it is important for business schools to try new approaches. Robert Sternberg, dean of arts and sciences at Tufts University, is a psychologist and testing expert who has worked for years on developing new approaches to standardized exams -- and has applied those approaches to his own institution as well. His approach is generally to add measures of practical knowledge onto traditional measures of standardized tests and grades.

A few years ago, he was able to conduct an experiment at the University of Michigan business school in which applicants were given other testing, in addition to the GMAT, on measures of practical intelligence. Applicants were given such questions as this: "You are a management consultant working for a newspaper that is struggling to gain new subscribers and is entering the world of electronic media. Materials provided: Memos pertaining to a potential union strike, summary of an evaluation of the
web-based paper, and the newspaper’s third quarter financial report." Or this: "You are the director of research and development for a communications technology company. You have a subordinate manager who is technically sound but lacks managerial skills. Materials provided: Organizational chart, resume and evaluations of the problem subordinate, and memos and e-mail exchanges among project managers and the director." Applicants were then evaluated on how they defined problems and proposed solutions to them.

In a paper Sternberg and some colleagues published last year in the journal Learning and Individual Differences, he demonstrated that this approach yielded better predictions on student success than the GMAT and grades by themselves. And this method, the study found, resulted in smaller gaps based on race and gender than are found on the GMAT and other standardized tests. Nonetheless, this approach is no longer in place at Michigan or elsewhere. (A spokesman for the business school said he wasn't sure why.)

Via e-mail, Sternberg said that this experiment suggests more dramatic changes are what is really needed in business school admissions. "The testing companies are stuck on what they have been doing for 100 years and unless they are pushed they won't change for the next 100 either. It is depressing," he said. "If physics or biology or medicine were the same today as 100 years ago, just think of where we would be."


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