Educational Testing Service History

Company Perspectives:

Our mission is to help advance quality and equity in education by providing fair and valid assessments, research and related services. Our products and services measure knowledge and skills, promote learning and performance, and support education and professional development for all people worldwide.

Key Dates:

1947:

Three testing services merge to form ETS.

1990:

SAT is revised; revenues are $300 million.

1993:

A computerized version of GRE is introduced.

1999:

E-rater software grades GMAT essays.

2001:

State-mandated K-12 testing and international markets drive growth.

Company History:

Educational Testing Service (ETS) is the world's largest administrator of standardized tests and a leader in educational research. The company develops, administers, and scores achievement, occupational, and admissions tests, such as the Scholastic Aptitude Test (SAT) for The College Board, as well as tests for clients in education, government, and business. Through its five regional offices, including one in the Netherlands, ETS annually administers 20 million exams in the United States and 180 other countries.

Prewar Testing

ETS was created in 1947 by three nonprofit educational institutions, the American Council on Education, the Carnegie Foundation for the Advancement of Teaching (a part of the larger Carnegie Corporation), and The College Entrance Examination Board. Standardized tests had first been developed and distributed in the early 1930s. In 1930, the Cooperative Test Service of the American Council on Education began to conduct achievement tests at schools and colleges, administering 650 different exams. Six years later, the Educational Records Bureau began using the first test scoring machine, the IBM 805, to expedite the grading of standardized tests administered on a large scale by the Cooperative Test Service. In 1937, the Graduate Record Examinations (GRE) was introduced by the Carnegie Foundation, and the National Teacher Examinations followed shortly.

Although the president of Harvard University had publicly suggested a merger of the three test-giving services in 1937, the emphatic opposition of The College Board's associate secretary forestalled any further movement in this direction throughout the remainder of the 1930s. During World War II, the bulk of the standardized exams given by several test-giving bodies were administered to people enrolled in the military. In 1943, another Harvard administrator, Henry Chauncey, took an 18-month leave of absence from his job to run the Army-Navy College Qualifying Test, which was used to identify officer candidates. In 1945, Chauncey became director of The College Board's Princeton office.

In its prewar incarnation, The College Board had had a relatively simple and straightforward mission, but its activities had been transformed and greatly expanded during the war years. Instead of simply testing candidates for admission to select colleges, the organization had taken on such functions as making up exams for the State Department and the military.

This broadening of functions continued in the wake of the war, when the charitable Carnegie Foundation worked to transfer control of the GRE, which had started as an experiment but had grown to dwarf the rest of the Foundation, to The College Board. At the time of this proposal, The College Board was made up of 52 select member institutions. Absorbing the GRE necessitated a substantial restructuring of the organization and again raised the issue of a consolidation of test-giving organizations. A committee was formed to examine various proposals, and it began meeting in the fall of 1946. In October, this body recommended the creation of one central test-giving organization.

ETS Created 1947

By the end of 1946, the process of working out the actual details of a merger had begun in earnest among the three founding organizations of the tentatively-named Educational Testing Service. By June 1947, difficulties such as the composition of a Board of Trustees had been resolved, and ETS was set up for a trial five-year period. Each of the member groups turned over its testing operations and a portion of its assets. The Carnegie Foundation contributed the GRE and the Pre-Engineering Inventory. The American Council on Education added the National Teacher Examinations and the Cooperative Test Service, while The College Board turned over the Scholastic Aptitude Test, as well as the Law School Admission Test (LSAT) and several other programs. On December 19, 1947, the New York State Board of Regents chartered the new organization under the name Educational Testing Service.

The new organization set up operations in the old offices of The College Board at 20 Nassau Street in Princeton, New Jersey. Gradually, files, office equipment, and employees from the founding organizations of ETS arrived, until the organization had 212 employees. At the end of 1947, Chauncey was made president of the new organization, which had less than $2 million in initial capital. At the time, ETS elaborated a three-fold goal: to develop and administer tests, to conduct research, and to advise educational institutions.

Among the first clients of the newly formed ETS were more than 50 colleges, the Association of American Medical Colleges, the U.S. Atomic Energy Commission, the U.S. State Department, and the Pepsi-Cola Corporation. The organization distributed a wide variety of tests for various assessment purposes. As the ranks of students at American colleges were swelled by soldiers returning from war and enrolling under the G.I. Bill, which promised a free college education to any soldier who had served in World War II, demand grew for ETS's services. In 1948, college admissions exams were taken by 75,000 students.

Postwar Growth

By 1950, ETS had begun to more fully understand and assess its role in society. In that year, Chauncey proposed in his annual report for ETS that a national census of abilities and talents be undertaken in order to assist the military and to strengthen educational and industrial planning. By 1954, ETS had already started to outgrow the building it had purchased on Nassau Street in Princeton, and Chauncey selected a new site for the organization, a 400-acre estate on Rosedale Road in Princeton that had formerly served as a working farm as well as the Stony Brook Hunt Club.

