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Broken?

10/8/2013

Lester A. Lefton, James M. Danko, Cornelius M. (Neil) Kerwin, and Chris Bustamante

crumbling brick wall

 

Even as state funding and private giving begin to sputter back to life, the effects of the recession and a long economic malaise are still being felt at many colleges and universities. With the perennial budget cuts, salary freezes, and tuition hikes of the recent past still fresh in their minds, many campus leaders are wondering whether the financial calculus that worked before the recession still adds up.

In a recent survey of campus chief financial officers (CFOs) by Inside Higher Ed and Gallup, only 27 percent were strongly confident in the viability of their institution’s financial model over five years. Only 13 percent of campus CFOs were strongly confident of their business model over the next 10 years.

To get a snapshot of prevailing thought on the matter, The Presidency asked four presidents representing a spectrum of colleges and universities—two-year and four-year, public and private, small and large—one question:

From the perspective of your institution and your sector, is higher education’s business model broken?

 
Lester A. Lefton, President, Kent State University (OH)

Higher education’s business model—which relies on external financial support, tuition, and national philosophical backing—is broken, but not beyond repair. To halt the model’s collision course with reality, we must reexamine our educational, political, and economic goals as a nation, and focus on our competitive needs in a global environment.

America’s universities have played and continue to play a central role in the success of individuals, states, and our nation. This indisputable fact makes the massive erosion of state support and the tepid federal support for higher education tantamount to a disinvestment in America’s future. Not surprisingly, this disinvestment has been the principal driver of rapidly rising tuition. Adding insult to economic injury, stagnating middle-class wages have increased the inevitability that a growing number of middle-class Americans—students and families for whom public higher education was an affordable, attainable goal just a generation ago—must assume significant debt for a degree and its undeniable benefits.

At the heart of the problem is the frustrating fact that most political leaders and media pundits—and certainly the general public—have a superficial understanding of what we do, as evinced by a fixation on budget cutting that rarely recognizes the cost of producing well-educated critical thinkers who will succeed professionally and ensure America’s success in the decades ahead. Of course, institutions that use public dollars should be held fiscally accountable. But there is a misperception that universities like mine do not produce a strong enough return on investment, and that they are often (OH) stands among many public universities that are trying to be the architects of their own destiny by investing strategically and responsibly in areas from academics to learning technologies; seeking new and innovative revenue streams; and proactively cutting costs in areas from sustainability to shared services. But let’s be realistic (a trait shared by all effective presidents). There is only so much we can do without strong state and federal support—the kind of support that affirms the fact that higher education, better than any other institution or entity, has the capacity to generate the lion’s share of ideas, knowledge, and leaders needed to ensure America’s progress, power, and preeminence, and to improve the world for individuals and society.

Without fundamental changes in model and mindset, the ability of public research universities like mine to continue fulfilling our multi-faceted missions as educators, innovators, and economic engines will remain very much in question. Let the dialogue begin.

James M. Danko, President, Butler University (IN)

The question itself conveys a “sky is falling” presumption, which is pervasive of late in the world of higher education. I contend that the model is not broken so much as it must evolve, just as business models have evolved in other industries when confronting disruptive forces. That, in and of itself, is the challenge for an industry that tends to resist change and innovation, and that is often reluctant to accept that we are subject to business realities such as supply, demand, and competition.

Our greater challenge is to embrace change and the breadth of opportunities that will result—to “control our destiny before someone else does.” In fact, our very own business school faculty praise leaders who seek opportunity when confronting changing markets. However, in higher education, our attitude toward the value of change and innovation tends to be negative.

At the same time, let us not forget that as educators, we are the experienced and acknowledged leaders in higher education. We’ve developed beneficial pedagogies and approaches to stimulate the intellectual growth of students over many years, improving as we go, and many of our traditions should be retained. Dialogue about massive open online courses (MOOCs), financial accessibility, and alternative models of higher education is extremely important; however, if we react in an alarmist manner, we risk throwing the baby out with the bathwater.

At Butler University (IN), a master’s-comprehensive institution focused primarily on undergraduate, residential, liberal-arts-based education, our focus is on the comprehensive development of students. Our model is more complex than a simple transmission of facts, but rather considers the whole person, including mind, body, attitude, and social skills. We do not see this approach becoming irrelevant. However, with competitive forces a reality, we must ensure there is significant value-add in the type of education provided by institutions such as Butler. In fact, economic, technological, societal, and demographic factors leave us no option but to innovate in order to succeed.

What are some ways to manage the inevitable change? First, we can start embracing change instead of reflexively resisting it. At Butler, we have focused particular energy on instilling an innovative spirit as a way of reflecting our enthusiasm for change. The theme of “imagine the possibilities” and a philosophy of “the presumption of yes” have become recognized across the university, illustrating our openness to new ideas and approaches. Does everyone buy in? No, but at least everyone understands the philosophical direction, which is a critical starting point in managing the change.

Second, we must engage the faculty in the innovation process, and allow them to own it. They are our thought leaders, so we must trust them to lead the change. Over the past year, our faculty has been focused on an initiative we have broadly called “Butler Unbound.” It has evolved into a current group of faculty members charged with envisioning Butler’s potential future, setting aside constraints typically found in universities and considering disruptions to higher education and the application of innovative technology to pedagogy.

Finally, higher education should—just like successful organizations in other industries—focus on finding new “white space” opportunities through innovative views of market boundaries and structure. To that end, we have created the Butler Innovation Fund, which works as our internal venture-capital investor. Students, faculty, and staff submit their boldest blue-sky ideas, and those that align best with our educational mission are rewarded with start-up funds to help make them happen.

