Higher Education's Dilemma

Association of Governing Boards of Universities and Colleges. All Rights Reserved.

The Higher Education Dilemma: In Search of Long Term Sustainability

[Major Corporation} Mid-Atlantic Regional MeetingFebruary 23, 2011

Ellen Chaffee, AGB Senior Fellow and President Emerita, Valley City State University


Agenda

9:00 The Changing Landscape of Higher Education

* Where funds come from and where they go

* Changing expectations and circumstances

10:30 Break

10:45 Our Advice to Universities and Colleges – Can [Corp.] Help?

* Getting our minds right

* Reverse engineering the future

* The discipline/innovation paradox

12:00 Lunch

2


CHANGING LANDSCAPE OF HIGHER EDUCATION


Higher Education Pressure Points

• Declining/drying-up resources

– Federal and State budgets– Tuition rate ceiling– Investment losses, foundation and charitable declines

• Rising expectations

– More graduates

– More focus on results, accountability, performance funding

• Changing students – less prepared, less able to pay, new learning styles and expectations, more distant

4


The Flow of Funds for Public Higher Education

Federal Government

Tax Policy

Appropriations/GrantsStudent Aid

Tuition

Scholarships &Waivers

Available State and Local

Govt. Funds

Higher Education

Students Institutions

Economy

• K-12• Corrections• Health Care• Other Govt.

Stimulus

Funds

Dennis Jones, NCHEMS5


The Flow of Funds for Private Higher Education

Federal Government

Tax Policy

Appropriations/GrantsStudent Aid

Tuition

Scholarships &Waivers

Available State and Local

Govt. Funds

Higher Education

Students Institutions

Economy

• K-12• Corrections• Health Care• Other Govt.

Stimulus

Funds

6

Private Gifts

Endowment


The Business Model of Higher Education is Broken

7

We sell below cost.The “customers” of (nearly?) all public, private, and for-profit universities and colleges pay less than their “product” costs.

Yet few customers can pay what we charge out of pocket.

Our “natural” margins are negative.Without grants from public and private sources, our margin would be negative – typically, SIGNIFICANTLY negative.

So we cannot grow our way to prosperity.Growing with tuition only (beyond filling current capacity) drives us into deficit.

But we generally choose to ignore that.


State Revenue Pattern

8


State Funding is Stressed

9

Alabam

a

Californ

ia*

Connecticu

t

Distric

t of C

olumbia

Georgi

aIdah

o

Indiana

Kansas

Louisia

na

Marylan

d

Michiga

n

Mississ

ippi

Nebras

ka

New Ham

pshire

New M

exico

North Caro

lina

Oklahoma

Pennsyl

vania

South Caro

lina

Tenness

eeUtah

Virginia

West

Virginia

Wyo

ming0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

State Budgets Percent Shortfall in FY11


State Budget Pressures

• Pension programs

• Medicaid – more beneficiaries, $87B stimulus

• Unemployment assistance

• $72B shortfall in state budgets for FY12

State Outlook AASCU Nov 2010


19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20080%

50%

100%

150%

200%

250%

300%

350%

The Rising Price of College, 1988-2008 (based on increases in current dollar amounts)

Public Four-Year

Private Four-Year

Public Two-Year

Median Family Income

CPI-U

Prescription Drugs

Household Energy

New Vehicle

Cum

ulati

ve g

row

th s

ince

198

8So Our Prices are Skyrocketing


Students have to borrow more & more

12

Kentucky Maryland Ohio Pennsylvania Virginia West Virginia$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

Debt: Class of 2009

Average Debt% with Debt


1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080%

50%

100%

150%

200%

250%

300%

Net tuition/FTE State Appropriations/FTE E&R/FTE CPI Index

Affordability Gap

Source: Delta Cost Project IPEDS database, 1987-2008, 22-year matched set.Notes: Percent change since 1988 based on unadjusted dollar amounts.

