Higher Education's Dilemma


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Universities and colleges must develop new business models to deal with scarce resources, increased demand for productivity and lower tuition, and changing demographics. This presentation to leaders in a major corporation outlines the pressures and the actions that a national higher education association is recommending to the institutions.

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  • Top Line Findings:Spending Continues to RiseDoesn’t show effects of revenue volatility – (b/c investment return not part of budget?)Overall spending continued to increase for all institutions:increases were greater for the publics (2.5 – 3.5% between 07-08) than for the privates (.5 – 1.5%)All institutions are spending at or slightly above where they were in 2000 -Public Res, Pvt MA, BA <1% annual increase -Pvt. Res was up 2.5% annually.(note – incomparability in public data for 2000 b/c uses gross scholarships/fellowships, but later years use net)2. Overall spending per student continues to obscure what’s being spent on the core academic programLooking just at E&R.. See smaller disparities that when looking at total spending, but still evidentPublic MA and CC spend similar (10-12k), Pub Res (15k)Pvts all spend more than publics – Pvt MA (16k), Pvt BA (20k), Pvt Res (34k)All institutions spent more on E&R in 2008 than in prior yearsFastest growth in 07-08 was in Public Res, MA, and Pvt BA(2.5-3%), which outpaced prior years annual spending growthpvt Res and MA institutions also still spent more, but growth was slower (<2%) and growth was less than in prior years
  • Cost-Benefit can refer to the budget (revenues and funded activities) or the value proposition to clients (our activities will attract their investment sufficient to fund our activities)
  • Higher Education's Dilemma