Whether the innovations we embrace will be enough to outpace the disruptive forces—technological and economic—remains to be seen. But I am extremely optimistic that our business model will evolve to the point of ongoing success.

Cornelius M. (Neil) Kerwin, President, American University (DC)

For institutions like mine—private, comprehensive, selective, and expensive—the model is not broken, though challenges to its resilience are historic and unrelenting. Our fate depends little on the mechanics of our business operations, but much on our responses to informed calls for change, our resistance to demands that would fatally compromise our core contributions to larger society, and the wisdom to know what separates the two.

Stagnant family incomes, a historic financial crisis, uncertain employment prospects, and general deterioration in public confidence in all institutions have had profound effects. Recriminations abound for tuition increases that often have been double the rate of inflation. Taxpayer-funded loans and grants, which facilitate access to our institutions, are routinely implicated by critics as enabling a culture of self-absorption, arrogance, profligacy, and elitism.

Our responses have been imperfect, but there is no doubt that the sector has made significant adjustments. For example, at American University (DC), we have:

  • Adjusted tuition and increased financial aid so that the added average new costs to students will be held near the anticipated rate of inflation;
  • Educated families about loans and the impact of cumulative debt on monthly loan payments;
  • Diversified the composition of our student populations;
  • Created options to reduce the time it takes to earn a degree;
  • Added online offerings; and
  • Created spaces more amenable to emerging styles of pedagogy and learning.

Such adjustments are constant. More are on the way, in part because we must compete, and other institutions in our sector are working equally hard on these issues.

Universities run the risk of being slammed against a climbing wall when they attempt to respond to consumer expectations, but many of these adjustments are hardly frivolous. The modern university must meet regulatory obligations, minimize legal liability, provide facilities for varied pedagogies, and deal with a daunting array of student personal issues whose management is elemental, not peripheral, to their education.

This ongoing dialectic of criticism and institutional change is vitally important, but our response should be judicious. Economic uncertainty has fueled a reductionism that threatens true social value. Graduates’ starting salaries—discounted by student debt—are presented as the preeminent measure of our value to individuals, and by extension, to the larger society. We are justifiably proud of the value we add to the lifetime earning power of our graduates, but we should be equally alarmed if that accomplishment alone defines us.

We must articulate the value of developing broadly educated citizens who are prepared to participate in their governments and societies, and ready to lead full, rich lives, both on the job and off.

Exploration and discovery without immediate commercial or practical application must also remain core elements of our mission. The complexity, ambiguity, and nuance that are part of the great liberal arts tradition must remain central, along with the inquiry without immediate practical application. We must anticipate, illuminate, and struggle with the great issues of our time.

The case for this mission is ours to make. It should be the true driver of an appropriate business model.

Chris Bustamante, President, Rio Salado College (AZ)

Yes. Without question, the effectiveness of the business model of higher education is challenged. Performance funding, enrollment caps, diminished resources, tuition hikes, time-to-completion expectations, and consumer-driven demands for flexibility and affordability have all impacted the existing model. In addition, the federal mandate to significantly increase the number of degrees and certificates by 2020 has caused colleges and universities to reexamine their business practices in order to achieve this goal.

Some say that technology-driven learning systems will take the place of higher education as we know it. Technology is increasing our ability to serve students and transforming the way that we do it. Open education resources (OERs) and massive open online courses (MOOCs) provide access to anyone, at any time, with minimal or no cost to the individual. Personalized, adaptive, and competency-based learning models, tailored to the needs of the individual student, can encourage persistence and accelerate the journey to completion.

Creating a business model that can respond to and foresee the changing needs of students is vital. Thirty-five years ago, the Maricopa County Community College District (AZ) created Rio Salado College to serve non-traditional students at a distance. The college’s business model was founded on the principles of innovation, collaboration, and continuous quality improvement. With these principles in place, the college adapted the best practices of teaching and learning and set out to deliver college opportunities for students who wouldn’t otherwise have access to higher education.

This resulted in the college holding classes in neighborhood schools, churches, and malls throughout Maricopa County. Classes were also facilitated through the newspaper and on television. Students gained college access in the workplace, high schools, and prisons, and on a U.S. Air Force base. With the arrival of the Internet in the 1990s, it was a natural evolution for Rio Salado College to become a pioneer of online distance learning too.

Our business model has served us well. We currently serve a diverse student population of more than 67,000 students a year (41,000 online), with the ability to scale and serve more. Public institutions, in particular community colleges, serve as a safety net of higher education and provide key access points for students. As a non-traditional college, we rely heavily on advances in technology in order to balance higher education’s iron triangle of being cost-efficient, maintaining high-quality instruction and learning, and expanding access and completion.

The future of higher education is dependent upon our ability to transform the existing business model. We must take risks and create solutions that support persistence, retention, and completion. In addition, we need to examine next-generation learning models in order to increase learning outcomes and lower costs.

Whether an institution is public, private, not-for-profit, traditional, or non-traditional, the important objective is to be able to adapt to the changing landscape of higher education and meet the needs of students. Those who can will thrive. The new normal is that higher education is changing and will continue to do so. We need to embrace this change with bold and innovative solutions.

Lester A. Lefton is president of Kent State University (OH).

James M. Danko is president of Butler University (IN).

Cornelius M. (Neil) Kerwin is president of American University (DC).

Chris Bustamante is president of Rio Salado College (AZ).

 


 

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