Wharton School Is Best in Class With Databases

A waist-to-ceiling whiteboard dominates Wharton School Associate Dean and CIO Gerry McCartney’s tiny basement office below Locust Walk, the broad, leafy footpath through the heart of the University of Pennsylvania’s main campus in Philadelphia. In the middle of the board, McCartney has scrawled a "hit list" of new financial market data he plans to acquire for Wharton Research Data Services (WRDS), the school’s Web-based collection of 100 finance and accounting databases and statistical analysis tools. At thousands of dollars a pop, buying and maintaining that many databases (not to mention the terabytes of storage to support them) would break the IT budget of most business schools. But not at Wharton. McCartney can afford them because he isn’t buying for his school alone. More than six dozen business schools around the world, including Wharton’s top competitors, buy access to WRDS (pronounced "words") for $30,000 a year. As long as the system covers its costs, McCartney can provide what he likes to call "a data supermarket."

The reason schools such as Harvard, Stanford and Northwestern’s Kellogg School of Management are willing to purchase a tool emblazoned with a competitor’s logo is that WRDS makes research easier. Those 100 data sets come in many different formats; Wharton delivers them in a standard format that makes it easy for researchers to merge data from different sources and use it with popular analytic software. As a result, finance and accounting professors?who advance their career by uncovering new insights into corporate performance and the workings of financial markets?can publish papers in almost half the time and consider questions that would have been too difficult to address without easy-to-use data. Meanwhile, Wharton?already known for its expertise in finance?has made a name for itself as a premier provider of academic computing services, applying the WRDS model to the development of teaching and information dissemination tools.

Wharton is honored this year with an Enterprise Value Award because it has used WRDS to extend the value of its brand by turning its competitors into customers and making business school faculty around the world more productive. "The value they’re providing is not just to Wharton but to research in [other] universities," says Doug Barker, CEO with Barker & Scott Consulting in Washington, D.C., and one of this year’s Enterprise Value Awards judges. "[WRDS] is realizing the promise of a networked world." Says Patrick Harker, Wharton’s dean: "We know we’ve crossed this magical line when junior faculty at other institutions are saying that a condition for them taking their jobs is having access to WRDS."

But the potential of WRDS might have gone unrealized were it not for the willingness of key decision-makers?not just at Wharton but throughout the business research community?to reexamine their value proposition. "Quite frankly, it didn’t seem like a blockbuster application at first glance," says Thomas Gerrity, the Joseph J. Aresty professor of management at Wharton, who was the dean when WRDS was deployed in 1994. "It’s kind of a pretty good idea. It might be helpful to some people," Gerrity recalls thinking. "But the lights didn’t go on; trumpets didn’t blow."

Filling an Unknown Need

No one asked for WRDS. Paul Ratnaraj, then the director of core systems, data services and operations with Wharton Computing and Information Technology (WCIT), pitched the application as a labor-saver after observing that faculty and doctoral students spent 40 percent of their time programming?writing database queries and reformatting data so that they could use it for analysis, and asking Wharton’s in-house database experts for help. Academic financial research relies on statistics. Researchers look, for example, for relationships between market valuations and corporate earnings to reach conclusions about how well traditional measures of corporate performance explain the stock prices of the late ’90s?crunching data about thousands of companies in the process. Ratnaraj, now CIO with The Pew Charitable Trusts in Philadelphia, figured that if he converted a couple of popular Fortran-based databases into an easier-to-use format and wrote a few screens for building queries, professors and their students wouldn’t have to be power users?or need as much help from his staff?to extract the information they needed. "[Users] just wanted the data as soon as possible," he recalls. "They did not need to write the code to manipulate it."

After McCartney was hired as CIO in 1993, Ratnaraj assessed the costs and benefits of WRDS and collected endorsements from his tech support staff. McCartney gave him $20,000 to cover the cost of storing the reformatted data. Ratnaraj wrote the original version of WRDS in SAS?the statistical software most faculty use to analyze their data?and programmers Steve Crispi and Son To then used the prototype to build the program. Later, Crispi produced a Web version.

