The Secret to Stanford Business School’s Success

stanford college

Stanford University’s Graduate School of Business has the best Master of Business Administration program in the world, the Financial Times decreed this week. The key factors in Stanford’s win were its world-leading alumni salaries and a top ranking for “career progress,” a measure of changes in alumni’s seniority level and size of company from before they entered the school.

It’s not just the FT: Bloomberg Businessweek also put Stanford at the head of its Best B-Schools list in November, on the strength of the school’s top scores for (1) compensation and (2) networking¹.

One cannot really fault business-school rankers for using alumni salaries as a measure of success. This is business school we’re talking about. Still, one also cannot help but wonder what portion of Stanford’s three-years-after-graduation average salary of $224,628 really reflects the quality of education provided. The school happens to be located in Silicon Valley, after all, and companies there are known for paying people a lot.

In fact, the San Jose-Sunnyvale-Santa Clara metropolitan area, which encompasses Stanford’s campus, has the highest average wage in the country, at $2,653 a week in the second quarter of 2018, according to the Bureau of Labor Statistics’ Quarterly Census of Employment and Wages. Neighboring San Francisco-Oakland-Hayward is No. 2, at $1,777. Bridgeport-Norwalk, Connecticut, aka Fairfield County, is No. 3 at $1,497. Metropolitan San Jose’s average annual wage is almost twice that of metro New York, and more than twice that of metro Los Angeles, Chicago, Dallas, Houston and Philadelphia².

So I was curious: How does Stanford stack up if you factor in the neighborhood effect? To measure this, I divided alumni salaries by average metro-area annual wages (the numbers above multiplied by 52) for the top 20 U.S. business schools in the FT ranking. I didn’t include schools outside the U.S. because local wage data aren’t as readily available, but let’s just posit that the Indian Institute of Management Ahmedabad, with the sixth-highest average alumni salary in the world, adjusted for purchasing power parity, would trounce every school in the U.S.

MBA schools list; standford

Look who’s in last place! Obviously, there are problems with measuring things this way. Very few graduates of the University of Virginia’s Darden School of Business stay in Charlottesville, a small mountain city with a metropolitan-area average weekly wage of $880, by far the lowest for any of the schools in the table. Graduates of Dartmouth’s Tuck School of Business, Yale’s School of Management and Cornell’s Samuel Curtis Johnson Graduate School of Management are highly unlikely to stay in their neighborhoods, either.

But Stanford’s business school reports that more than a quarter of its alumni live in the San Jose-San Francisco Bay Area, far more than in any other region. It doesn’t say what percentage of its students come from the Bay Area, but given that more than half of its Class of 2020 got their previous degrees outside the U.S., I’m guessing that share is in the single digits. The school takes students from places with lower wages, then releases them into perhaps the highest-wage local job market on Earth³. It’s the real estate formula for success: location, location, location.

Of course, Stanford University justifiably gets a lot of the credit for making Silicon Valley the high-salary generator that it is today. But that’s been mainly the doing of the faculty and alumni (not to mention the dropouts) of Stanford’s School of Engineering. The business school has been along for the ride. And yeah, yeah, I’m sure it’s great in lots of ways. But it really does have the wind at its back when it comes to business-school rankings(4).

  1. The latter measure focuses on “the quality of networks being built by classmates; students’ interactions with alumni; successes of the career-services office; quality and breadth of alumni-to-alumni interactions; and the school’s halo, or brand power, from recruiters’ viewpoints.”
  2. And yes, even if you look at just Manhattan (average weekly wage: $2,066), it still doesn’t come close to metro San Jose.
  3. Zurich seems to be the one possible competitor.
  4. Disclosure: I am a former employee of the publishing arm of Harvard Business School. I don’t think that has caused me to be biased against Stanford, although growing up a rabid University of California Golden Bears football fan might have. Also, I once applied to the Darden School, which at the time offered a full-ride scholarship to one lucky journalist per class. I didn’t get it, or even get in.