Strategic financial management is being redefined as a result of the existing and emerging fiscal challenges facing our nation’s more than 4,000 colleges and universities. The announcement of the planned closure of Sweet Briar College (VA), as well as the release of the U.S. Department of Education’s heightened cash-monitoring list, represent just two recent developments in this evolving landscape.
It is evident that a convergence of many forces of change has required institutions to think differently about financial management during times of economic turbulence. The peak of the Great Recession signified an initial catalytic factor that required some institutions to consider a wide array of alternative business strategies and budget management techniques in order to survive in an era when “business as usual” quickly faded for higher education. Similarly, senior campus officials continue to navigate the recent advances in digital technologies and innovations in teaching and learning that have paved the way for new approaches to delivering higher education—all of which have fiscal implications for colleges and universities. Finally, many of the traditional financial challenges for today’s institutions continue to endure, such as public disinvestment in higher education, endangered campus endowments, and rising tuition. These issues and many more represent today’s world of strategic financial management in higher education.
Regardless of the specific factors that impact the financial landscape of higher education, leaders are rethinking how institutions are managed in the midst of this increasingly uncertain fiscal environment. Leadership during times of budgetary distress is especially challenging within the culture of academia. Viewing the institution through a diverse set of leadership frames when financial resources are at risk, as well as building an effective leadership strategy for change management, are critical steps toward navigating this organizational challenge. One such frame that provides a functional model for addressing the phenomenon of fiscal distress is that of “adaptive leadership.”
Developed by Ronald Heifetz, founding director of the Center for Public Leadership at Harvard University’s John F. Kennedy School of Government (MA), adaptive leadership provides a road map for helping leaders navigate the most difficult problems in a sustainable manner. According to this theoretical model, leaders often encounter two types of organizational challenges: Some problems faced by leaders are technical in nature and can be resolved when an expert or authority figure applies a straightforward, traditional solution to the issue at hand. Heifetz argued that technical responses often cause difficult problems to persist because leaders allow their constituents to become too dependent on the authority of administrators or senior leaders for the answers. In the end, they avoid the true challenge of changing the mind-set and values of the institution from the inside out. Applying across-the-board budget reductions or simply eliminating vacant positions, for example, may represent technical fixes in response to budget challenges at a college or university. In the case of fiscal distress, though, institutions that apply only technical solutions to long-term financial pressures do not take full advantage of the opportunity to develop a shared vision within the university and align the campus community around sustainable solutions.
Alternatively, adaptive leadership occurs when people or groups with differing values are mobilized to face problems and challenges as a collective unit. Individuals and organizations often excel using this model because both the leader and stakeholders accept shared responsibility for the outcome, even when the perspectives of the participants significantly differ. While the views and values of administrators, faculty, staff, students, and alumni may at times conflict with respect to the allocation of an institution’s financial resources, adaptive leadership presents an opportunity to mobilize major stakeholders into a common vision for the institution. With a wide range of constituencies embedded in the life of academic culture, the university setting represents an ideal environment to apply adaptive solutions to adaptive problems—and the fiscal uncertainty that today’s campuses encounter is certainly an adaptive challenge.
Adaptive problems have no clear-cut solution or obvious answer. Instead of only applying a technical or traditional response, adaptive problems require leaders who recognize that a shift in institutional mind-set must occur. Many times adaptive problems exist well below the surface of the situation and often produce disequilibrium in an organization; however, adaptive leaders know how to effectively contain the forces of change and distress within reasonable and manageable limits in order to move the organization forward successfully. Empowering senior academic leaders and deans to engage in conversations about academic program reviews and prioritization efforts, for example, represents one strategy for spurring adaptive, value-based change in an institution. University leaders must be able to encourage, embrace, and regulate an appropriate level of expected disequilibrium among campus constituencies to spur adaptive change and create sustainable solutions to fiscal challenges. Instead of avoiding difficult problems or turning away from conflict, adaptive work requires leaders to focus their attention directly on the relevant issues. Work avoidance can be destructive in the face of tough problems, while adaptive leadership produces shared responsibility and productive change.
One way for senior leaders and presidents to integrate the adaptive lens into strategic financial management is to carefully align resources with the institution’s mission and strategic plan—and to do so while engaging in a conversation with key college or university stakeholders in the process (i.e., those beyond the usual suspects involved in high-level administrative decision making). This model suggests that adaptive leadership is impossible unless the major stakeholders embrace the change. Heifetz warned that an organization can “fail to adapt when its people look to their authorities to meet challenges that require changes in their own ways.” Ultimately, this model of leadership requires a collective approach by institutional stakeholders in order for adaptive work to be accomplished. As a variety of financial challenges continue to plague higher education in all sectors, recognizing this phenomenon as an adaptive problem that requires adaptive solutions may be one strategy to consider when managing fiscal distress in an academic environment.
This article has been adapted from the author’s research study “The Management of Publicly Funded Regional Universities During Times of Fiscal Distress.”
Philip G. Rogers is ACE’s vice president and chief of staff.