Posts Tagged “innovation”
Several years ago, I spoke to a group of extraordinarily bright, committed colleagues from across a group of neighboring colleges and universities in a large metropolitan area. The subject – collaboration — was a precursor to a larger conversation about whether they might consider a merger of like-minded institutions to create huge efficiencies and a clear economy of scale.
College Leaders’ Arguments Against Mergers are Many and Varied
The answer – a resounding “no” – was instructive. Their reasons why any merger wouldn’t be possible, let alone successful, were many:
- Their institutions had overlapping programs.
- They competed fiercely in the regional market.
- They feared lay-offs and thought they would lose the support of their campus stakeholders.
- Their alumni would be up in arms even if the new institution were significantly stronger and with a better capacity to brand their education regionally and even nationally.
- And most important, they argued, their campus culture would object to any changes as an abandonment of their mission.
Their arguments made a great deal of sense from each institution’s perspective and from where higher education stood as a community several years ago. Further, we had presented the hypothetical question about merger as an “either/or” option. In addition, each college represented a unique social, economic, political, and cultural climate.
Finally, some leaders could choose against mergers because they were doing better at differentiating their programs, establishing a good consumer tuition price point, and establishing a firm toehold in the enrollment market.
Mergers, Collaborations Increasingly Palatable Options for Higher Ed
If we approached these institutions today, we might ask a similar question but phrase it very differently. To start, the financial situation at almost all of the colleges has not improved materially in recent years. Indeed, many face an existential crisis with net tuition revenue flat or decreasing.
While some new programs are providing additional revenue, the colleges as a whole do not have robust, well-differentiated programs across the board. The most successful new initiatives are not the core liberal arts programs generally but are more professional in nature. Efforts to grow graduate, continuing education, and online programming may appear to have improved the bottom line, but they are value-added tactics, not systemic changes.
Given the economic, demographic, and cultural landscape facing these colleges and universities today, the right question to ask is: how should these institutions create a stronger, better differentiated group of colleges and universities while retaining their historic independence, remaining true to their mission, and enjoying the benefits of brand in the marketplace?
Is there a way to “heighten the brand,” become more sustainable individually and collectively, and not anger key stakeholders, especially students, faculty, staff and alumni?
The answer may be “yes” based upon how these institutions imagine governance. In their case, what could be proposed is less of a union through mergers and acquisitions and more of a confederation.
Confederation, Rather than Merger, May be Viable Option
It is possible theoretically to imagine a new governance structure in which effectively nothing changes. Colleges would maintain their full independence, manage their affairs, fundraise, compete for enrollment, graduate their students with the college’s degree, and build their alumni base. They would employ their faculty and staff.
But a new, confederated University would work to create differentiated programs through open dialogue, diminish or eliminate repetitive operations and programming, and work creatively to create new ones to replace older strategies through basic efficiencies in an economy of larger scale.
This scale would also permit affiliated institutions to brand themselves better and attach their brand to the larger University. It would not interfere with individual mission, culture, or strategy.
In a critical way, a confederated University would bring order from the competitive chaos among small- and mid-sized colleges that would also permit them to compete more effectively with larger universities.
In addition, a confederated system of equal, collaborating colleges would draw strength from one another that might stabilize net tuition revenue and grow the enrollment base.
It would also encourage new initiatives like graduate and professional programming offered over a wider area and online efforts that could be supported by the better, more efficient resources created by the economy of scale.
Confederation Permits Small Colleges to Compete on Larger Field
In short, a confederation would permit smaller colleges to play competitively on a much larger field. The confederation itself would not need to be place-bound but might even cross state lines, depending upon how it developed.
One alternative to “we’ve always done it this way” is to pursue an unsustainable path with potentially dangerous outcomes. Mergers and acquisitions may make sense in some settings. It is unlikely that American higher education will ever face a “day the dinosaurs all died” moment. But the present operating models do not work for most colleges.
Higher education must experiment with systemic change. Some conversations will go nowhere. A number of colleges will be nimble and agile enough to flourish on their own.
But a reading of the tea leaves suggest that it may be better for some colleges to at least consider getting by with a little help from their friends.
One of the central themes of the new book – How to Run a College: A Practical Guide for Trustees, Faculty, Administrators, and Policymakers — that my co-author, Dr. W. Joseph King, and I touch upon repeatedly is that American colleges and universities operate with an unsustainable financial model.
