higher education's dilemma
DESCRIPTION
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.TRANSCRIPT
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
CHANGING LANDSCAPE OF HIGHER EDUCATION
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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.
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
State Revenue Pattern
8
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
State Budget Pressures
• Pension programs
• Medicaid – more beneficiaries, $87B stimulus
• Unemployment assistance
• $72B shortfall in state budgets for FY12
State Outlook AASCU Nov 2010
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
40% of Americans Struggling “A Lot;” Only 20% “Not Struggling”
14
http://www.publicagenda.org/economy-and-american-dream-2011
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Views on What Might Help
15
http://www.publicagenda.org/economy-and-american-dream-2011
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
College is more necessary, accessibility is falling fast
16
Importance and Access
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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)
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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%
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Enrollment Growth 1973-2008
22
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
OUR ADVICE TO UNIVERSITIES
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Banish the Iron Triangle
26
QUAL
ITY ACCESS
COST
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Not this!
27
Coping Strategies of Public Universities during the Economic Recession of 2009. APLU, November 2009
QUAL
ITY
ACCESS
COST
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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.”
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Strategic Planning by SWOT is not enough
33
Strengths
Weaknesses
Opportunities Threats
Of the university
Of the environment
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Strategic Thinking: Reverse Engineering the Future
35
Critical Success Indicators:*Vision achievement*Resource equilibrium
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Sample Scorecard – Top Level Target
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
• 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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
• 20th Century was one of technological innovation
• 21st Century must be one of institutional innovation
David Wiley, BYU, http://davidwiley.org/