Recently, BusinessWeek Online's Mica Schneider caught up with David A. Wilson, GMAC's CEO, to find out what's new with the GMAT, the people who take it, and the schools that make decisions based on it. Here are edited excerpts from their conversation:
Q: MBA programs are countercyclical: In a down economy, applications increase to business schools. What do you expect in the year to come?
A: The downturn encourages more people to go to school. But so does the value of the degree. We'll continue to see strong demand for graduate management education over the next year.
Q: GMAC has grown from being a place to register for the exam to a place where applicants can get career information and data about MBA programs. What's your strategy for GMAC?
A: There's a need for a central repository of objective information that isn't in any way skewed by subjective factors. Our mission has been to create a source of information for MBA students from the time they first start thinking about applying. They can take the pre-GMAT exam online or download it.
Within the next couple of months, we're going to launch Essay Wizard, so they can practice some of their written assessments using a technologically-based rating assessment called E-Rater. That will give almost immediate feedback to the person. [Prospective MBAs] can apply for loans through the Web site, too.
Q: Tuition is a barrier for many MBA hopefuls, who fear that they can't afford a $60,000 degree at many private schools. How does GMAC play a role?
A: We partnered with SallieMae and Wells Fargo in 1993 to offer MBA loans. Students who are admitted can take out a federal loan, limited to $18,500 a year for U.S. citizens. They can also take out a private loan -- non-U.S. citizens need a co-signer -- up to the entire cost of the MBA program. As of this month, we've loaned $1 billion to MBAs. We lend about $125 million a year.
Q: GMAC has 644 testing centers worldwide -- 50% more than in 1997. In which areas of the world is the popularity of the exam growing?
A: We have very strong reach in most areas of the world. We have to expand more, and are doing so in Latin America. There are some pockets of Western Europe where we need to have more sites. The U.K., for example, could certainly use some more, although our various test sites there don't seem to be operating above capacity. It costs about $85,000 to build a site, and about $110,000 a year to run one. So you've got to be able to generate enough revenue to cover that operation.
Q: The exam still costs $200 for prospective B-school students. Any chance GMAC will alter those fees anytime soon?
Q: But GMAC is considering waiving the cost of the exam for some prospective students?
A: This year, we have created a voucher program on a pilot basis in South Africa. It was the recommendation of the schools in South Africa that rather than offer the vouchers to first-time test takers, we offer them to people who have to retake the test. Those applicants have already indicated a real dedication [to management education]. Schools are distributing the vouchers to support these young people, since the fee is a real barrier -- it could be as much as a month's income there. If the vouchers work, we may expand the program. For now, a couple of hundred people in South Africa could benefit.
Q: What's your advice for GMAT test takers?
A: Any test-preparation company and counselor will say: Prepare, practice, and be well-rested. It's important that when you go in you have your very best performance. Don't panic, think things through, be comfortable with the format. There's so much information out there now to help [test-takers] do that.
Q: What's your favorite source of GMAT tips?
A: I would buy The Official Guide for GMAT Review that we put out ($24.95 at GMAC.com). The questions are written by the people who write the test. Then download the free software so that you know [how] the screens [look and understand how to navigate through the exam]. About 135,000 people downloaded the free exam in the first three months that we offered it. When GMAT test-takers register, we send them a free CD-ROM with the same practice exam.
Q: Plenty of test-prep companies claim they have ways to help applicants improve their GMAT scores -- Kaplan and Princeton Review come to mind. What's your opinion of these companies?
A: Test-preparation groups and GMAC are in the same business, just different divisions. Our mission is to get each student into the best possible business school for that student.
The metaphor that I would use is that of the cross-country runner. The prep schools teach you how to run the course as well as possible. All we do is set the course and hold the stopwatch. But we are all trying to get the candidate to finish the race as fast as that candidate possibly can, and get the best possible score. In the case of preparing for the GMAT, the goal is to get them to give the very best performance they can, because that will give them the best options to find a program that really fits their needs.
Q: How have average test scores changed in recent years?