Wharton’s faculty was pleased, and the story of WRDS could have ended there. In the ongoing battle with other top-tier schools to attract star researchers, Gerrity, an expert in the strategic use of IT and founder and former CEO of the Index Group, knew technology was a big selling point. Gerrity charged McCartney with building a state-of-the-art IT infrastructure to brand Wharton as a computing powerhouse. WRDS was a brick on the path to IT excellence.

Defining a New Market

While the internal value of WRDS was readily apparent to Wharton’s leaders, the decision to sell it to other business schools happened practically by accident. After deploying the system, Ratnaraj wrote a paper about it that he presented at an SAS user conference, then "showed it off" at a meeting of Business Computing Directions, a professional association for business school IT managers. It was then that Ratnaraj realized Wharton was onto something big. "Immediately a lot of other schools seemed very interested in the concept," he says. "And the first question was, Can you give it to me?" In academia, sharing tools among colleagues is the norm.

Despite the giveaway tradition, both Ratnaraj and McCartney thought other business schools should pay for WRDS. "There were real costs here," McCartney recounts. "This wasn’t a couple of student programmers bringing something out in an afternoon."

Besides, McCartney figured, the real benefit of WRDS wasn’t the code for reformatting the Fortran data or the pre-scripted queries, but the ongoing technical support that Wharton?acting as an application service provider?would provide. Research universities use many of the same databases and hire experts to mount the tapes, maintain them, help faculty run queries and troubleshoot. As McCartney saw it, there was no value to having these same tasks reproduced at every school, and Wharton would benefit by its association as a data services provider. By creating a dedicated staff to support WRDS, Wharton would reinforce its reputation for cutting-edge finance research.

But first McCartney had to convince the Wharton faculty and administration to accept this vision. "Big institutions have very high moments of inertia," McCartney observes. "They’re hugely indifferent about many, many things."

Making the Sale

McCartney gives the impression that he is not indifferent to much, and that he has no qualms about going out on a limb. He greets visitors on a midsummer afternoon wearing a black and red Hawaiian shirt and khaki linen pants. He spikes his conversation with hyperbole (the process that graduate students go through learning to read Fortran data is like "eating a Vaseline sandwich") and occasionally lets slip, in his Liverpool accent, a slightly off-color word. Although he eschews the entrepreneur label, he prefers work that is radical to the routine. To a large extent, Wharton extracted the full, groundbreaking value of WRDS because McCartney and Ratnaraj wouldn’t stop talking about it.

By the mid-’90s, corporate CIOs had shed their reluctance to outsource some IS functions, but universities, competitive in everything, still guarded their computing infrastructure. Ratnaraj says he sensed IS departments were resisting because they were worried about their own prestige. "They were looking at their own self-interest, rather than the user self-interest," he says. At the same time, it was clear that anyone who saw the WRDS demo understood its value. "You saw in their faces that they liked it," Ratnaraj recalls.

As the buzz about WRDS grew, Wharton, faculty and administrators worried that if they sold WRDS they would be giving away their deliberately crafted competitive advantage. Some faculty members also voiced fears that if McCartney and his team were providing service to paying customers, Wharton’s own needs would be neglected. The school lawyers questioned whether Wharton, as a nonprofit educational institution, could charge money for anything that wasn’t directly related to its teaching.

"I don’t want to imply that people were against it like they’re against nuclear devices," says McCartney. "They thought, [WRDS is] fine, why mess around with it?" Professor Michael Gibbons, chairman of Wharton’s acclaimed finance department and now one of WRDS’s biggest supporters, recalls making a less charitable assessment of McCartney’s subscription scheme. "I thought it was going to be a loser," he says.

