Business issues

As institutions outsource they should keep their mission -- and the vendor -- close

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What factors should institutions weigh as they consider outsourcing services?

Moody's reports portray stabilizing higher ed finance picture

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Moody's reports find fiscal stress generally moderating for higher education institutions in 2014, but 1 in 5 colleges remain vulnerable. The have/have-not gap widens.

Small private colleges need to confront their financial viability (essay)

The announcement of the closing of Marian Court College, with faculty disclaimers (“didn’t realize it was as dire as it was,” and the president’s dreaming (“hopeful the college would remain open”), should pull us back to the realities that have been set out very clearly for years -- by the Bain Report, by Clayton Christensen, by Thomas Frey, by Nathan Harden, by dozens of others:

Many, many colleges are working with a business model that simply cannot sustain them, and tinkering around the edges with defective enrollment management software, combined majors, a part-time (as yet unaccredited) M.B.A., or Saturday classes is almost a distraction from the main challenges of shrinking demographics, low-cost online instruction and skills validation, and the imminent tightening of government money that has been pouring into the mix.

The problem is compounded because so many college leaders can barely discern the symptoms of the malaise and are blind to their underlying, rampant and immutable causes. It is only natural that those who have trained to manage the status quo first and foremost long for its return. In no other industry -- with the possible exception of organized religion -- is so much wealth entrusted to people so unequipped to manage it.

The shock is not that the college closed -- it is that no one saw it coming.

But Marian Court was not unique. It was among the country’s vulnerable institutions, and there are hundreds of them: tuition dependent, with enrollments under 1,000, small or shrinking endowments, significant tuition discounts, high admission rates with low yields, and low retention rates.

St. Bridget’s also fits these metrics. It is a private, coeducational, not-for-profit liberal arts college in the Northeastern U.S.: a fictional composite based on real institutions like Marian Court -- some now closed and some that will close, although they don’t know it yet.

What all have in common is the lack of a full grasp of their true financial situations.

As at St. Bridget’s, at many institutions the administration and even the Board of Trustees will claim they did not have all the necessary data and did not recognize the looming threat to the college until it was too late.

And faculty -- who work with research and analysis every day in their professional lives -- may not have asked the right questions, or did not insist on honest and complete answers.

How many could not bear to put aside that tenure-track research on Theosophy or the ring-tail lemur to learn about boring subjects like deferred maintenance, debt overhang and bond interest rates? Surely some were living on hope: “next year our enrollment numbers will be up,” or “we’re in line for that federal grant that will help us attract veterans.”

Others may simply have been in denial. (How many women’s colleges have stated categorically, “We are not like Sweet Briar”?) But questions of financial health are of vital concern not only to presidents and chief financial officers, but to all whose lives are tied to the college. And any lack of focus is doubly distressing because there exist rough but impartial guides and stress tests that are open to all and can indicate, in general terms, a college’s level of strength or weakness.

But until all constituents consider the future of the campus to be their future, we will see more cases -- certainly dozens, probably hundreds -- like Marian Court (and St. Bridget’s). And more academic professionals will be reading untimely and distressing letters like this one:

From the President of St. Bridget’s College to the College Community

Regrettably, I have bad news about the financial situation of our college.

You all know of our difficulties. Reflecting the numbers from earlier years, last year we accepted 75 percent of all applicants, but only 35 percent of those accepted actually matriculated. And we lost 23 percent of those after their first year. In order to attract qualified students to St. Bridget’s, we had to offer discounts averaging 51 percent of tuition and fees.

In spite of our best measures, our enrollment has dropped by 38 percent over the past five years. Nevertheless, the structure of the college remained the same, and we added some administrative positions to stay within best practice and the law mandated from Washington.

When I took office eight months ago I discovered that the college’s finances were not as they had been painted. On the surface, it looked like we were breaking even: just covering our expenses with tuition-derived income.

But we were misleading ourselves.

