Sustaining Higher Ed is a monthly blog dedicated to helping college administrators and board trustees lead their organizations toward greater financial stability so they can stay on mission during challenging times.
In our last post, we introduced the hypothetical case of a regional, midsized, private university that is at a strategic crossroads. It faces a positive but shrinking operating margin, several postponed capital projects, and a negative credit rating outlook. Academic programs within its college of liberal arts and business school are relatively strong—with satisfactory academic outcomes, some faculty innovation, and a cohesive culture—but its law school has seen significant enrollment declines and has a negative operating margin.
The university’s most significant challenges are financial, and an integrated strategic financial planning approach will help the institution’s leaders ensure that current and future financial resources will be sufficient to support strategic options and to sustain the institution until new strategies begin to generate a positive return. These considerations—the cost of starting new strategic initiatives and the amount of time until they begin to generate a positive financial return—will be critical factors in deciding which options university leadership should pursue.
Because this is an institution with multiple schools and programs, different options may be appropriate for each of the units. Among the university’s schools, the business school currently produces the strongest financial results and thus may provide the strongest foundation for growth. The college of liberal arts has been somewhat dependent on the business school’s success, as the ability for undergraduate liberal arts students to earn a minor from the school of business or an interdisciplinary degree from the two schools has helped maintain enrollments across the college of liberal arts overall. The law school, on the other hand, is struggling and is placing the greatest financial burden on the university.
There are several initial questions leadership must address before it begins considering its strategic options:
- First, what are the anticipated costs related to capital projects that have been deferred (including investments in technology infrastructure, a new student union, and an athletic facility upgrade)? Are all of these projects equally essential to the university’s long-term success, or should some be prioritized before others? Leadership must understand the cost of all essential projects, as the gap between these requirements and currently available resources will need to be filled to keep the university on a sustainable path forward. The potential for new strategies to help close this gap will be a key factor for in determining whether those strategies should be pursued.
- Second, which programs across the university’s academic portfolio are succeeding and which are not? To successfully pursue growth, leadership will need to say “yes” to maintenance and investment in some programs and “no” to others; an academic portfolio assessment provides the data leaders will need to make and explain their decisions, and to maintain their discipline in doing so.
- Third, how well does the organization understand the competitive landscape? Does leadership know why students are choosing to attend, or why they are choosing other institutions or alternatives to a traditional higher education experience instead? Has there been a focus on projecting the institution’s enrollment trends over the next 5 to 10 years using competitive and market data?
Answering these initial questions will give leadership three key pieces of information for evaluating strategic options: How much additional revenue the university must generate, which programs are the best candidates for future growth, and the extent to which growth will depend on engaging pools of non-traditional, previously unreached students.
Options for Independent Growth
Leadership of our example university chooses to focus its initial efforts on identifying and quantifying strategic options that will keep the university on an independent path forward. It identifies two options for growth, one focused on expansion of its graduate programs and the second on expansion of programs for non-traditional students.
Expanding graduate programs
One identified option is to strengthen the pipeline of students from the university’s undergraduate programs to its graduate programs. Leadership is considering two possibilities for a dual-degree program. The first is a five-year degree program that leads to a bachelor’s degree (earned in either the college of liberal arts or the business school) and an MBA from the business school. The second is a six-year program that leads to a bachelor’s degree (again, from either the college of liberal arts or business school) and a JD from the law school.
Because dual-degree programs effectively remove one year of undergraduate tuition and one year of graduate tuition, revenue growth would depend on significantly expanding the number of dual-degree students in the graduate programs while maintaining or also growing the number of students who are paying for the full two years of the MBA program or three years of the JD program. Given that the law school’s enrollment is at approximately 85% of historic levels, leadership believes that the incremental benefit of returning enrollment to full capacity will outweigh the revenue implications, making the law school a good candidate for the dual-degree option. However, this belief will need to be quantified. If projected revenues from expanded dual-degree student enrollment are not enough to erase the law school’s negative operating margin, leadership will need to consider other options.
The business school is also considering augmenting its traditional MBA program with an online degree program. To pursue this option, however, the university will likely need to make previously delayed investments in technology as well as the other investments required to develop online programs. The business school also is lagging the competition, as online MBA programs have grown significantly in recent years, with almost 300 programs now ranked by U.S. News & World Report. To speed development of the program and get assistance in marketing and recruiting, the business school could consider partnering with an online program manager (OPM), but the cost of this will erode the financial benefit that the program generates and may lessen the university’s financial and academic control.
Expanding programs for non-traditional students
The first option focuses on developing certificate programs in the business school for mid-career professionals seeking to add skills in such areas as leadership, business strategy, and business analytics. Because tuition for the certificate programs will be priced significantly below tuition for degree program courses, the value of this option in generating meaningful revenue for the university will depend on the business school’s ability to grow the program to a sufficient scale. This will require recruiting students from a wide geography who can complete the certificate program online and developing closer relationships with external organizations. Both these requirements represent new areas of focus for business school and university leadership and will require significant upfront investments in a full range of technology and human resources to support effective online program development.
Leadership will also need to account for rapid change in the competitive landscape for certificate programs, which could affect future program growth. Google, for example, has developed career certificate programs that have been recommended for college credit by the American Council on Education and are available to students at an extremely low cost. It also has assembled a consortium of companies that have agreed to give preferential treatment to its certificate holders. Google’s investment in academic programs is just one example of new and potentially disruptive competition for higher education.
Leadership is also considering creation of workforce development programs in partnership with local companies. These programs would build upon successful interdisciplinary programs that faculty from the college of liberal arts and the school of business have already created in areas such as business communications, organizational psychology, and data analytics. The value of this option to the university also will depend on the university’s ability to develop the resources needed to highlight the programs’ value to employees, continue good external relationships, and bring the programs to scale.
As leaderships works through these strategic options, it becomes clear that accelerating the previously delayed investments in technology must take precedent over its other deferred capital projects, including construction of a new student union and an upgrade of its athletic facilities. The growth strategy depends heavily on the university’s ability to deliver many of its new program offerings online, and the student union and athletic facility upgrades will be less important to the graduate and non-traditional students who are the focus of the strategy.
Financial modeling also indicates that the strategic options leadership has identified may not be enough to keep the university on its preferred long-term path of full independence. In particular, projected enrollment numbers for the law school, even with the addition of dual-degree students, will likely not be enough to move the school to a positive operating margin. The other options, drawing on the university’s existing strengths, are more promising, but their success is contingent upon the success of a capital campaign that the university also plans to launch to help offset the major capital expenditures it will need to make if it hopes to maintain its traditional undergraduate enrollment—they will not by themselves generate enough revenue to cover these expenditures.
Attracting new students through innovative programs and alternative revenue sources can help grow institutions’ financial positions over time. We help universities examine current models and explore opportunities to diversify curricula, modalities, and revenues, such as through online and open learning and corporate partnerships. We also help universities leverage partnerships with other institutions to strengthen their business model. We strive to meet universities’ needs to expedite time to value, while providing additional capacity and expertise to internal leadership and offering objective third-party counsel.
In our next post, we will consider partnership options that university leadership could consider to enhance the prospects for the institution’s long-term viability and independence.