State Funding Gap

Yet we still have ever-greater difficulty balancing the budget

Gap


40% of Americans Struggling “A Lot;” Only 20% “Not Struggling”

14

http://www.publicagenda.org/economy-and-american-dream-2011


Views on What Might Help

15

http://www.publicagenda.org/economy-and-american-dream-2011


College is more necessary, accessibility is falling fast

16

Importance and Access


1998 2003 2007 2008 1998 2003 2007 2008 1998 2003 2007 2008Public Research Public Master's Community Colleges

$0

$5,000

$10,000

$15,000

$20,000

Instruction Student Services Admin/Support and Maintenance

62.8% 50.2%50.2%51.2%52.0%51.5%51.6%52.6%53.2%61.7%62.0%63.5%

All data are in 2008 dollars. Source: Delta Cost Project IPEDS Database, 1987-2008, 11-year matched set.

Spending Within Education & Related (E&R)


2000 2004 2007 2008 2000 2004 2007 2008 2000 2004 2007 2008 2000 2004 2007 2008 2000 2004 2007 2008 2000 2004 2007 2008Public Research Public Master's Community Colleges Private Research Private Master's Private Bachelor's

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000Total operating expenses per FTE student by category (in 2008 $)

Education and related expensesSponsored research, public service, and net scholarships & fellowshipsAuxiliary enterprises, hospitals, independent operations, and other expenses

Source: Delta Cost Project IPEDS Database, 1987-2008; 10-year matched set.

…where the money goes by major functional area


Attainment Goals

19

to increase the percentage of Americans with high-quality degrees and credentials to

60 percent by the year 2025 – Lumina Foundation for Education

Currently: 39%VA: 42%OH: 36%KY: 32%

“By 2020, America will once again have the highest

proportion of college graduates in the world”

- President Obama, 2/24/09

PA: 43%WV: 28%MD: 45%


Demographic and Competitive Challenges

• Fewer traditional students, more disadvantaged, more working, more older, more low-income, less well-prepared

• Opportunities/challenges of international students/experiences

• Opportunities/challenges of online enrollment

• Growth of for-profit sector

• Constraints on serious innovation such as lack of venture capital and multi-faceted regulatory environment

20


The Leaky (gushing) Pipeline

• 100 High School Graduates

VA OH KY PA MD WV

46 45 44 49 49 42 * Enter College

13 12 6 16 11 7 * Grad 4-Yr in 4

4 3 3 5 5 2 * Grad 2-Yr in 3

www.complete college.org


Enrollment Growth 1973-2008

22


Online Enrollment Findings, 2010

• Almost two-thirds of for-profit institutions now say that online learning is a critical part of their long term strategy.

• The 21% growth rate for online enrollments far exceeds the 2% growth in the overall higher education student population.

• Nearly one-half of institutions report that the economic downturn has increased demand for face-to-face courses and programs.

• Three-quarters of institutions report that the economic downturn has increased demand for online courses and programs

http://sloanconsortium.org/publications/survey/pdf/staying_the_course.pdf

23


The Noose is Tightening

Less State Money

Even LESS State Money

High Cost of Innovation

Changing Demography

End of Stimulus Funds

Limited Revenue Sources

More Financial AidKeep Tuition Down

Lower Family Income Deferred

Maintenance

Higher Workloads (furloughs, layoffs, productivity efforts, increased enrollment)

Keep up with technologies


OUR ADVICE TO UNIVERSITIES


Banish the Iron Triangle

26

QUAL

ITY ACCESS

COST


Not this!

27

Coping Strategies of Public Universities during the Economic Recession of 2009. APLU, November 2009

QUAL

ITY

ACCESS

COST


How Can We LEAD to the BEST Future for the University?

1. Develop a shared understanding of where you are and what you want!- Target, long-term thinking

2. Do more of what will get you there and less of what won’t- Align activities – organizational and personal

- Align resources, cut costs, increase productivity

- Innovate, re-invent

3. Monitor your progress and exercise self-discipline

- Scorecard, strategic governance

28

Association of Governing Boards of Universities and Colleges. All Rights Reserved.29

“The best way to predict the future is to create it.”