Comprehensive Fees No Longer Cover Operating Expenses
It is no longer possible to match expenses with incoming revenue by setting a college’s annual comprehensive fee (tuition, room, board, and fees) to meet its obligations. That approach began to weaken when colleges started to discount their tuition, with discounts at a good number of schools now over 70 percent of the tuition sticker price.
Consumers confuse and often conflate sticker price and cost and are unwilling to pay a number that they do not fully understand. Additionally, much of the housing fee now directly supports the academic program, as fully depreciated, aging residence halls become desperately needed cash cows.
Non-Tuition Sources of Revenue are Limited, Unreliable
Fundraising provides limited short-term relief, except for what can be raised largely through the annual fund. And at most public and private colleges and universities, the drawdown from meager endowments cannot provide a steady cash base upon which to run the enterprise.
Further, at all but a handful of research universities, government grants and contracts do not substantially support an increasingly vulnerable house of cards.
After creating whatever efficiencies exist in discretionary spending, most higher education institutions are at a loss in their search for new revenue.
Rushing to offer more adult, continuing education and online programs is a risky business plan.
Real Estate May Be a College’s Most Valuable Asset
At many colleges and universities, the most valuable asset they may hold is the real estate on which the campus sits. In Boston, the merger between Wheelock College and Boston University (which resulted in the closure of Wheelock) and the takeover by UMass of Mount Ida College were notable for the value of their real estate.
While there may not be a single calamitous “day the dinosaurs died” moment, these examples suggest, at a minimum, that real estate can often be an undervalued asset, especially in mergers, acquisitions, and closings.
There’s an open question as we move further into the 21st century on whether colleges and universities must own all of their real estate.
Is it possible, for example, that a college’s stakeholders, legal team, accountants, and student life staff could work together to negotiate the sale of residence facilities while still maintaining a metric-driven control over its student life programs?
Fundamentally, it means shifting how senior administrators evaluate staff – especially student life staff. Is it the number of beds served or the quality of the programs offered – supported by metrics like retention and graduation rates – that determines the importance and effectiveness of a student life program?
Should it stop with residence halls? Likely not, particularly if shared athletic, conference, and performance facilities could be co-developed with the taxing jurisdictions in which they are operated.
In the last century, higher education was an accepted public good because it saved taxpayers money and therefore qualified for tax exemption. No one thought much about that tax exemption until cash-strapped cities and towns moved to tax colleges or demand payment-in-lieu-of taxes (PILOTs).
In this century, it is likely that an institution will need to show additionally that it performs a tangible public good. Most tax payers do not appreciate that colleges often compensate taxing jurisdictions for police and fire support. They would understand better perhaps if colleges and universities used their position as economic engines in their region to improve common use facilities and support economic and commercial development.
Better Partnerships Benefit Both Colleges and Communities
Since curb appeal figures prominently in any institution’s marketing, enrollment, alumni, development, and branding efforts, it makes sense to support the neighborhood beyond the college walls. It’s time, in fact, to demolish these walls to integrate each college into its region.
But colleges and universities are not in the business of urban planning and are only now thinking more broadly about how to work through community real estate partnerships. The problem is that administrators, whose knowledge in a complex collegiate governance and management environment may run broad but not deep, don’t always know where to begin.
Higher Ed P3 Resource Center has Wealth of Public-Private Partnership Information
The best source available seems to be the new Higher Ed P3 (public/private partnership) Resource Center sponsored by the advisory and program management firm, Brailsford & Dunlavey (www.p3resourcecenter.com). It’s easily accessed on the web and contains a series of thoughtful “P3 101” articles, articles written by professionals in the field, original research, videos, and infographics that lay out the fundamentals of how and even whether to launch a strategic partnership with government and private developers. That’s important because making a series of bad first moves likely forecasts a failed relationship from which a college or university might not recover.
Colleges and universities that understand the value of an underperforming asset like their real estate should first grasp how to manage the question of why consider using real estate to further an institution’s goals.
Facilities staffs, however well intended, typically do not have the in-house expertise to move this agenda. Colleges are very conservative places and should be keenly aware of what they do not know. It takes a village of committed college stakeholders to rev up the economic engine that a college represents when its resources are used efficiently.
