The Graduate Record Examination’s (GRE) big shot at trying to wrest the business school admissions space from the currently prevalent Graduate Management Admissions Test (GMAT) comes in an interesting period of time, when applications to b-schools in the US and Europe are dwindling.

Last month, Wharton joined Harvard, Stanford, MIT-Sloan and 250 business schools worldwide to begin accepting GRE scores as an alternative to the GMAT for admissions to their management programs. Some are accepting the GRE for their main MBA program admissions, while many such as Virginia’s Darden School of Business are using it only for the join-degree programs for now.

The fancy of MBA schools for GRE did not happen because of changes in mindset in b-school admissions committees or applicants, but because of business decisions by testing agencies. A little over 3 years ago, the GMAC (Graduate Management Admission Council), the owners of the GMAT stopped using ETS as the test administrating agency for GMAT and moved instead to Pearson Vue. That ended all non-compete obligations between GMAT and ETS’ own test GRE, which ETS was now free to advocate to b-schools as a strong alternative to GMAT.

For reasons ranging from the need for more diversity in classes to the need for more applicants, the b-schools started reciprocating by allowing applicants to apply using GRE.

I spoke to ETS Vice President and Chief Operating Officer David Payne and GMAC President David Wilson about their positions on GMAT vs GRE in b-school admissions to understand the issue better. Here is what they said.

Why ETS wants business schools to use the GRE

According to David Payne, “It’s a straightforward argument. Both the GRE and the GMAT basically assess the same underlying skills of the applicant in quantitative ability, verbal reasoning and analytical writing. Our argument to b-schools is that by allowing applicants to submit GRE, they can access a larger number of people and increase the size of their applicant pools.”

To make it easier for b-schools to integrate the GRE score in their existing selection processes, ETS has also launched a tool that predicts the equivalent GMAT score for a given GRE score.

Why ETS wants applicants to use the GRE to apply to MBA schools instead of the GMAT

ETS says that it is about to start marketing the GRE to MBA applicants, but its pitch is going to be centered around the fact that the GRE costs lesser than the GMAT.

“There’s a price advantage in taking the GRE test, which is priced at $150 and is cheaper that the GMAT, which is priced at $250,” says Mr Payne.

ETS has another card up its sleeve in the Personal Potential Index (PPI), which it describes as a web-based evaluation system that measures non-cognitive skills. The PPI is designed to provide the same insights that the traditional recommendation letters and essays give, but not to replace them.

“The PPI goes beyond letter-writing incapabilities that your recommender might have,” says Payne, providing insights into the applicant’s personality attributes. The ETS may in the long term position the PPI as a one-time-solution solution to the pains of getting a different recommendation letter for every b-school you apply to, but a lot depends on the elasticity of admission committees to let go of features (recommendation letters and essays) that have lent massive subjectivity to MBA admissions.

The GRE is also set for a revamp soon, wherein among other changes the test-takers can move between questions and sections and hold up on questions they want to solve later, something the computer-based software of GRE does not allow now. I am not sure how much the ease or user-interface of a test may influence the decision of an applicant, but with other factors being favorable it may make applicants choose one test over another.

Why the GMAC does not consider the GRE to be a threat to GMAT

According to GMAC President and CEO David Wilson, the top b-schools want to fill up their seats with the best candidates and the very act of applying with a GRE score shows that the applicant’s original motivation was not to apply to an MBA, but to science or arts courses that the GRE is primarily used for.

“If you want to be a wicketkeeper in life, you don’t go for trials to football teams,” is the metaphor Mr Wilson offers.

“As I talk to Deans of top business schools, the one issue they want to have captured in an application is the motivation to do an MBA. Taking the GMAT sends a strong signal to schools, that the applicant specifically wanted to apply to an MBA,” he adds.

“By taking the GMAT, you’re also gonna be looked for by b-schools using the GMASS search engine which has a database of everyone who takes the GMAT. They can search in GMASS by GMAT score, undergraduate scores or programs the person is looking for,” Mr Wilson says.

The intended audience for the above arguments are clearly the applicants. For now the GMAC can afford not to counter ETS’ pitch to b-schools because compared to 250 management programs that accept GRE, the GMAT is accepted in 4,600 programs across 1,500 business schools.

Why b-schools are accepting the GRE

When asked, b-schools that accept GRE have offered the premise of increasing diversity in their classrooms. David Wilson argues that barely 2 to 3 percent of GRE takers are serious about the MBA and are not going to add value to an MBA class.

“Many b-schools are accepting the GRE only for their smaller programs or joint degree programs and not for the main MBA programs. One of the admission directors of a top b-school makes it quite clear that quantitative ability section of the GMAT is tougher,” implying that GRE does not match up to GMAT in the management abilities tested for.

The top b-schools are only in their first years of including GRE for their MBA admissions and it would be interesting to see how many GRE applicants finally make it to the MBA classes of Harvard or Wharton.

MBA application consultant and founder of Accepted.com Linda Abraham says, “I think accepting the GRE in addition to the GMAT is an easy way to boost application volume and reduce the cost of applying without reducing application fees.”

Which makes sense given that in the economic crisis of 2009, financing an MBA in the US and Europe became super tough and many final admits chose to defer their admissions for lack of means. In this light, b-schools would need to have more people applying just to fill up their classrooms.

Admission Directors that I spoke to had cautious responses to give for now, choosing only to speak once they had completed the 2010 admissions.

I don’t think that dislodging the GMAT is going to be easy for GRE, considering that the current GMAT-essays-interview process of admissions is almost an institution that b-schools will not let go of easily. Moreover, the GMAC is governed by a body of representatives from the b-schools that accept GMAT and if the schools find flaws with the GMAT at a fundamental level, they will not replace it with another exam but reach a consensus to alter the GMAT to suit changing times.