Throughout the decade, the activities and number of tests administered by ETS continued to grow. In 1958, ETS began to release students' scores on the SAT to their high schools, so that they could in turn be passed on to the students. By the beginning of the 1960s, nearly 25 percent of all American high school students were taking the SAT. By 1962, 15 years after its inception, ETS had become not just a testing organization but a more broadly based educational entity.

In addition to expansion in the number of people taking ETS tests, the number of tests available also grew during the 1960s. The organization developed assessments to measure the abilities of people from secondary school right on through their professional career. Along with this growth in the number of tests given, the size and role of ETS expanded as well. On the occasion of the organization's 25th anniversary, ETS dedicated a $3 million conference center, named after Chauncey, its founding president, at its Princeton headquarters. During this time, ETS had also constructed a residence for its president on the Rosedale campus. This construction was made possible by the steady surge in growth ETS had experienced in the postwar years, as the organization's sales doubled every five years between 1948 and the early 1970s.

An American Institution in the 1970s and 1980s

By the mid-1970s, ETS had become, in effect, the nation's leading testing organization. The organization's tools for measuring ability--particularly the SAT, the GRE, and the LSAT--had become a standard feature of American educational life. In 1976, the institution was cited as a hot growth company in American business by Forbes magazine. The revenues generated by ETS's activities continued to expand throughout the late 1970s. The company suffered its first serious threat at the end of that decade, when, in response to growing criticism of its monopolistic power, New York state passed the Educational Testing Act, a disclosure law that required ETS to release certain test questions and graded answer sheets to students.

In the following year, 1980, ETS suffered its first fiscal deficit. In response, the company reduced its staff and commissioned a strategic plan from a management consulting firm in 1982. Following the enactment of the truth in testing law, ETS suffered further criticism in the early 1980s, as outsiders asserted that its tests were culturally biased to favor white members of the upper middle class and that they were poor predictors of actual performance.

ETS also took steps to protect its copyrighted materials from violation by entrepreneurs who offered courses to raise student's scores on its exams. In 1982, students who had prepared for achievement tests by taking a Princeton Review course reported that they had already seen some of the questions on the test. This violation of test security, along with others, caused ETS to remove several questions from active use on its exams. In May 1983, ETS sought and obtained an agreement with the Princeton Review that its workers would not retake the SAT again.

SATs Revised in 1990

In response to concerns over the format and scope of standardized tests, The College Board undertook a revision of the exams in 1990. ETS announced that the old SAT and achievement tests would, in the future, be known as Scholastic Assessment Tests. The new SAT-I, which measured verbal and mathematical skills, included longer reading passages and more questions to determine how well students had understood them. In the math sections, students were required to work out some answers entirely on their own, with the use of a pocket calculator, rather than simply choosing from answers supplied to them. The SAT-II included a 20-minute essay. These changes, made at the direction of a committee headed by the president of Harvard, were designed to put a greater emphasis on problem solving.

Despite its somewhat embattled place in the culture of American education, ETS continued to thrive materially throughout the late 1980s. By 1990, it had solidified its place as by far the largest American private educational assessment service. The institution had a staff of nearly 3,000 employees, more than 270 clients, including the federal government, and gross revenues of nearly $300 million. Despite this impressive size, ETS sought, as it moved into the 1990s, to expand its activities even further. "Our traditional mission has been to place ourselves at the transitional points of education between high school and college, college and graduate school," ETS's president, Gregory Anrig, told Time magazine in 1990, adding that "now we are expanding into more and more programs that help kids to learn and teachers to teach more effectively."

Among the programs ETS began to offer at this time were educational tools making use of new technology. The company began to develop grammar school courses that used computers and interactive videos to foster critical-thinking skills. In addition, ETS used computers to re-configure the National Teachers Exam. This test was used in about two-thirds of the states to license teachers.

By 1991, ETS's gross revenues had grown to $311 million in revenues, of which 40 percent were derived from College Board activities. The company's roster of exams had ballooned to cover a wide variety of fields, from manicurists to shopping center managers. In addition, ETS had successfully expanded its geographic scope, offering tests in 170 foreign countries. By 1993, the company was administering nine million tests each year.

ETS continued to use new technology to update its tests throughout the early 1990s. In November 1993, the company introduced a computerized version of the GRE, which was slated to eventually replace the old paper-and-pencil version of the test. Rather than simply consisting of the old test on computer, the new exam was to be more adaptive, adjusting its level of difficulty to suit the aptitude of the student taking the test. Students who answered questions correctly were given successively harder questions; students who answered incorrectly prompted the computer to offer easier problems. In this way, ETS hoped to make testing more personalized for each student, provide easier and more frequent scheduling, and immediately provide scores upon conclusion of the test.

