What the 'American College President' Needs Today

The current environment requires academic leaders to focus more on their institutions’ dynamic capabilities and ecological fitness, Stefano Falconi and David Teece argue.

November 20, 2018
 
 

Forty years ago, in a book called The American College President, Michael Cohen and James March described the presidency of a university as “a reactive job,” in the sense that allocation of attention was “largely controlled by the desires of others.”

The world has changed. A successful university president no longer has the luxury of presiding over the “organized anarchy” that was the norm Cohen and March assigned to university management a generation ago. Campus leaders taking a reactive stance nowadays are likely to find themselves drowned by nonstrategic issues, and risk missing early warnings about potentially devastating dangers. They will also miss emerging opportunities unless they become proactive.

Higher education has entered a turbulent time, enabled by new online technologies and disrupted by change in our political and cultural environment. These are only accelerated by new habits, at warp speed, of information sharing. All this has served to amplify the effects of scandals that endanger the stability of even very large and financially strong institutions. Witness the recent turmoil at institutions such as Michigan State University, the University of Rochester and the University of Southern California, to name just a few.

In this context, boards are often driven to focus on outsiders, selected for the strength of their track record with respect to effective crisis management. In other words, the pendulum will often swing from a consummate academic to a decisive, nonacademic business leader. To such an outsider, the job of managing a university, even if in turmoil, may seem a nice change of pace. To some, academia retains the aura of a genteel, slow-paced environment of pondered decisions where conflict is mostly personality-driven and nothing that a leader tempered in the dog-eat-dog battles of corporate life can’t handle. The reality is different.

Universities are no longer sheltered from the realities and constraints of the outside world: affordability, quality control, competition and customer expectations, and, of course, growth and the bottom line. There is no avoiding competitive forces.

Yet the “product” of the university remains unique: education, involving a dimension of public service and requiring a fine ear for the motivations, sensitivities and values of the people who produce it (i.e., the faculty), and the “customers” who purchase it (i.e., the students and their sponsors). New leaders in the education sector, especially those coming from the corporate or political sectors, must learn to work within an environment marked by tradition, ruled by a shared governance process with many stakeholders and the recursive and often time-consuming process of academic decision making.

In some important ways, universities are designed to aspire to different, less quantitative standards than most businesses. Quality control, for example, is not measured in terms of tolerances and reliability, but in terms of learning outcomes, alumni compensation one or five years after graduation, and that most elusive of all metrics: quality of life.

Yet to ensure their institutions’ continued survival, university leaders must also keep a constant eye on the bottom line. This is what the recent, sudden demise of small but well-established colleges has taught us. It is sobering, for example, to hear the board chair of Mount Ida College in Newton, Mass., which just closed, proclaim as recently as January that its leaders felt they had a viable financial plan and did not realize that they had crossed the point of no return.

Managing a university in the modern age is arguably more complex than managing a Fortune 500 company. There are more stakeholders to satisfy: students, faculty, alumni, parents, boards of trustees, donors, politicians (in the case of publicly funded universities) and local communities. The environment is roiled by hot-button political issues such as free speech, community involvement, diversity and inclusion. Increasingly, society expects the university to perform complex social and political functions, and somehow manage to set a better example than the rest of society.

The Importance of Ecological Fitness

After decades of observing how the most innovative businesses have managed to succeed amid change and uncertainty, David Teece, Gary Pisano and Amy Shuen developed the “dynamic capabilities” framework for managing enterprises. Teece then decided to apply this concept to universities. The dynamic capabilities framework helps prioritize what has become an endless stream of competing and conflicting demands.

The end goal is not mere short-term efficiency, like the classic management of the monthly profit margin or productivity statistics in a company. Rather, this approach looks at an institution’s longer-term ecological fitness, defined as its ability to respond and adapt rapidly to threats and opportunities as they arise in the university’s ecosystem. Modern times and media dictate shorter and shorter life cycles for the escalation of severe controversy, and the need for a response that is both quick and thoughtful. This method, which trains organizations to reallocate resources strategically and rapidly, in response to threats and opportunities, helps campus leaders think more clearly about managing modern universities.