The in-house debate was moot until 1997, when the administrative dean with the Stanford Graduate School of Business called McCartney to sign up. McCartney had given then Wharton Dean Gerrity a business plan, describing the equipment and staff he would need, and the number of customers and amount of revenue he expected. Now Gerrity gave McCartney the green light. "Our mission is the advancement and dissemination of knowledge," Gerrity recalls concluding, and selling access to WRDS would fulfill that mission. "People also concluded over time that if this actually began to work, we could build a more capable [IS] resource, and that is what has pretty much materialized." Nevertheless, Gerrity extracted a promise from McCartney that service levels for Wharton faculty wouldn’t suffer.

Customers and Value

Having Stanford as its first customer gave WRDS credibility. "When Stanford stepped up, there were three or four [other] people who said, We want to sign up too," says McCartney. Meanwhile, potential WRDS competitors such as the University of Chicago’s Center for Research on Securities Prices (CRSP), which produces the most popular data sets used by academic finance researchers, passed on the opportunity to offer its own version of the service. "By allowing Wharton to host our data, I was making our data more convenient to access," says David Barclay, CRSP’s COO. "Being an application service provider is not something I consider to be one of our core competencies."

Ravi Pillai, Stanford Business School’s research computing manager, says the decision to subscribe to WRDS was mainly financial. The faculty didn’t care where they got the data from, only that they had access to it. Stanford administrators decided subscribing to WRDS would be a good way to reduce the cost of a planned system upgrade by offloading data storage to Wharton. It also took pressure off Pillai to acquire enough staff to maintain all the data?another selling point for the Silicon Valley university during the tech boom.

As other schools joined Stanford, it became clear to Wharton faculty and administrators that their brand was gaining prestige. Ratnaraj describes a sales call he made to Harvard Business School, during which he was asked whether Harvard could pay Wharton extra and not have to display the WRDS logo. He countered that he’d give WRDS away for free but the logo had to stay. As Ratnaraj relates it, the request was a throwaway, but the incident illustrates how well competitors understand what Wharton gets from the deal. "Wharton was never in it for the money," says Ratnaraj. About $5 million of the revenue the school has collected from WRDS since 1997 has been reinvested in the system, which costs about $1.8 million a year to run. While Wharton Dean Harker says faculty members don’t come to Wharton only because of WRDS, it’s a potent recruiting tool nevertheless because it signals to potential faculty "the creativity of our computing group" and Wharton’s commitment to supporting research.

More Enterprise Benefits

Wharton has achieved far more value from WRDS than recognition for its computing prowess. For one thing, WRDS has become a more powerful tool?and has a higher level of support?than it ever would have if Wharton had kept the service to itself. A dedicated staff of 11, which includes not only technical personnel but also academic researchers who are expert users of WRDS databases, keep the system running and provide customer support. Michael Boldin, an economist who is WRDS’s research and support services director, says he and his staff can sometimes do a better job helping faculty than the data providers can because "we understand better the kind of work a person is doing."

With a wider user base, it’s easier to justify investment in new databases too. "There may be a great database that two of us would really like to use here," says Gibbons, the finance department chairman. "Now the calculation is that if there are two here, there are probably two at many of the other clients."

WRDS has also raised the performance bar for Wharton’s computing group. "It’s made us look at opportunities more vigorously," says McCartney. The experience with WRDS led McCartney to launch two other externally facing initiatives: Knowledge@Wharton, a free webzine and online library for business research; and the Alfred West Jr. Learning Lab, an online resource for teaching tools, including a trading and investment simulator and a competitive bidding game. Knowledge@Wharton has more than 200,000 subscribers worldwide. The Learning Lab is currently used only within Wharton, but the school plans to market it to other educational institutions. WCIT also designed new, wired podiums for the lecture halls in Wharton’s new campus building?Jon M. Huntsman Hall, which opened last October. "We want Harvard to go buy a Wharton Lectern," McCartney says.

If it were up to him, McCartney would spend more time on strategic initiatives such as WRDS. "I have to run my own e-mail systems," he says. "But if I could spend 100 percent of my budget on research and education, I would."

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