ETS began to offer the computerized GRE at 170 testing centers located around the country. In addition, the company was developing computerized testing for nurses, teachers, and architects. With the use of computers, the time needed to take an exam was shortened, but critics worried that the computer itself would prove a barrier to people unfamiliar with the use of machines.

In March 1994, ETS ran into difficulty implementing another new testing program when disabled students protested the limited number of dates available to them to take the new SAT-I test. After the U.S. Justice Department conducted an inquiry into the matter, ETS scheduled additional dates for disabled students to gain access to the exam. Later that year, ETS also encountered a snag in its admission of the new computerized GRE exam when employees of a test preparation course who took the new test were able to memorize and later recreate a large portion of the exam after the fact. Presented with this evidence that the repetition of questions had compromised test security, ETS suspended administration of the computerized test for a week in December 1994 in order to tighten a variety of security measures.

One month later, ETS announced that, in an effort to limit opportunities for theft, it would reduce the number of times the GRE would be offered by computer. The measure was taken in response to charges that some of the nearly half-million students who sat for the GRE each year were memorizing questions and using them to improve their scores when re-taking the test or passing them on to their friends who had not yet taken it. In an effort to prevent test preparation course employees from repeatedly trying to crack the test, ETS also filed suit against Kaplan Educational Centers, the largest such company, alleging copyright infringement and seeking to forbid its employees from retaking the test.

Despite such challenges, ETS remained an important part of American education in the 1990s. The company continued to design tests with input from educators and teachers and contributed policy and measurement research to help America meet its education goals.

In 1995, scoring for the SAT was recalibrated based on a new, larger sample of test-takers. Before the "recentering," a score of 500 on either the math or verbal section was equivalent to the average score of the original 1941 sample. The average scores in 1994 were 424 on the verbal and 479 on the math. A new scoring system was devised whereby a 500 on either test was the equivalent of the average score in 1990, when one million students took the test. A perfect score on either section was still 800.

A for-profit subsidiary of ETS, Chauncey Group International, was created in 1996. Its focus was assessment services for industry, government, and professions. (ETS had been doing this for 40 years.) This business was later named Capstar.

Computerized Testing for the New Century

By the late 1990s, ETS was losing nearly $20 million a year on revenues of about $500 million. This was attributed to heavy investment in computerized testing. In an effort to control costs, in 1998 ETS laid off 100 employees from its workforce of 2,500. Baltimore-based Sylvan Learning Systems held the contract to administer computerized versions of ETS's tests through 2003. ETS also partnered with the collegiate information publisher Peterson's and the Graduate Management Admissions Council to form GradAdvantage, an online system for applying to business colleges.

ETS also developed a computer application, called e-rater, for grading the essay questions on the Graduate Management Admission Test (GMAT). E-rater evaluated answers on the basis of vocabulary, syntax, and logic; its scores were compared with those of one or two professors for a final grade. It was first used in February 1999.

In September 2000, ETS created a for-profit subsidiary, ETS Technologies Inc., for the purpose of developing online learning technologies, beginning with its Criterion Online Writing Evaluation, based on e-rater. This was sold to schools on an annual subscription basis. Another new subsidiary, ETS K-12 Works, developed scholastic testing for individual states. ETS also used IntelliMetric software developed by Vantage Laboratories to score its online placement programs AccuPlacer and WritePlacer.

By this time, ETS was administering 11 million tests in 181 countries. In 2001, computer-based tests were available at more than 380 locations in the United States. For all its size and innovation, ETS was having a difficult time avoiding monetary losses. ETS was able to post a net operating profit of $18 million in fiscal 2000. However, both revenues and employment figures had been in decline since the late 1990s. To reverse this trend, the nonprofit brought in Kurt M. Landgraf, former CEO and chairman of DuPont Pharmaceuticals, to be its new president and CEO in August 2000.

Landgraf's turnaround strategy, according to The Record of Bergen County, New Jersey, was to control costs while expanding European operations (the goal was to have seven European offices) and pushing the new writing-evaluation software. New state-mandated testing of elementary and high school students was creating another important growth market. Landgraf told The Record he aimed for ETS to be a $1 billion company with 5,000 employees by 2006. Reports of revenues ranged from $600 million to $700 million in 2002.

The People's Republic of China, opening to the west due to acceptance into the World Trade Organization and landing the 2008 Olympics in Beijing, contracted ETS to develop testing programs to evaluate the English skills of native Chinese speakers. In 2000, ETS sued a test preparation school in China, charging that it improperly used old GRE, GMAT, and Test of English as a Foreign Language exams. ETS K-12 Works Inc. was itself sued by Psychological Corp., developer of the Stanford Achievement Test, which alleged its trade secrets were stolen by an executive who left to head the newly formed ETS subsidiary.

