Sunday, February 8, 2009

Why Diversity Matters

I originally wrote the following on the Businessweek forums in response to some understandably emotional private equity guys who just received their dings.

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I'll try and explain from the b-school's point of view how this admissions process works on a macro level - which may give some of you some insight into how it impacts you as an individual applicant.

B-schools are looking to build a dynamic and diverse incoming class. They're not doing this necessarily for politically correct or social engineering reasons, but for one very practical reason:

The greater the diversity of the class, the greater the diversity of career choices amongst the students, which means the greater the likelihood of attracting a wider range of recruiters, which then mitigates the risk of becoming a one-trick pony school, especially during tough job markets.

Think about it.

No matter how disparate the "career goals" are in the essays of individual applicants, in the aggregate you can make some reasonable assumptions. For example, as a group the private equity dudes will more likely than not stay in finance - it's just horse trading from one fund or bank to the next. Those who actually end up in something completely different like nonprofit or marketing are a minority, no matter what they say on their essays.

So if you fill up the class with a bunch of private equity dudes and finance types, you're going to have a class that is even more skewed towards finance jobs than before. And this doesn't even count all the IT dudes who want to get into finance.

And this can be harmful for a school's ability to attract a wide array of recruiters over the medium- to long-term because it will be known as a one-dimensional school. Moreover, it will have a harder time attracting a wide array of applicants from different backgrounds to apply because of its reputation of skewing towards one kind of applicant.

Of course in reality there's going to be skew -- both in terms of the applicant pool and recruiters -- but b-schools do want to minimize the skew as much as they can.

You may care about PE recruiting, the *current* crop of students may get "j*zz in their pants" (sorry, had to make the SNL reference) at the sight of a PE fund, but the school really doesn't care. They've seen trends come and go. And PE being a "hot" sector for MBAs is simply a trend.

That's why they want to extend as many branches to the widest possible array of industries and recruiters, because it allows them to hedge their bets on which is going to be the next "hot" thing without having to predict which is the next "hot" thing. Having your recruiting and alumni reach across the broadest spectrum of industries and job functions is how they build up an enduring reputation.

I'll tell you a brief anecdote. When I was in school during the dot-com mania, certain recruiters like Proctor & Gamble and Johnson & Johnson stopped recruiting at Wharton and only accepted resume dropoffs. Why? They couldn't hire anybody, and their recruiting sessions were poorly attended (in the end, they still hired a couple of Wharton grads from my year, but no dog and pony show). The school was extremely concerned about this because it's not good for the long-term. Everything goes in waves and the school didn't want to be stuck having crappy marketing recruiting in more "normalized" time periods where marketing will attract a dedicated segment of the class (not to mention turning off potential applicants who hear about the lack of marketing recruiting). In the end, they kissed and made up, and things as far as I know are going well. Stanford went through the same issue with investment banking, Fortune 500, leadership rotational programs, etc. for a while because the "yield" for these recruiters was so low that it wasn't worth trekking out to Stanford. Of course, the arrogant dweebs would say "well who wants to work at those crappy jobs anyhow, they're all starting new companies" -- which isn't really true. An administration with foresight can't let the arrogance or selectiveness of the current student body that is based on some "trend" dictate the skew and reputation of the school with future students and recruiters. Stanford's admin was genuinely concerned about this and have tried to reach out with varying degrees of success.