As we note in How to Run a College, those colleges and universities that become more sustainable will do so because they were careful but agile stewards of their resources. Cutting through campus inertia, it is time to build a future that relies less on tuition and debt.
Moody’s and Standard & Poor’s recently released their updated outlooks for American higher education. The news is not good.
Moody’s revised its 2018 outlook for higher education from stable to negative “as aggregate operating revenue moderates while expense growth increases.” Moody’s vice president, Susan E. Shaffer, elaborated: “the annual change in aggregate operating revenue for four-year colleges and universities will soften to about 3.5% and not keep pace with expense growth, which we expect to be almost 4%.”
Private Colleges May Outperform Publics, But Cost-Cutting is Needed
Moody’s expects private institutions to outperform their public sector counterparts. But about 15% of universities will be forced to cut costs in response to stagnant or weak revenue growth next year. The ratings agency believes that support from tuition and related fees, research funding, and state appropriations will remain weak. Further, net tuition will be depressed over affordability concerns and slow enrollment growth.
While private universities will have revenue growth of about 3% – 3.5%, these numbers will be considerably less robust in small- and mid-sized colleges and universities. This is especially dangerous since so many of them serve low- and moderate-income students. They draw from the same regions in which the students and their families live.
Moody’s notes that the recruitment demographics are horrible and that higher education is subject additionally to changes in its relationship with the federal government.
Moody’s speculates that federal tax reforms, the levels of research support, and changes to the Pell Grant and subsidized federal loans in the future could profoundly impact affordability and access.
Higher Education Flexibility is Limited in Face of Fiscal Challenges
Standard & Poor’s makes a similar finding. Presented as grim, the S&P outlook finds that higher education’s flexibility “in programming, financial operations, enrollment, resources or student draw” is limited. Like Moody’s, S&P cited the recent federal tax on colleges with large endowments, together with growing consumer skepticism and demands for lower sticker prices and more effective services.
Significantly, Standard and Poor’s also warned of lasting damage to college and university reputations in the current political climate.
S&P offered some encouragement, however, finding that higher education institutions could improve their standing if they established new partnerships, peeled back their reputation for cultural inertia, and increased their efforts to recruit non-traditional students.
Writing on these subjects for EducationDive, Jeremy House summarized that “all parties seem to agree that a myriad of issues haunt higher education.” He noted that the American Association of State Colleges and Universities (AASCU) “called 2018 one of the most uncertain years for higher education.”
Future of US Higher Education Depends on Ability to Innovate
Mr. House reported that the common agenda driving the future of higher education in the S&P and AASCU positions is a call for innovation. He further suggested that colleges could grow their student body by serving more post-traditional students, enhancing strengths and partnerships, embracing data analytics, technology, and online learning.
For those of us who work at imagining ways to strengthen American higher education, these are good and necessary tactics. But by themselves they are insufficient, roughly equivalent to the proverbial Dutch boy plugging the holes in the dike. Further, it’s not so much that the dam threatens to break but more that consumers will find new, alternative ways to find and use the water effectively.
The success of American higher education will depend heavily on innovation. That’s why the warnings from Moody’s and Standard & Poor have special urgency.
Those institutions that are the most adept and nimble will likely craft the best path to sustainability. It starts with these colleges and universities developing a clear value proposition and sense of self. That’s quite different from remembering their history, although working their history and traditions into their value proposition is unmistakably necessary.
Future Strategy Must Combine Principle and Practicality
What’s most needed is a sharper strategy that combines principle and practicality. American higher education must anchor a seamless pathway to a lifelong education that prepares Americans for rapid change in a global economy. It must bridge the chasm between formal education and employment by preparing its graduates with a worldview that is able to imagine their contributions to society.
But strategy alone is insufficient.
The plain hard fact is that higher education operates on a mid-20th century business model that is unable to anticipate 21st century changes. Many colleges and universities run like the “Mom and Pop” corner variety stores that ultimately failed because they could not compete and adapt as the world changed. For them, it was more about a failure in process and delivery than in the quality of the product.
Indeed, the biggest obstacle facing American higher education is the cultural inertia that permeates many campuses to reinforce an antiquated, incremental business model.
