Posts Tagged “mergers”

Beyond Mergers: The Confederated Colleges of America

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.

Can U.S. Higher Education Disrupt Itself Before It’s Too Late?

I’ve been thinking a great deal lately about how disruption will play out in American higher education. My hopes – and concerns – reflect a bedrock belief that America’s colleges and universities operate on an unsustainable finance model that must adapt to new realities. It is impossible to predict how many colleges and universities have the capacity or willingness to make the kinds of structural changes that reach beyond where most have charted their courses.

That having been said, it seems likely that we will see an uptick in mergers, closures, and acquisitions, particularly for poorly endowed and under-resourced institutions that cannot control their financial aid discounts and spending rates.

While almost all institutions feel some level of pain, those with weak governance, internal fiefdoms that fail to communicate across the campus, uninformed faculty, and poorly articulated value propositions will be the first to fall.

External Forces Compound Higher Ed’s Internal Problems

External forces compound the growing problems faced by higher education, where the annual outlook by the ratings agencies has now eroded once again to “negative.” There are a number of quality institutions with financial aid discount rates over 70 percent. A number of these institutions are unable to stop the rise in these rates.

Basic math suggests that as the effects compound, these institutions will so severely limit their options that the impending question on the horizon is how and when they will lose their independence.

It’s Not Too Late to Avoid the Debacle Ahead

In the once robust world of decentralized American higher education, the tragedy is that so much of what will play out could be stopped. There are a number of players who can step in to avoid the debacle ahead.

The first is, obviously, the higher education community itself.

Each and every college or university must determine its value to its community and to American society as a whole. Once defined, its leadership must be courageous in articulating its own value proposition.

Stakeholders – led by trustees and faculty – must accept this value proposition and must adjust their roles accordingly, clearly differentiating what is truly distinctive about their institution – what it does differently than its peers.

The campus community must live within its footprint. And it must adapt to the new realities that fund what it can do best within its means to serve the common good.

State and Federal Governments Have Stake in Higher Education

The second stakeholder group is government, both at the state and federal level. There has never been an effort to have the state and federal governments coordinate their support, especially their financial support, of America’s colleges and universities. The impact varies widely across states.

  • Is it the responsibility of state governments, for instance, to bolster student aid and infrastructure needs rather than simply provide direct public subsidies?
  • Should the federal government effectively designate America’s research universities as the lead participant in many strategic national research and development efforts?
  • Can the federal and state governments lighten regulatory restrictions in an overregulated higher education industry?

Media Plays Powerful Role in Shaping Public Perception of Higher Ed

The third stakeholder group is the media through which the message about higher education is delivered. Much of the negative perception of education shared by American consumers comes from the sensationalism of anecdote, political posturing, and polling. It festers in an unregulated, hyperactive, and reactionary social media environment. Good stories seldom draw ratings and sell print media. This combination of ratings-driven establishment and out-of-control social media has encouraged new – generally negative — perceptions not driven by data.

The cumulative effect is to throw higher education under the bus, often through some combination of bad data and self-inflicted wounds.

The positive message of higher education’s contributions to the common good in American society is often drowned out by sensational, if often accurate, stories of colleges in crisis. The weakness of its parts effectively drowns out the good of the whole.

Can Disruption Restore Public Faith in American Higher Education?

This is the point at which disruption can play a critical role in restoring the faith of the American consumer in the value proposition of American colleges and universities. As disruption sweeps across colleges and universities, higher education is facing the same kinds of pressures as the health care industry.

If higher education, government, and the media that together shape the parameters of higher education continue with their current level of disconnected incoherence, the results may work against a robust college community.

America loses in the end. However, there is an alternative view.

Led by America’s colleges and universities, disruption within higher education can be good for American society – especially if it is intentional and self-directed.

Higher education must break out of the “we’ve never done it this way before” mindset that governs broad national policy despite solid evidence of remarkable innovation in isolated sectors of the academy.

The fact is that the financial model of American higher education is broken. The revenue generated no longer supports the people, programs, and facilities that form the decentralized higher education community that is still admired globally.

Something must be done soon. The answer will likely come from within higher education. My strong hope is that positive disruption arrives before consumer perception and the fiscal crisis intersect to do irretrievable damage.