The Business of Higher Education is Pretty Simple – No Margin, No Mission

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Margins & Missions Not Moonshoyts- Steve Kayser

It wasn’t long into my experience writing about higher education when it became clear to me that a university is just as much a business as Procter & Gamble, the multinational corporation I had been covering.

MArgins and Mission... not Moonshots

 By Cliff Peale:  Excerpt from Margins & Missions… Not Moonshots: Pathways to Better U.S. Higher Education

Like many big public universities, UC is as much a city as a school. It provides health insurance and police, houses thousands of students and promises parents it will take care of their children. It’s the region’s biggest university with more than 40,000 students, a medical school and nationally ranked programs in design and music. But UC had been through the wringer in 2006. Years of overspending came due and there were layoffs, slashed budgets, sold assets and write-downs.

McMicken

None of this is astonishing news. Higher education veterans have been living it for years. But for me, coming from the world of Ivory and Pampers and P&G’s $54 billion acquisition of Gillette, it reinforced the similarities between my old beat and my new one.

Nothing has happened since to change my mind. In fact, one of the newest buzzwords in the industry is the oft-repeated sentiment that underscores the point: No margin, no mission.

Higher Education: No Margin, No Mission

I’m not sure who said this first. Virtually every college president attributes the saying to someone different. Whoever said it, they hit the nail on the head.

Without a profit-making enterprise, a business that collects more money than it spends, there is no educational mission.

Colleges and universities can have all the grand plans they want. If they want to educate a wide swath of the population, servicing first-generation college students and becoming an engine for social equality, they can do that. If they want to be elite, to earn a reputation as the nation’s best at accounting or law or ethical leadership, they can do that. If they want to excel in big-time sports, or train the next generation of nurses or nuns, they can do that.

But they can’t do any of that without a healthy bottom line.

College Bubble

Many would say that higher education is headed to a crisis point. I have termed it, in the Enquirer, as a “College Bubble,” akin to the Internet bubble of the 1990s or the Housing bubble of the late 2000s.

If colleges can’t earn a healthy bottom line so they can invest in students, some of them will fail. The bubble will pop.  Most at risk are smaller, private colleges that aren’t considered elite and don’t have an established national brand.

And that’s not even mentioning their students, who are piling up debt in staggering amounts. Of the students who borrow their way through college – roughly two-thirds of them – average debt on graduation from a four-year college tops $27,000. Overall student debt is more than $1 trillion.

Think that doesn’t impact the overall economy? Student debt is now 9 percent of all consumer debt, up from only 3 percent a decade ago.

University presidents generally don’t react favorably to talk about a “college bubble.” They acknowledge that the demographics aren’t great, particularly in the Midwest, when the level of high-school graduates is expected to decline over the next decade.

They are best and most-practiced at complaining about declining taxpayer subsidies. They are right, of course. During the last two decades, states have systematically disinvested in higher education. Three decades ago, tuition was roughly one-third of most university budgets, with state funds filling the majority of the coffers. In the 21st century, those numbers are reversed.

But those state subsidies aren’t coming back. States are choking on pension and Medicaid obligations and aren’t about to throw millions more dollars into public universities.

Amid all of the transformation, the best universities have kept their attention – and their investments – on students. At Miami University, Career Services has created “Career Communities” for each senior to help enter and plan a career. At Cincinnati, deepening connections with businesses help co-op students earn tens of millions of dollars a year.

Northern Kentucky University is spending millions in the College of Informatics, including a “Big Data” major that plugs directly into the hottest career trends.

Margins and Missions not Moonshots: the business of higher education

And at Thomas More College, students can get a degree in three years, paying only $15,000 a year.

But none of that will solve the base financial problem for universities. So what’s the answer? Universities I cover have identified three paths forward. None of them are proven. None of them will solve the problems by themselves.

STRATEGY ONE: Manage Better

This is the traditional response. We will produce more with less. We’ll make teachers teach more, increase tuition judiciously, cut spending where we can and manage our budgets that way.

Almost universally, universities in Greater Cincinnati say they have avoided laying off professors. This appears to be a line in the sand for most, at least publicly. But they have continued the transition of their faculty to more part-time and adjunct professors. That is where the growth is, creating a host of new issues around paying and managing those educators.

There is no question this strategy can work, at least in the short term. There is a question about whether it’s a sustainable long-term strategy. Most university presidents will tell you “no,” that they need a way to create more revenue.

STRATEGY TWO: Innovate, be entrepreneurial, create new revenue streams

I remember visiting one UC researcher in his office. He was a big hire, acclaimed nationally for his research into zebrafish. He was young and talented and brought with him a national reputation.  I asked him about commercializing his research. He blinked as he looked at me. “That’s not really my job,” he said.

You won’t hear as much of that anymore. Universities are talking a lot about turning their research into companies, creating big profit-making ventures. Of course, we don’t see them yet. Last year UC collected more than $400 million in research money. It produced royalties of about $500,000.

There are other ways of producing revenue, but they might be a one-time benefit. Ohio State University sold its parking operations for half a billion dollars, then leveraged that into more money, which they poured back into academics and research. There are plenty of other things to sell: Public radio stations, surplus real estate, private suites and advertising for football games.

But precious few universities seem to have found creative new sources of revenue that can sustain themselves. Tuition still is the lifeblood for private colleges, and publics are reaching the same point.

This is the real opportunity for higher education to break the chains of tradition and find new ways to produce revenue. Many universities will try to partner with more private companies or foundations. Others will try to create a singular niche and market their way out of the problem.

The need is greatest at private universities. But even big publics will have to create new revenue streams. 

STRATEGY THREE: Disrupt

This is the secret sauce that higher education has yet to perfect. There’s a demand, even a hunger, for ways to radically change the system in ways that would radically lower costs.

That’s why people got so excited by MOOCs.

Massive Open Online Courses became all the rage in 2012 and 2013. Companies including Coursera and Udacity signed up hundreds of thousands of students around the world for free online courses, often taught by distinguished professors from Stanford, Duke or MIT.

Anyone can take a MOOC. Of course, they didn’t really count for credit. And there wasn’t any universally accepted way of measuring what an individual student had learned. And in some of the courses, more than half the students dropped out within a few weeks.

If the MOOC movement hasn’t failed, it certainly is headed for a reset.  The question is, did it stall because MOOCs aren’t a good idea? Or did it stall because higher education still isn’t ready for that much change?

That, it seems to me, is the big question facing universities and the students that populate them. Most of them, at least in this part of the country, have yet to demonstrate that they’ll accept real change, something that disrupts the model and fundamentally alters the way we deliver a college education.

Maybe it’s not MOOCs. Technology is moving so quickly these days that there probably will be several more trends in the next decade. But technology is a delivery, not a culture. If there’s really going to be disruption, it has to start with culture.

Where is the university that can really change that?

About the Author

Cliff Peale

Cliff Peale wrote about higher education at the Cincinnati Enquirer from 2007 to 2014, part of his 25-year career in the newspaper industry. His beat included big public universities, small private colleges and community colleges. He wrote about the latest trends in higher education, from MOOCs and big data to new football stadiums and embezzlement scandals. Cliff currently is the Director of Executive Communications at Mercy Health, the biggest health system in Ohio and one of the biggest non-profit systems in the country. He lives in Northern Kentucky with his wife and two children.

 info@compass-highereducation.com


 

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