    1. 1. The Higher Education Dilemma: In Search of Long Term Sustainability<br />[Major Corporation} Mid-Atlantic Regional Meeting<br />February 23, 2011<br />Ellen Chaffee, AGB Senior Fellow and <br />President Emerita, Valley City State University<br /> <br />
    2. 2. Agenda<br />9:00 The Changing Landscape of Higher Education<br /> * Where funds come from and where they go<br /> * Changing expectations and circumstances<br />10:30 Break<br />10:45 Our Advice to Universities and Colleges – Can ARAMARK Help?<br /> * Getting our minds right<br /> * Reverse engineering the future<br /> * The discipline/innovation paradox<br />12:00 Lunch<br />2<br />
    3. 3. Changing Landscape of Higher Education<br />
    4. 4. Higher Education Pressure Points<br />Declining/drying-up resources<br />Federal and State budgets<br />Tuition rate ceiling<br />Investment losses, foundation and charitable declines<br />Rising expectations<br />More graduates<br />More focus on results, accountability, performance funding<br />Changing students – less prepared, less able to pay, new learning styles and expectations, more distant<br />4<br />
    5. 5. Federal Government<br />Economy<br />Available State and Local Govt. Funds<br />Higher Education<br />The Flow of Funds for Public Higher Education<br />Stimulus Funds<br />Tax Policy<br /><ul><li>K-12
    6. 6. Corrections
    7. 7. Health Care
    8. 8. Other Govt.</li></ul>Appropriations/Grants<br />Student Aid<br />Tuition<br />Students<br />Institutions<br />Scholarships &Waivers<br />Dennis Jones, NCHEMS<br />5<br />
    9. 9. Federal Government<br />Economy<br />Available State and Local Govt. Funds<br />Higher Education<br />The Flow of Funds for Private Higher Education<br />Stimulus Funds<br />Tax Policy<br /><ul><li>K-12
    10. 10. Corrections
    11. 11. Health Care
    12. 12. Other Govt.</li></ul>Private Gifts<br />Appropriations/Grants<br />Student Aid<br />Tuition<br />Endowment<br />Students<br />Institutions<br />Scholarships &Waivers<br />6<br />
    13. 13. The Business Model of Higher Education is Broken<br />7<br />We sell below cost.<br />The “customers” of (nearly?) all public, private, and for-profit universities and colleges pay less than their “product” costs.<br />Yet few customers can pay what we charge out of pocket. <br />Our “natural” margins are negative.<br />Without grants from public and private sources, our margin would be negative – typically, SIGNIFICANTLY negative.<br />So we cannot grow our way to prosperity.<br />Growing with tuition only (beyond filling current capacity) drives us into deficit. <br />But we generally choose to ignore that. <br />
    14. 14. State Revenue Pattern<br />8<br />
    15. 15. State Funding is Stressed<br />9<br />
    16. 16. State Budget Pressures<br />Pension programs<br />Medicaid – more beneficiaries, $87B stimulus<br />Unemployment assistance<br />$72B shortfall in state budgets for FY12<br />State Outlook AASCU Nov 2010<br />
    17. 17. So Our Prices are Skyrocketing<br />
    18. 18. Students have to borrow more & more<br />12<br />
    19. 19. Yet we still have ever-greater difficulty balancing the budget<br />Gap<br />
    20. 20. 40% of Americans Struggling “A Lot;” Only 20% “Not Struggling”<br />14<br />http://www.publicagenda.org/economy-and-american-dream-2011<br />
    21. 21. Views on What Might Help<br />15<br />http://www.publicagenda.org/economy-and-american-dream-2011<br />
    22. 22. College is more necessary, accessibility is falling fast<br />Importance and Access<br />16<br />
    23. 23. Spending Within Education & Related (E&R)<br />All data are in 2008 dollars. Source: Delta Cost Project IPEDS Database, 1987-2008, 11-year matched set.<br />
    24. 24. …where the money goes by major functional area <br />
    25. 25. Attainment Goals<br />19<br />“By 2020, America will once again have the highest proportion of college graduates in the world”<br />- President Obama, 2/24/09<br />to increase the percentage of Americans with high-quality degrees and credentials to 60 percent by the year 2025 <br />– Lumina Foundation for Education<br />Currently: 39%<br />VA: 42%<br />OH: 36%<br />KY: 32%<br />PA: 43%<br />WV: 28%<br />MD: 45%<br />
    26. 26. Demographic and Competitive Challenges<br />Fewer traditional students, more disadvantaged, more working, more older, more low-income, less well-prepared<br />Opportunities/challenges of international students/experiences<br />Opportunities/challenges of online enrollment<br />Growth of for-profit sector<br />Constraints on serious innovation such as lack of venture capital and multi-faceted regulatory environment<br />20<br />
    27. 27. The Leaky (gushing) Pipeline<br />100 High School Graduates<br />VA OH KY PA MD WV <br />46 45 44 49 49 42 * Enter College <br />13 12 6 16 11 7 * Grad 4-Yr in 4 <br /> 4 3 3 5 5 2 * Grad 2-Yr in 3<br />www.complete college.org<br />
    28. 28. Enrollment Growth 1973-2008<br />22<br />
    29. 29. Online Enrollment Findings, 2010<br />•          Almost two-thirds of for-profit institutions now say that online learning is a critical part of their long term strategy.<br />•          The 21% growth rate for online enrollments far exceeds the 2% growth in the overall higher education student population.<br />•          Nearly one-half of institutions report that the economic downturn has increased demand for face-to-face courses and programs.<br />•          Three-quarters of institutions report that the economic downturn has increased demand for online courses and programs<br />http://sloanconsortium.org/publications/survey/pdf/staying_the_course.pdf<br />23<br />
    30. 30. The Noose is Tightening<br />Less State Money<br />Lower Family Income<br />Deferred Maintenance<br />End of Stimulus Funds<br />Changing Demography<br />High Cost of Innovation<br />Even LESS State Money<br />Higher Workloads (furloughs, layoffs, productivity efforts, increased enrollment)<br />Limited Revenue Sources<br />More Financial Aid<br />Keep Tuition Down<br />Keep up with technologies<br />
    31. 31. Our advice to universities<br />
    32. 32. Banish the Iron Triangle<br />26<br />QUALITY<br />ACCESS<br />COST<br />
    33. 33. Not this!<br />27<br />QUALITY<br />ACCESS<br />COST<br />Coping Strategies of Public Universities during the Economic Recession of 2009. APLU, November 2009<br />
    34. 34. How Can We LEAD to the BEST Future for the University?<br />Develop a shared understanding of where you are and what you want!<br /><ul><li>Target, long-term thinking</li></ul>Do more of what will get you there and less of what won’t<br /><ul><li>Align activities – organizational and personal
    35. 35. Align resources, cut costs, increase productivity
    36. 36. Innovate, re-invent</li></ul>Monitor your progress and exercise self-discipline<br />- Scorecard, strategic governance<br />28<br />
    37. 37. 29<br />“The best way to predict the future is to create it.”<br />
    38. 38. Old Way New Way<br />Improve today<br />Iron Triangle<br />Inputs, actions<br />Program benefit<br />Continuity<br />Achieve tomorrow<br />Reduce U & student costs<br />Outcomes, outputs, results<br />Program cost-benefit<br />Innovation and continuous improvement<br />
    39. 39. Checklist for Reverse Engineering the Future<br />Define the desired long-term future state and understand the gap between here and there.<br />Will the university’s clients’ costs-benefits be in balance?<br />Will the university’s institutional costs-benefits be in balance?<br />What will be the evidence that you’ve arrived?<br />Do less of what won’t get you there – off track, inefficient<br />Do more of what will get you there – cost/benefit and INNOVATION focus<br />LEARN and exercise DISCIPLINE over time<br />Test options for impact on metrics and cost-benefit, learn<br />Test progress on metrics, recalibrate, re-strategize<br />31<br />
    40. 40. Changing the value proposition<br />
    41. 41. Strategic Planning by SWOT is not enough<br />33<br />Of the university<br />Of the environment<br />
    42. 42. Strategic Planning by SWOT is not enough<br />34<br />Future<br />Typical Plan<br />We will:<br /><ul><li>Do more of this
    43. 43. Do that better
    44. 44. Get more money
    45. 45. Make people happier
    46. 46. Get more famous</li></li></ul><li>Strategic Thinking: Reverse Engineering the Future<br />35<br />Critical Success Indicators:<br />*Vision achievement<br />*Resource equilibrium<br />
    47. 47. Sample Scorecard – Top Level Target<br />
    48. 48. How Could [Your Company] Support Such Strategies?<br />37<br />
    49. 49. Could [Your Company] help with any of this?<br />38<br />
    50. 50. Leadership Mind-Set<br />Defined future as the guiding light<br />Forecast across a rolling horizon<br />Continuous effort to reduce cost and increase productivity<br />Continuous allocation and reallocation of resources in accordance with cost/benefit examinations<br />Continuous transparency, communication, and stakeholder engagement<br />
    51. 51. How Much is Already in Place at Your Institution? <br />Please indicate the presence of these strategic finance building blocks at your institution using the following key:<br />1 = Yes, we have it<br />2 = Yes, but it needs attention<br />3 = No, and we need it<br />4 = No, and we don’t need it<br />
    52. 52. Bottom line<br />Reverse engineer to a desired, viable future state<br />Continuously manage costs and increase productivity<br />Communicate openly and often<br />Collaborate, engage<br />Focus on RESULTS<br />41<br />
    53. 53. 20th Century was one of technological innovation<br />21st Century must be one of institutional innovation<br />David Wiley, BYU, http://davidwiley.org/<br />