A: The mean is about 520, and the standard deviation is about 107. Scores have drifted up a bit in the quantitative section of the test, but we don't know why. It could be the computer-adaptive test [introduced in 1997]. It may have been the increase in the number of test takers coming from Asia. The verbal average hasn't changed.
Q: Care to share your GMAT score?
A: I got a 611, including 51 on the quantitative [99th percentile], and 29 on verbal [53rd percentile]. I took it in 1963, and in my band uniform, so I could march at halftime. I was drum major. I got my MBA from the University of California at Berkeley, and a PhD in accounting and finance from the University of Illinois.
Q: How about the technology behind the CAT [computer-aided test] and E-Rater, the computer program that grades essays in the analytical writing section [see BW Online, 1/21/99, "This Is E-Rater. It'll Be Scoring Your Essay Today"]. Has it changed at all?
A: No. The CAT has permitted us to deliver the test 250 days a year. It lets people take the test when they're ready, not just once a quarter. Before the CAT, not only did you have to book the exam a month out but you had to wait six weeks for your scores. So our customer focus is measurably better.
E-Rater, aside from providing a score that's just as reliable as two human readers, saves money. We still use one human and one E-Rater to rate each essay, and when there's a [significant] differentiation, we have a third human read the essay. Usually, the reliability between the electronic rater and a human is higher than it is between two humans.
Q: What fixes are you looking to make to the GMAT?
A: There's always the chance to improve. It could be improving our registration process or our delivery process, trying to ensure that our sites are protected from externalities, so you don't have construction disrupting the place. If that happens, [test takers] can reschedule. Almost every building has limits as to what can be done in the way of construction during working hours. And based on my experience, there are a number of buildings that don't abide by the rules. In those cases, a candidate is encouraged to just submit an application for a retest.
Q: GMAC also runs MBA fairs for prospective students around the U.S. What's happening to your business abroad?
A: We have suspended our forums in Europe, because there are two other companies there, one of which is generally well-received by the schools. We'll be operating tours in Washington, New York, Chicago, Los Angeles, and San Francisco in October. Then we go to Beijing, Seoul, and Tokyo in November.
Q: Speaking of Asia, GMAC has been involved in some interesting events in Asia over the past year that one wouldn't expect from a nonprofit test company. Tell us why GMAC was involved in raids.
A: There are a number of people who have taken quite a number of our disclosed test questions -- they may be from paper forms prior to 1997 or questions right out of our books -- and have been reselling them. Others have just put the questions on a Web site and given them away. What we have is a violation of our copyright. None of the questions that have been disclosed were live questions, meaning they aren't still in the pools of tests that people take. [These questions are then] sold in books to purchasers who pay upwards of $50 for a sample test.
In Beijing, we filed action against the Beijing New Oriental School. As a result, the school was raided by Chinese authorities, and all the property that we believe is a violation of copyright was confiscated. We're still awaiting a hearing date [to settle the copyright violation].
Q: In the past, you have alluded to the fact that GMAT exams might one day include verbal sections in other languages.
A: We are developing a test of verbal reasoning in Spanish. We'll be pilot-testing that in 2002, though I can't promise exactly when we will roll it out.
Q: What does the practical-intelligence exam, which is being tested by Michigan as a supplement to the GMAT to measure leadership skills, mean for what GMAC does?
A: Practical intelligence is a wonderful concept. It has been around for quite some time, and when Joe White, the former Michigan dean, first talked about it, he and I had talked about doing some joint research together, and still are. His position was pretty clear: He did not see this test as being one that replaced GMAT for admissions, but rather a supplement. There are a number of schools that are using a multitude of very good management assessments as supplements. They aren't used for the admissions process but only after a candidate is admitted. The instruments are being used to help the schools and students in structuring content and workgroups.
Q: There's a common concern that the GMAT exam is biased against minority test-takers.
A: We have conducted validity studies on this. We did a comprehensive validity study in Europe, using eight different universities over five years, and observing more than 5,000 people. We found that the GMAT was equally valid in predicting across all cultures, all ages, both genders, and tongues. Does that mean there are differences between ages? Absolutely. Between some nationalities? Absolutely. But does that mean that it doesn't predict? No, it doesn't, based on our research, and we're always conducting more and more.