During our past fiscal year, while the U.S. stock market rose by nearly 14 percent and the average college endowment earned 15.5 percent, the St. Bridget’s endowment showed an increase of only 2 percent.

In fact, we were spending all tuition revenues and nearly all the income generated by the endowment to keep the college operating. For the past three years, as enrollment dropped, we depended on earnings from our endowment in a strong stock market just to stay alive.

We don’t know if the past president understood this, nor do we know if the question was ever raised in a board meeting.

But now the stock market is weakening. As I’d like to think you all know, following five years of nearly free funds, the Federal Reserve has decided to tighten money supply and raise interest rates. The stock market is losing momentum; our endowment is generating a fraction of last year’s income; student loans will become more costly; and even fewer parents are comfortable borrowing $25,000 to $30,000 per year for a St. Bridget’s education.

We now find ourselves with an operating shortfall of nearly $4 million for this fiscal year. We also have bonds coming due in the amount of $1.5 million, and deferred maintenance on our physical plant that will cost upwards of $750,000. If we pay all this out of our endowment, we deplete that fund by more than one-third and severely limit its ability to generate income in the future.

Moreover, within our current structural model it will be impossible to find savings of $4 million beginning in the next fiscal year, in order to urgently balance the books. To accomplish savings of this magnitude will, at very least, require radical and immediate surgery. This would mean:

  • Eliminating some departments
  • Eliminating some programs
  • Cutting administrative staff
  • Reducing remaining faculty and staff salaries by at least 20 percent
  • Eliminating all college contributions to retirement and tuition plans
  • Selling some of the college buildings
  • Reducing student services

Taken together, these measures might put our accreditation in jeopardy. Our bond rating by Moody’s might drop even lower, and we would be forced to pay higher interest rates to borrow or to roll over current bonds.

It is with this reality in mind that the Board of Trustees meets this weekend to make major decisions that will impact the future of the college. I ask for your support and understanding in these difficult times.

Aden Hayes is executive director of the Foundation for Practical Education.

Chief business officers must broaden their skills and roles (essay)

The role of the chief business officer is changing (and expanding) dramatically, and current and prospective CBOs must broaden their skills and approaches, write Thomas Ayers and Karen Goldstein.

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After 18 months of talks, two Roman Catholic colleges in Western NY decide not to merge

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A year and a half after they began talks about working more closely together, St. Bonaventure University and Hilbert College decide against a merger.

Consumer Financial Protection Bureau urges colleges to look more closely at bank deals

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Feds eye new guidance for colleges that want to enter into agreements with financial institutions to offer banking products on campus.

Public universities don't have to comply with California minimum wage laws, but some are and some aren't

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As voters and politicians in California's expensive Bay Area push higher minimum wages, at least two public universities aren't paying it.

Universities should stop being all things to all people (essay)

I always thought it was strange to walk into drugstores and see cigarette cartons piled high as mountains behind the cashier.  After all, I come from Ontario, Canada, where you can’t buy alcohol outside of special Liquor Control Board of Ontario stores.  (Beer, it should be noted, is also available throughout the province at “The Beer Store” -- a name that’s even clear enough for beer-addled Canadians like Bob and Doug MacKenzie.)

So when I heard that CVS, the large drugstore chain, had decided to stop selling cigarettes, it was as obvious to me as the eventuality that the successful ALS “Ice Bucket Challenge” campaign will one day be co-opted by our new enemy in the Middle East (the “ISIS Bucket Challenge”).

Drugstores and pharmacies are supposed to further health. Promoting smoking does not. One health care industry professional quoted in The New York Times said: “Think of it this way: Would you find cigarette machines or retail stores in the gift shops in a hospital selling cigarettes? Of course not. I think it does give them a leg up.”

CVS announced the move along with a new name: CVS Health. CVS has moved from selling health care products to delivering health care services. It currently operates 900 “minute clinics,” where health care professionals deliver simple services like administering flu shots and prescribing antibiotics for garden-variety ailments.