Operating vs. Dynamic Capabilities, in a University Context

Operating capabilities are about doing things right; dynamic capabilities are about doing the right things.
-- David Teece, The Foundations of Enterprise Performance: Dynamic and Ordinary Capabilities in an (Economic) Theory of Firms

Strong operating capabilities are what allows an institution to achieve best practices. University leaders must appreciate the motivational importance of executing on issues such as rewarding high-quality research and teaching, using the peer-review process to assess the quality of research, and hearing stakeholders’ feedback on the quality of teaching. Likewise, they have come to realize that the quality of instruction can always be enhanced by monitoring and reviewing curriculum, as well as by measuring student learning outcomes, retention, graduation rates and similar metrics. On a larger plane, they also measure their institutions’ success in attracting applicants in the admissions lottery, and in the number of applicants who, once accepted, choose to enroll.

By contrast, dynamic capabilities enable a university to rapidly reconfigure its resources to respond to changing inputs from its “ecosystem,” including the changing needs of its stakeholders. They might also involve response to external factors, such as population changes as the baby boom generation ages and millennials take over, industry transformation in an age of computers and social media, or the sudden fallout from the Black Lives Matter or Me Too movements, which have triggered reassessments of diversity, inclusiveness and freedom of speech on campuses nationwide. The right capabilities will prepare a university to clear the hurdles of the present and propel itself into the future.

Campus leaders must, of course, pursue both operational efficiency and ecological fitness, but when torn between these two demands, they should remember that fitness actually matters most. Mistakes with respect to efficiency get corrected by hiring ordinary consultants (or a new CFO/COO) and reallocating financial and other resources, but a lack of dynamic fitness leads a university to become less attractive to students, faculty, donors and other stakeholders.

The traditional reaction to deteriorating metrics, such as diminished enrollments, especially for smaller institutions, is to compete on cost to increase enrollment by increasing the so-called discount on the product, otherwise known as financial aid. The assumption here is that this will make the institution’s admission offers more attractive to applicants with financial concerns.

It is also one of the few measures that can be enacted very rapidly by management in an academic environment, with limited or no involvement of the faculty or other constituents. Unfortunately, in the absence of compatible “dynamic” reactions, this decision often proves unsustainable. It becomes a race to the bottom on tuition.

While of course it is important to bolster enrollment numbers, it is equally if not more important to look at why the numbers had begun to drop in the first place, and what might be done in a curricular sense or in other aspects of what the institution can offer to bolster enrollment.

This is where dynamic capabilities come into play. To adapt to changing trends in the marketplace, university leaders must learn to think a little more like entrepreneurial business managers, but do so in a way that suits the particular environment of higher education. If, for example, they decide to introduce a new curriculum in a field that is in high demand, it should still be consistent with their institution’s strengths, or its “brand.” This does not mean it is impossible to develop new strengths, but it is always wise to leverage existing ones in preparing response to dramatic changes in the environment.

In other words, leaders should leverage the university’s dynamic capabilities to introduce a more competitive product. For example, introducing a cybersecurity major in the context of a well-established computer science major will be easier and more likely to succeed than introducing a nursing major in a liberal arts environment with relatively weak life sciences and biology courses.

Compared to a mere increase in financial aid, a more strategic approach in the spirit of dynamic capabilities requires a much more complex strategy and a larger financial investment: it will need a rapid, dynamic reallocation of resources, from the curriculum committee and the faculty to the enrollment and marketing staff, not to mention the financial planning and resources needed to launch the new major.

Ongoing consensus building within the community is required, so that those resources are disposed to work together to gain the end result. And university professors are not like ordinary managers who depend on a company for their jobs. The tenure system, which is crucial to recognizing teaching and scholarly excellence and to protecting freedom of academic thought, often shields professors from important economic realities affecting their lives. It is important to close the information and awareness gap with these stakeholders, so that they will willingly collaborate to help keep their institutions as vibrant and economically healthy as possible.

Yet university leaders will always need to remain sensitive to all of the university’s key constituencies, which include not just faculty and trustees, but also alumni, as well as students, both current and prospective. This means maintaining constant and dynamic awareness of these constituent groups through open channels of communication. It means something as simple as being at ease in their midst and in touch with their interests, as well as becoming more adept at earning their trust and support and skilled at dynamically reallocating their work in order to rapidly seize opportunities. It requires a president to prepare his or her campus to initiate change and embrace it when it occurs. This is the essence of strengthening and exercising campuswide dynamic capabilities.

