Recently, Lee Huang, President and Principal of ESI and head of ESI’s Higher Education Practice Area, caught up with some of our thought leaders in the higher ed space to ask them some of the most critical questions facing the industry. This exert includes Lloyd Russow’s full response.
Lloyd, you’ve helped your own institution and others to understand the budgetary consequences of all of the expansions, contractions, additions, and consolidations that universities have undertaken to keep up with the marketplace or to respond to financial distress. Are there are any rules of thumb to guide such a complex process?
While all recognize the need, if not for ‘a new business model’, that institutions of higher education can no longer operate using 20th-century strategies. The pandemic has accelerated the need to, at a minimum, pivot, but better, to consider re-invention. Each institution is unique, even though we may all be facing similar concerns and possibilities.
Nevertheless, there are some common ideas about how to approach these.
Don’t concentrate on revenues or expenses, they are both important.
The plan up until recently was to design more new programs, focus on communication plans with prospective students, develop naming programs for alumni, and pursue grants and other external funding. In other words, attempts to answer ‘How can we improve or diversify our revenue?’
While this is critical, it ignores the expense side and we can see the symptom, often in the reluctance to sunset programs, end unprofitable relationships, and continue to support legacy initiatives simply because they are part of an institution’s history.
One of the outcomes associated with the pandemic is the switch to online teaching and one of the refrains from parents and students is ‘Why should I pay for a residential experience when I am living at home and taking classes online?’ As I explained to my dentist while sitting in his chair, switching to online was not free. Rather, we were forced to buy licenses for online rooms (Zoom, Microsoft Teams, BlueJeans Meetings, Adobe Connect, etc.); equipment and software for faculty and students so they might interact on a synchronous basis, or at least upgrade the course management system to handle additional needs; more robust cleaning of facilities for those (few) students who are back on campus; and personal protection equipment for staff, faculty, and students to cite a few of the more typical expenses. We also are forgoing the very lucrative auxiliary services (room & board) that offset the heavily discounted tuition. The dentist, who has his own practice could identify with this – higher costs; fewer patients.
His advice: BE TRANSPARENT–tell parents and students, and don’t be afraid to be specific. We hide our revenues and expenses for competitive reasons, but there are national and regional statistics that we could share.
So now, most have shifted the focus to the expense side. How can we reduce costs?
Assessing revenues and expenses with some measures of ROI is important. There will always be initiatives that are necessary or desirable that do not have a positive return. Monitoring, measuring, and planning using revenues and expenses as two important metrics will be critical in developing strategies that foster success.
Be mindful of potential mergers and acquisitions. Each institution has its own history.
I expect to see a spate of mergers and acquisitions as institutions of higher education fully realizes that enrollments of fewer than 10,000 students are not sustainable. One of the elementary considerations is, how do we combine multiple institutions, perhaps with hundreds of years of separate history and likely competition?
Whether the entities are complimentary, mirror images, or like ‘two peas in a pod’, the first hurdle is to assess the individual strengths and weaknesses of each, and the opportunities presented as a combined institution. In many cases, this requires an outside perspective that is unbiased and can look beyond the internal pressures (brought to bear by students, faculty, staff, alumni, and other constituents).
Even if perceived as synergistic, plan on a three- to five-year process of aligning everything from record-keeping, email systems, human resource practices, faculty manuals, student handbooks, course management systems, advising practices, and literally, everything you may come in contact with on a daily basis. And, don’t forget accreditation implications; not just the regional agencies (who would see this as a ‘major change’ and require a special report, if not more), but all the program and other specialty accrediting bodies that are critical to maintaining reputation and rankings.
An important message is that despite what some might offer, there is no easy fix or a solution. There are models for assessing higher education institutions in a variety of ways. What we have learned though is that each institution is unique and while we can assess in similar ways, the results and especially the ways in which we use the results must be tailored to each institution.
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Lloyd Russow is a Senior Advisor at Econsult Solutions, Inc. with expertise in higher education administration and planning. Mr. Russow is currently a professor and the associate provost at Thomas Jefferson University. He has authored a number of texts and journal articles in the area of international marketing and market entry.