Old Way New Way

• Improve today

• Iron Triangle

• Inputs, actions

• Program benefit

• Continuity

• Achieve tomorrow

• Reduce U & student costs

• Outcomes, outputs, results

• Program cost-benefit

• Innovation and continuous improvement


Checklist for Reverse Engineering the Future

• Define the desired long-term future state and understand the gap between here and there.– Will the university’s clients’ costs-benefits be in balance?– Will the university’s institutional costs-benefits be in balance?– What will be the evidence that you’ve arrived?

• Do less of what won’t get you there – off track, inefficient• Do more of what will get you there – cost/benefit and INNOVATION focus• LEARN and exercise DISCIPLINE over time

– Test options for impact on metrics and cost-benefit, learn– Test progress on metrics, recalibrate, re-strategize

31


Changing the value proposition

Value = more money

• Quality = $$• Belief in the inevitability

of spending increases• Cost reduction equated

with loss of quality• Doing new things requires

new money

Value = cost effectiveness

• Revenue is finite• How the money is spent is

more important than $$ alone

• Pay attention to cost reductions and performance

improvements


Strategic Planning by SWOT is not enough

33

Strengths

Weaknesses

Opportunities Threats

Of the university

Of the environment


Strategic Planning by SWOT is not enough

34

Strengths Weaknesses

Opportunities Threats

Typical Plan

We will:• Do more of this• Do that better• Get more money• Make people happier• Get more famous

Future


Strategic Thinking: Reverse Engineering the Future

35

Critical Success Indicators:*Vision achievement*Resource equilibrium


Sample Scorecard – Top Level Target


How Could [Your Company] Support Such Strategies?

37

Primary institutional decision authority

Efficiency Reinvest in value

Administration Consolidate administrative functionsRestructure debtReduce administrative costsTackle “automatic” cost increases in benefitsPartner, pool, outsource

Cross-sector sharing including public/private partnershipsExpand/condense course schedulingBuy capacity from alternative providersIncrease opportunities for workplace-learningDifferential pricing by programReduce cross-subsidies unless essential to results Create/preserve low-price options

Academic leadership Degree productivityIncrease retention/graduation ratesIncrease credit-by-examEncourage test-out optionsAcademic course redesignMinimize ‘rework’ Reduce credits and time to the degree

Academic program streamliningEliminate/consolidate programsTrim non-productive research Consolidate high cost programs in fewer locations

Savings to students Reduced time and credits to the degreeTextbooks/course materials

ConvenienceIncrease distance deliveryOffer hybrid courses

New Academic StrategiesReengineer curriculaCohort scheduling Reengineer course delivery

ReinventionComprehensive quality improvement approachLearning-driven modelsCustomized learningAlternative faculty career paths


Could [Your Company] help with any of this?

38

Cost management: permanent changes to cost structures

Learning Productivity: increasing learning output without changing inputs

Program mix Increase in student retention and graduation

Reduce growth in benefit costs Reduce excess credits accumulated to the degree

Reduce energy costs Increase credit-by-exam Consolidate administrative functions Increase proportion of graduates who

meet goals for critical learning

Reduce spending on merit-based aid Increase proportion of students who remain – and are employed– in state


• Defined future as the guiding light

• Forecast across a rolling horizon

• Continuous effort to reduce cost and increase productivity

• Continuous allocation and reallocation of resources in

accordance with cost/benefit examinations

• Continuous transparency, communication, and stakeholder

engagement

Leadership Mind-Set


How Much is Already in Place at Your Institution?

At My Institution

Defined desired future as of 20xx

--that has been tested for sustainability

--and has critical success indicators

All programs tested for contribution

All processes highly efficient

On-going cost reduction and productivity processNew initiatives to power achievement

Serious attention to innovation

Disciplined decision-making

Systematic learning and revising

Significant widespread engagement

Deep and wide understanding

Please indicate the presence of these strategic finance building blocks at your institution using the following key:

1 = Yes, we have it

2 = Yes, but it needs attention

3 = No, and we need it

4 = No, and we don’t need it


Bottom line

• Reverse engineer to a desired, viable future state

• Continuously manage costs and increase productivity

• Communicate openly and often

• Collaborate, engage

• Focus on RESULTS

41


• 20th Century was one of technological innovation

• 21st Century must be one of institutional innovation

David Wiley, BYU, http://davidwiley.org/