The standardized testing business continued to grow more crowded. ETS eliminated about 350 jobs in 2001 as a result of competition. The next year, it phased out computer-based testing (CBT) at 84 of 195 international centers. The affected test centers had been processing low volumes of tests and accounted for only 15 percent of international test takers. ETS's international CBT centers were run by Prometric, a unit of Thomson Corporation.

After nearly 50 years of administering the Graduate Management Admission Test (GMAT), ETS was replaced by Pearson VUE, which was assigned a $200 million, seven-year contract by the Graduate Management Admission Council (GMAC) in December 2003.

ETS acquired The Pulliam Group of Redlands, California, in January 2004. Pulliam, established five years earlier, had 60 employees and specialized in improving standards-based performance in elementary schools.

A written section was being added to the SAT for 2005. This would raise the total possible score from 1600 to 2400. The existing verbal section was being modified and renamed "critical reading."

Principal Subsidiaries: Capstar; ETS Global BV (Netherlands); ETS K-12 Works; ETS Pulliam; ETS Technologies Inc.

Principal Competitors: ACT Inc.; CTB/McGraw Hill; Harcourt Assessment, Inc.; Pearson VUE.

Further Reading:

• Bickerstaffe, George, "Students Without IT Need Not Apply," Financial Times (London), October 26, 1998, p. 17.
• Brennan, Lisa, "ETS, Kaplan in Legal Skirmish over Test Security," New Jersey Law Journal, January 23, 1995, p. 3.
• Celis, William, III, "Computer Admissions Test Found to Be Ripe for Abuse," New York Times, December 16, 1994.
• Elson, John, "The Test That Everyone Fears," Time, November 12, 1990.
• Honan, William, "Computer Admissions Test to Be Given Less Often," New York Times, January 4, 1995.
• Johnson, Linda, "Testing Firm Wants Black Pencil on Bottom Line," Record (Bergen County, N.J.), February 19, 2001, p. A3.
• ------, "ETS Branching Out; Overseas Expansion Part of Plan," Record (Bergen County, N.J.), March 6, 2001, p. L5.
• Kladko, Brian, "Computer Technology Passes Judgment on Students' Essays," Record (Bergen County, N.J.), July 9, 2001.
• ------, "New Jersey Students Prosecuted over Cheating," Record (Bergen County, N.J.), March 1, 2003.
• Merritt, Jennifer, "Why the Folks at ETS Flunked the Course," Business Week, December 29, 2003, p. 48.
• Nairn, Allan, The Reign of ETS: The Corporation That Makes Up Minds, New York: Ralph Nader, 1980.
• Nissimov, Ron, "SAT Officials to Stop Flagging Disabled Students' Tests," Houston Chronicle, July 22, 2002.
• Nowlin, Sanford, "Standardized Test Giants Lock Horns in Court over Allegedly-Stolen Secrets," San Antonio Express-News, April 8, 2001.
• Owen, David, None of the Above: Behind the Myth of Scholastic Aptitude, Boston: Houghton Mifflin, 1985.
• "SAT Maker Cutting Staff by 15 Percent," Record (Bergen County, N.J.), January 2, 2002, p. A3.
• "SAT Numbers Reshuffled, and Students Look Brighter," Record (Bergen County, N.J.), May 18, 1995, p. A5.
• Sidener, Jonathan, "Educational Testing Service of Princeton, N.J., Develops New Grading System," Arizona Republic, February 1, 1999.
• Tabor, Mary B.W., "Disabled to Get an Extra Chance for S.A.T.s," New York Times, April 1, 1994.
• "Testing Company Claims State's Bidding Process Is Unfair," Associated Press State & Local Wire, January 6, 2003.
• Toch, Thomas, "A Stunning Second Lap," U.S. News & World Report, May 18, 1992.
• Toppo, Greg, "English Teachers Encouraged by Proposed SAT Changes," Associated Press State & Local Wire, July 3, 2002.
• Vickers, Marcia, "Hate Exams? Here's a Chance to Profit from Them," New York Times, Bus. Sec., October 5, 1997, p. 4.
• Weinstein, David, "ETS to Create Standardized English Test for Chinese Government," Associated Press State & Local Wire, July 9, 2002.
• Williams, Dennis A., "Testers V. Cram Courses," Newsweek, August 12, 1985.
• Winerip, Michael, "No. 2 Pencil Fades as Graduate Exam Moves to Computer," New York Times, November 15, 1993.

Source: International Directory of Company Histories, Vol.62. St. James Press, 2004.

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