The hierarchy between operating capabilities and dynamic ones may roughly be equated to a company’s budget for efficient production of its current products versus the R&D budget, for product development. Cutting costs and sharing overhead is everyday business that must be addressed. However, it will rarely save a failing enterprise or position one for continuing success in the longer term. For that, what is needed are the resources to implement strategic initiatives, and the systematic approach that enables their adoption in a timely fashion.

Good presidents understand the foundations of their institution’s competitive advantage, as well as its vulnerabilities. Dynamic capabilities cannot be the exclusive province of the leader, but should be developed at all different levels across campus in order to be effective. However, it’s up to the top executives to see farther -- to “see around corners,” as the expression goes, selecting and developing strategies and inspiring institutionwide willingness to transform.

The need for rapid decision making is one of the demands of our new environment and presents one of the most significant obstacles in higher education. This is an industry that thrives on building consensus through shared governance and painstaking preparatory work to precede every potential decision point. Ordinary top-down decision making that might work in the corporate world is often thwarted in the university environment, as the power base is dispersed, and leaders must use influence and consensus to accomplish their goals.

While this less hurried, more systematic approach has served higher education well over at least a century, it can put it at a disadvantage at times of extremely rapid change and turbulent competition, which is what we have begun to face in recent years.

How should an effective president address this problem? By getting consensus from the faculty ahead of time that something like this might be necessary, preparing professors for the difficult decision points and soliciting their feedback and involvement in exciting new directions. This may require hiring new faculty in some cases, incentivizing retirements and providing incentives for those who do not wish to retire to learn and teach new materials. In other words, it will require leveraging the tradition of collaborative academic discourse long before circumstances force a decision. In this way, it would leverage a university’s traditional strengths (collaborative discourse and the search for truth) by addressing one of the principal weaknesses of the university environment (a slow decision-making process.) The process may not always be perfect but ideally, these changes will all work toward fulfilling a unified overall vision.

Transformation in Higher Education

Transformation is also required by dynamic capabilities. There is no other way for an established institution to maintain ecological futures. Despite occasional rumors to the contrary, transformation is more possible in the university context than one might think. Even radical transformations are possible. Over a relatively short time, we have witnessed Stanford University’s conscious evolution from a smaller regional institution to an international powerhouse, or the Massachusetts Institute of Technology’s systematic embrace of, and investment in, the development and commercialization of technology. We have also seen the transformation of a little-known New England college, Southern New Hampshire University, from a small institution of a few thousand students to a powerhouse of over 70,000 in the space of 13 short years.

Fundamental here is not so much acquiring this or that new policy, procedure and structure, but rather adopting a culture that systematically embraces change and tests it in service of a shared strategic vision.

Conclusion

As compared with corporate leaders, university presidents operate in the much more transparent, democratic and less hierarchical environment of shared governance that distinguishes universities from companies with top-down management. This tendency toward governance through leadership and consensus also enforces a longer timeline upon decision making and limits their ability to impose change. University presidents must draw upon skills that are largely political. They need to compensate for lack of raw hierarchical power by leading with their vision, charisma and diplomatic skills, and by earning the trust and respect of the academic community. Successfully transforming a university stands or falls with the ability of its leaders to inspire others and build a broad base of support. Furthermore, they need to keep in mind that this does not always mean trying to keep every constituency happy. Endless pursuit of consensus and capitulation to poor-performing but vocal factions will kill the exercise of strong dynamic capabilities and educational success.

In short, dynamic capabilities represent a mind-set as much as a set of processes and tools. The best odds of developing these institutional skills come when the leadership, and particularly the institution’s president, can exemplify them. The goal must always be to imagine the future while thinking astutely about the present. A university with the ability to develop strong dynamic capabilities will be poised to become effective, agile, entrepreneurial and resilient, and respond to the challenges of the 21st century and beyond.

Bio

Stefano Falconi is the higher education practice leader at the Berkeley Research Group. David J. Teece is director of the Tusher Initiative for the Management of Intellectual Capital at the University of California, Berkeley's Haas School of Business. The authors received no financial support for the research, authorship and/or publication of this article.

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