It’s nice when organizations decide what they want to be when they grow up and then execute that vision. Too many institutions try to be all things to all people. Like colleges and universities.


***

Colleges and universities license their brands for many products that don’t have much to do with higher education.

There’s the BC hockey table (Go Eagles!):

The Emory rug (Go Eagles, again!):

 

UT duct tape (if you can’t hook ‘em, tape ‘em):

And UNC fragrances (smell like tar, or like a heel):

 

The news last week was that universities are licensing their brands to Kraft for Jell-O molds.  While Kraft launched the university Jell-O product last year (to massive demand, apparently), 16 more institutions have been added, including these:

It’s clear to me exactly how this happened.  All universities have trademark licensing offices.  Many of these schools already license their brands for shot glasses.  It’s a small step from shot glasses to Jell-O shot molds. Of course, this isn’t what the universities are saying. A spokesperson for University of Georgia said the molds are not specifically marketed for alcoholic shots:  “Our look at it was plain and simple. Jell-O is a reputable product that has been on retail shelves for years.  What we don’t control is the individual end user and what they use the product for. What the product was designed for is gelatin.”  Or this from UNC:  “The conclusion was that the Jell-O mold was a family- and fan-friendly product that shows school pride.  It was consistent with other recently approved products, including a school-branded line of Pop Tarts.”

***

News coverage to date has focused on the mixed message the product sends to students who are subject to university policies and educational programs for alcohol and binge drinking. But how about the link between the Jell-O shot economy and the phenomenon of the six-year degree that is already too prevalent at the aforementioned institutions?  A new study from the New York Federal Reserve shows that the return on investment from a 6-year degree is 40 percent less than that on a 4-year degree.

Then there’s the question of the purpose of trademark licensing.  While universities undoubtedly have valuable brands, their mission isn’t to maximize revenue across multiple product lines. What is their mission? Based on a scan of Jell-O-brand universities, 60 percent fail to mention students AND learning in their mission statements (and forget about outcomes, tuition or return on investment, which are nowhere to be found). 

Higher education mission statements tend to be multifaceted, complex and vague. Most include knowledge dissemination and research. Many include statements about furthering the public good. Often, there are so many bottom lines there’s effectively no bottom line at all. This makes it difficult for trustees to ascertain whether officers (or trademark licensing offices) are doing a good job and to exercise appropriate governance.

Like CVS, universities need to stop trying to be all things to all people. If their mission involves students AND learning, they should look at their current over-broad roster of activities and begin to cull those that are unrelated. They should also consider eliminating those that may be related, but where they do a poor job. See last week’s New York Times feature on how specialized institutions like the Fashion Institute of Technology or Harvey Mudd College punch well above their weight (in terms of rankings) when admitted students choose between a specialist and a generalist.

Institutions counting on licensing revenue from Jell-O shots and other products may find it difficult to focus solely on student learning. And nearly all institutions find it difficult to specialize. 

CVS faced the same decision set. Cigarettes represented $2 billion in annual sales. It was hard to walk away from that. 

But CVS made the strategic decision that they were in the business of health, a decision that ought to have a financial payoff down the line, according to an industry expert quoted in the Times: “When you stop selling cigarettes as a retailer, it sends a very big signal to the rest of the health care community that you are in the health care business. I do think that it’s going to open up many possibilities in all of the partnerships that they’re trying to create across the country.”

Ryan Craig is a partner at University Ventures, a fund focused on innovation from within higher education.

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Chegg takes to social media after receiving cease and desist order from Southern Connecticut State U.

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Southern Connecticut State tells Chegg that university's contract with Barnes & Noble bans anyone else from marketing textbook rentals to students.

 

A North Dakota university looks to partner with and maybe buy a for-profit consulting firm

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A small private college gets very close to financial firm -- and hires its founder.

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