Can the business side of higher education keep up with the educational innovation that now energizes its research and teaching?
Multiple media reports appeared last week about the efforts by American cities, backed by their state governments, to lure the merchandizing giant Amazon’s second global headquarters to their regions. The company will entertain proposals until October 19.
Amazon set general parameters and has a history in Seattle that forecasts what mix of opportunities it might seek in this $5 billion expansion that may produce as many as 50,000 new jobs. The stakes are high for the North American cities — including Denver, Minneapolis/St. Paul, Dallas, Toronto, Pittsburgh, Austin, Atlanta, Washington, and Boston — that will likely make serious bids for Amazon.
Boston wins on points for the following reasons:
- Boston recently attracted the global headquarters of General Electric into a strong, entrepreneurial, global-based economy.
- Boston has a well-connected international airport.
- Its winter weather is no worse than what hot and oppressive summers offer in Dallas,
Atlanta, Austin, and Washington.
- The Greater Boston economy is healthy and diversified.
- Boston operates one of the country’s largest public transit systems, now being upgraded after years of neglect.
- It can offer or piece together large tracts of land to create a new Amazon campus near its thriving downtown.
Boston also has a strong sense of self that mirrors the social, psychological, and cultural mix that also makes Seattle so attractive to Amazon. In fact, Boston’s potential is enormous. It ranked third in A. T. Kearney’s Global Cities 2016 Outlook study. This study looked at both a city’s current performance — based on business activity, human capital, information exchange, cultural experience, and political engagement — and its projected success, based on how personal well-being, economics, innovation, and governance have changed over time.
Obviously, the City of Boston and the Commonwealth of Massachusetts have a role to play in the bid for Amazon’s headquarters. It’s complicated politically by the run-up to the 2018 elections and the ability and willingness of some bidders to buy Amazon’s commitment through cash and regulatory and tax incentives.
Massachusetts’ politicians should capitalize on a full range of existing programs and incentives but focus on improvements that would benefit its citizens – especially transit upgrades – to answer local questions about “what’s in it for me” rather than try to outbid others financially.
Amazon’s vision must be tied inexorably to a broader, more encompassing and inclusive vision for New England in the 21st century.
Boston’s Bid for Amazon Must Be Built on its Culture of Innovation
Where Boston truly pulls ahead of potential suitors is on the dynamics of its creative culture. Boston rose into the ranks of global cities because it reinvented itself over the past 40 years, while maintaining a historic commitment to wealth management, defense, insurance, and manufacturing, among other core industries. In the eyes of many, it has become the leading example of an “eds and meds” culture, anchored by global heavyweights like MIT and Harvard.
The foundation upon which Boston’s bid for Amazon must be built is higher education writ large.
New England’s colleges and universities have produced a culture of collaboration, creativity, and innovation that permeates its economy, particularly in biotech and medical research — a culture that matches the creative mix of cities like Austin.
What is different, however, is the depth and diversity of the collaborative culture that took root in New England. There is simply more of the historic ingredients available at a scale, maturity, investment capability, and management expertise than possible among other bidders. Visiting Kendall Square or the Seaport District, you sense it as you feel it.
Higher Ed Leadership Must Step Forward to Make Boston’s Case for Amazon
By challenging local leaders to imagine the possible, my hunch is that Amazon was not looking to extract the most ransom but more likely interested in seeing what creatively might emerge to judge its best fit. And this is where higher education leadership must step forward. Even the strengths associated with MIT and Harvard will not win the bid.
The core argument must be that Boston has produced the best model for nurturing the next creative generation in America. In doing so, Boston must also make the case as the logical choice to set Amazon’s future strategically within a global economy.
It begins with New England’s colleges and universities whose combined size, overall quality, skilled alumni and student bases, regional work ethic, and collaborative integration provide the resources that Amazon needs.
Almost 100 colleges and universities are within a two-hour drive of Boston to nurture this creative energy — a fact unmatched elsewhere in North America.
Beyond a skilled labor force that can be rapidly grown, higher education must offer concrete examples of collaboration that point to innovation and re-imagination. Massachusetts has come a long way from a manufacturing economy once based on shoes, textiles, and machine parts production, banking, insurance, defense, and electronics.
Boston became a biotech powerhouse over the past 20 years, for example, because its leadership – especially in higher education — could imagine the possible.