It's why schools like HBS have been so successful in the past because of their ability to send their grads to virtually every nook and cranny in any industry. I don't have proof of this, but at least from my personal experience they have the most diverse alumni base in terms of job function, geography, and industry. Their alums were the first to get into VC in the 1960s (not Stanford). Their alums were the early entrants into PE (before it was huge). Their alums were the first to get into medial/entertainment. Their alums were also one of the early entrants into nonprofit and social enterprise. Entrepreneurship as a career path for MBAs was something that HBS and Stanford grads were into well before it become a buzzword amongst all b-schools. They have a longstanding tradition of sending grads into all kinds of established industries. It's about reach, and it's something that other schools have tried to emulate (copy). Even schools like Stanford try really hard, which makes it even harder to get in because they do have to work extra hard to ensure a diverse class -- their alums skew so heavily towards working in tech/VC *and* Northern California that the admissions results can sometimes be downright bizzare - because they are hoping that you all don't stay in Palo Alto - it's Stanford's biggest achilles' heel is the lack of geographic diversity. Wharton also has issues - it's alumni base (particularly those who graduated pre-1992) are overwhelmingly finance. Even though it's less of a finance school now compared to say Chicago or Columbia or NYU, they are also actively building a more diverse alumni base. Because it's that diversity that gives it the real edge when it comes to overall reputation - because you never know where the next big thing will happen. If HBS has one guy in Bhutan, Wharton wants to be there too. Even Chicago is catching onto that (as each year progresses, you will see that the "finance nerd" stereotype to be more a thing of the past as Chicago tries really hard to broaden its applicant pool).

That's why they don't want to fill the class with only PE dudes, IT engineers, bankers, and management consultants - even though at most schools they will still make up a healthy chunk of the class. Again, the greater the diversity, the greater the chance of minimizing the skew of post-MBA career paths.

So what does this mean for PE applicants?

If you come across as a traditional PE dude in terms of profile *and* orientation (everything about you screams "I'm a finance guy through and through" no matter what you say in your applications), it can become more random simply because there's other people who have such similar profiles as you will. And they are NOT going to take all of you in, especially since there's a lot more applicants with PE background now than there was 5-10 years ago (simply because the industry has grown -- more headcount overall means more potential applicants).

Anyhow, you can take this as you will - you may not agree with their philosophy, but then again you're the applicant looking out for your own individual career, wheras the school administrations are looking after the reputation and reach of their respective schools - for the current crop as well as future generations. Just keep in mind that universities don't operate in calendar quarters or even fiscal years - but as educational institutions they can afford to operate with their longer-term interests in mind.

3 comments:

Amit said...

Hey i am blogger of IIM MBA CAT

You have a cool blog!! I read it all the time. Hope to listen more from you.
Do u have any idea about present ranking of IIM mba in the world?? IF yes, please let me know.

Tron said...

This is one of the most intuitive rants I've seen. Either I need to read more personal blogs or there's something special about how you synthesize information. Looking forward to being a part of your tribe

Joe said...

Alex,
I'm starting the process for 2011 and came across your blog. I appreciate your time and your insights.

This post seemed a bit offbase. I looked at the employment reports for the schools and they all seem very diverse. Full disclosure: I'm most interested in Stanford.

Technology and VC combined:
Stanford - 15% (12% and 3%)
Harvard - 9% (7% and 2%)
Wharton - 10% (8% and 2%)

From your rant, I expected that GSB's number would have been much higher! That seems a pretty small difference. (Also, since it's zero sum, there must be an industry overrepresented at Harvard or Wharton, which went unmentioned.)

For geography:
Stanford - 52% "West" but it's not broken out. (Where did you get the "Northern California" data you referred to?)
Harvard - 46% "East" broken out "Northeast" (38%) and "MidAtlantic" (8%)
Wharton - 50% "East" broken out "Northeast" (37.5%) and "MidAtlantic" (12.5%)

You said geography is Stanford's biggest achilles heel. GSB is 6% more concentrated in "West" than Harvard in "East" and 2% more concentrated on "West" than Wharton in "East?" Isn't "West" is much more populated and larger than "East?" Maybe your data is not current?

For Stanford I'm looking at http://www.gsb.stanford.edu/cmc/reports/documents/EmploymentReport_08_09l.pdf. For Harvard I'm looking at http://www.hbs.edu/recruiting/mba/resources/career.html. For Wharton I'm looking at http://mycareer.wharton.upenn.edu/report/profile_2.cfm.

Thanks Alex. I'll keep reading!