Boosting Buying Power

Private colleges found a consortium to collectively negotiate with companies that develop enterprise resource planning software.

January 20, 2016
 

Dozens of private colleges are banding together in a consortium to score better deals on the software that forms the backbone of their administrative services.

The members of the Higher Education Systems & Services Consortium, also known as HESS, will this month begin to negotiate with companies that produce enterprise resource planning (ERP) software, which covers areas such as finances, human resources and student information. In the short term, the consortium hopes to lower the cost of that software, but its long-term plans include a vision of closer collaboration and perhaps sharing services between colleges.

“The big issue here is we feel like the ERP market for higher education has been very much like a new car lot,” said J. Keith Fowlkes, chief information officer at Centre College. “One person gets one price, another person gets a better price and this person gets a worse price. … We’re hoping we that can get as many institutions as possible involved so we can collectively negotiate pricing across the board.”

Since launching in the fall, the consortium has attracted 57 member institutions from 12 states -- all of them private nonprofit institutions, many of them with fewer than 2,000 full-time students. Those colleges may be in an unfavorable position to negotiate solo compared to larger institutions, which can command better deals from software vendors eager to add a state university system, for example, to their client lists.

By negotiating with one voice, the consortium hopes to grant some bargaining clout to institutions that must focus on attracting students and balancing budgets at a time when both can be difficult for small colleges without billion-dollar endowments. As fewer high school graduates go to college and revenue shrinks, many small colleges are already feeling squeezed. By 2017, Moody’s Investor Service predicts that college closures could triple, with as many as 15 small colleges closing each year.

“In the economic situation that we’re in, we have to be able to collaborate better and to negotiate better pricing together,” Fowlkes said. If not, he added, the long-term success of those colleges could be at risk.

For an example of the financial trouble some small colleges face, look no further than the HESS Consortium’s member list. It includes institutions such as Sweet Briar College, the women’s college that last year looked in jeopardy of closing.

The members of the consortium are sorted into cohorts based on the software they run on campus. At the moment, there are different cohorts dedicated to software developed by Campus Management, Ellucian, Jenzabar and smaller companies. Each cohort is working with those vendors to develop consistent pricing structures and feature lists so that colleges can conduct “apples-to-apples” comparisons, Fowlkes said. The consortium is aiming to have those lists in place by the end of March.

Belonging to a cohort doesn't mean a college is restricted to that vendor's products, however. The consortium plans to build in some flexibility to let colleges purchase software that plugs into their ERP systems, Fowlkes said.

Although negotiations are still ongoing, Fowlkes said the end results will likely resemble an annual agreement where pricing will be adjusted based on the size of the cohorts.

Kenneth C. Green, whose Campus Computing Project tracks college IT trends, said small colleges often “lack the buying power” of larger institutions. But negotiating with one voice comes with its own challenges, he said.

“The question becomes can they agree among themselves, and can they agree with their provider?” Green said in an interview.

Once a college joins the consortium, it agrees to no longer negotiate on its own. “If they’re members, they cannot go outside the consortium,” Fowlkes said. “We’re trying to collaborate to find a new model, because the old model is not going to work going forward.”

Not all of the consortium’s members are actively looking for a new ERP system, but have joined the consortium because they have an “interest in a greater collaboration between private institutions,” Fowlkes said. In the future, member institutions could collaborate to create a shared services platform -- though those plans are decidedly “longer term,” Fowlkes said.

While one of the consortium’s goals is to save its members some money, Fowlkes said there are benefits for vendors as well. For one, he said, the consortium will give vendors a chance to market their products to colleges using competing software (the consortium plans to host a conference where companies can pitch their products). By negotiating with one organization rather than 57 different colleges, vendors will hopefully understand more clearly what small colleges are looking for, he said.

“We all understand that we’re in a tightening market,” Sam Burgio, executive vice president and general manager at Jenzabar, said in an interview. In addition to increasing the exposure for Jenzabar’s products, he said participation in the consortium can lead to savings for current customers. “If done right, it’s a win-win for both of us.”

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