Higher education is the economic engine that built the booming Boston that we know today. In the end, sometimes money and tax breaks aren’t always enough. In its bid for Amazon, Boston must demonstrate why.
On June 1, President Trump announced that he was taking the United States out of the Paris Climate Accord, making the U.S., Syria, and Nicaragua (which felt the deal was not sufficiently ambitious), the only nations not to support the agreement.
The Paris Agreement sets a series of goals and is voluntary by design. Its value principally is that the agreement got everyone to the table to work on a pressing global issue that crossed national boundaries and directly impacted the quality of life on the planet.
Predictably, there has been a sharp reaction on both sides. Mr. Trump’s critics object to the use of discredited “doomsday” data to justify the American exit. His supporters argue that it was a job-killing “bad deal.” When asked the generic question about whether they were concerned about climate change, over 70 percent of Americans believe that it is a challenge that Americans must face. But differences in opinion emerge as the implications for the American consumer and taxpayer become clearer.
Higher Ed’s First Climate Leadership Conference was 10 Years Ago
The leadership in American higher education has taken a stand on climate commitment for more than ten years. The American College & University Presidents’ Climate Commitment (ACUPCC) emerged when a group of presidents meeting at Arizona State University sent a letter to almost 400 of their colleagues to join them. By June 2007, the ACUPCC, with a signatory group of 284 higher education leaders, went public with the first Climate Leadership Conference. By 2010, there were 697 higher education institutions in all 50 states and the District of Columbia as signatories. Collectively, they represented 5.6 million students.
Higher Education Leaders Encouraged Support of Initiatives to Battle Climate Change
In December 2016, as the transition of national political power began, 235 senior leaders in higher education sent a letter to the new Congressional delegation and incoming presidential transition team. They asked that the Trump Administration continue to support the Paris Agreement, encouraged research based on leading scientific and technical knowledge, and petitioned the Trump Administration to make investments in a low carbon economy.
In letter to Congressional and executive leadership, these college and university leaders noted that they prepare graduates for the American workforce and that their institutions led the country in innovative and ongoing research to address climate challenges, pledging to work with the new administration to meet them.
Decision to Exit Paris Accord is Global Teachable Moment, Beyond Politics
Mr. Trump’s decision to abandon the Paris Agreement moves the discussion to a new stage. The question that higher education leadership must now address is what to do next. It’s an ethics and morals question that will likely also emerge as a global teachable moment for America’s colleges and universities.
Whatever the next step, higher education now has an opportunity to align with an issue of global importance rather than a policy emerging from a political platform promise. In fact, the opportunity is so large and significant that whatever higher education puts forward will move immediately beyond politics.
It is also, therefore, the perfect opportunity for higher education leadership to regain some ground as a leading voice of moral authority as America’s bedrock institutions like higher education continue to come under fire and diminish in reputation.
America’s higher education leaders must have the courage to lead. And they must be strategic in how, when, and where they exercise this leadership. Colleges and universities must not become centers of unfocused, if well meaning, protest. Yet they must vigorously protect the First Amendment rights of their stakeholders, including the right to protest.
That having been said, the optics must show that colleges and universities are the sane and reasonable centers of rational thinking about the impact that climate shifts will have on global society. They must be the “go to” authoritative source that will dampen nationalist efforts to ignore global challenges for political gain.
In American society, colleges and universities are the conduit through which society passes on its history, traditions, challenges, and aspirations. They are where theories are tested and research is undertaken.
The outlandish efforts to deny climate change must be met with ongoing advanced research that supports the efforts by the American educational community to act responsibly and globally. Whatever the action that emerges to Mr. Trump’s decision, it has to be more than a political response. The federal government is now too dysfunctional to operate effectively to address higher education’s concerns on climate.
As Economic Engine, Higher Ed Can Join Cities & States in Battling Climate Change
Higher education needs a game plan on climate change. A good opening step may be to align the higher education message on climate change with local and state authorities. If the states work together to develop a kind of alternative national policy on climate change – even if only temporarily – then colleges and universities might be able to use their moral influence and capacity as economic engines to work with regional economies to offset the worst excesses of the abandonment of the Paris Agreement.
At least it’s a start. At best it may be a pathway to a sane and seasoned approach to addressing a global problem.
In post-industrial America, the roles played by large nonprofits – especially its hospitals and universities – power the economic engines in many regional economies. What would cities like San Francisco, Philadelphia, Pittsburgh, and Boston look like without their large educational and medical research complexes? Would other cities, such as Houston, Chicago, Los Angeles, Austin, and Washington, DC, be as vibrant without the diversification made possible by these important economic drivers?
The facts are clear. America may – or may not – regain some of its manufacturing capacity, although this re-growth is likely to be infused with a level of technology certain to assure that what develops is not likely to be your grandfather’s auto assembly line. America may develop energy policies that re-open coal mines even as newer, alternative sources of power move forward to increasingly dominate the energy landscape.
But the future of the American economy is to prepare and lead a global economy. The alternative is to be lost in a political quagmire that will lessen America’s impact and influence on the rest of the world.
Whether you like NAFTA or the Trans Pacific Partnership really doesn’t matter in the end. What matters is that the boat has long since sailed on whether we live and work in a global economy. The relevant questions are how will we be transformed by it? And, which countries will lead it?
Higher Education and Medical Research Are Economic Engines
The heart of the post-industrial economy arguably is the education and medical research complexes that fuel our regional economies. From these pulsing economic engines emerge spin-offs created by entrepreneurs who transform – and effectively recreate — the American economy. Together with small business, they shape the direction of American society, often from the ground up.
President Eisenhower once warned Americans about the dangers of the military-industrial complex. It was an important admonition that has continued relevance in a transforming America. Rules and protocols – matched by common sense and good will – must continue to shape the political, cultural, and economic relationships between politics and the economy.
Trump Administration Proposals’ Troubling Impact on Higher Ed
That’s why two of the Trump Administrations proposed policies, in particular, are deeply troubling. It doesn’t matter whether these policies are part of a first-year executive policy and budget request that is likely “dead on arrival.” They show a predisposition by the executive branch that speaks more to ideology than cost.
The first is the much discussed travel ban, part of a larger discussion about the role that immigrants have and will play in the history of the United States. The future of the travel ban will likely be settled by the courts, but there are some early trends that bear close scrutiny.
According to Inside Higher Education (IHE), “Four in ten colleges are seeing drops in applications from international students amid pervasive concerns that the political climate might keep them away.” For many years now, US colleges have benefited from steady increases in applications from international students. As students, they often pay full tuition and fees, providing a valuable revenue stream for these institutions.
Travel Ban Already Hurting International Applications
IHE’s Elizabeth Redden writes, “the highest reported declines involved applications from the Middle East. Thirty-nine percent of universities reported declines in undergraduate applications from the Middle East, while 31 percent reported declines in graduate applications. Fall enrollment numbers from the region will likely be hard hit by President Trump’s executive order.” Higher education officials find similar trends in China and India, which account for nearly half of the international students in the United States.
Do we really want international students to go elsewhere? Shouldn’t the next great innovations in America come from a global workforce educated here that stays here because Americans – whether native born or naturalized – create a climate that encourages and supports global innovation developed by the best and brightest from across the globe?
Trump Budget Proposal Will Stifle Innovation & Growth
The second problematic proposal, the Administration’s budget blueprint, compounds the first. In a statement on the proposed budget, Mary Sue Coleman, president of the American Association of Universities, was blunt: “This budget proposal would cripple American innovation and economic growth. The President’s FY18 budget proposes deep cuts to vital scientific research at the National Institutes of Health, Department of Energy, NASA, NOAA, and other critical scientific agencies.”
Coleman argues that the budget proposal “would lead to a U.S. innovation deficit, as it comes at a time when China and other economic competitors continue their investment surge in research and higher education. For decades, federal investments in these areas have paid enormous dividends in medical advancements, new technologies, and enhanced national security, and helped to produce high-wage American jobs and the most talented workforce in the world.”
If we accept the premise that America’s nonprofit education and medical centers power the economic engines that fuel the most promising contributors to American economic growth, does it make any sense to damage these global institutions, perhaps irreparably?
In the end, it’s not a “guns versus no butter” decision to favor military buildups over domestic discretionary spending. It’s about labor, capital, partnerships, and investment. At its most fundamental, “it’s the economy, stupid.” Let’s not muck it up.