This article is part of a series on the financial challenges facing colleges and universities amid the coronavirus pandemic and the need for proactive strategies.
There is no doubt that Covid-19 will drastically alter higher education, but how will academic leaders respond? At the moment, they are just beginning to develop strategies for different financial models and for on-campus and online programs. Amid such a panic, leaders tend to move toward the mean in terms of their strategic response. Following other institutions’ leads appears to be a safe choice in the short term, but one that, I would argue, comes with risk and opportunity costs.
The pandemic offers an opportunity to break from the norm and elevate your university to new levels faster in the wake of this crisis.
The pandemic offers an opportunity to break from the norm and elevate your university to new levels faster in the wake of this crisis. That doesn’t mean that typical strategies might not work on your campus, just that you will need to consider your unique mission, positioning, financials, and culture in determining your own path forward.
Past recessions offer guidance. According to McKinsey & Company and the Harvard Business Review, the most common approach in a recession has been to conserve cash, cut expenses, and put major initiatives on hold. In some cases, that certainly may have been the best approach, but other organizations that seized the opportunity to make strategic investments achieved superior results.
Below is a summary of recession tendencies and my corresponding recommendations for higher ed.
“Our work goal should be to just survive.”
During times of crisis, it is natural to hunker down, strive to maintain any current momentum, and avoid additional distractions or disruptions. While working to control costs is a good idea in any situation, pausing on strategic initiatives could jeopardize growth and long-term institutional health. In addition to taking advantage of pauses in industry activity, making moves during this time can result in the exponentially faster growth that occurs during recovery from a recession that is all but inevitable. The key, companies have found, is to focus on your core brand, stay connected to your customer base, and increase awareness of the value you offer to ensure that as the recession ends, you will be top of mind and gain competitive advantage.
How will this play out in higher education? In a recent survey of college and university presidents, 75 percent said they were likely to “hunker down and ride the storm.” That means that only 25 percent are planning to continue executing their strategic plans or investing more. Theoretically, the cost of acquiring new customers (students), competencies (academic and administrative), and even other companies (universities) is greatly reduced during recessions.
The starting point will be to examine the top opportunities for differentiation. First consider online education. Over the past decade, large new players like the University of Phoenix and Southern New Hampshire University have had success winning students away from more traditional offerings. Slowly, incumbents have responded by offering online programs to nontraditional students and delivering more online options to residential students. One twist on this model was Purdue University’s acquisition of Kaplan University, pairing a company that has large-scale online delivery competency with a well-known education brand. Even Harvard has significantly expanded its online offerings – primarily as new programs while maintaining its core residential curriculum.
As colleges and universities have struggled to devise policies to respond to the quickly evolving situation, here are links to The Chronicle’s key coverage of how this worldwide health crisis is affecting campuses.
This is the time to examine your mission and vision statements for differentiation. It’s time to move beyond rote recitations of “teaching, research, and service” and “excellence, student-focused, and world-class.” What does your university offer that is uniquely different and valued by some segment of students as well as employers? It could be pricing, delivery, content, collaboration, access, results, research, athletics, partnerships, or culture. Many universities are good at this, of course, but too many sound alike when you read their strategic plans.
One of the best examples of a university seeking and delivering a differentiation strategy is Arizona State University’s ambitious goal of redefining the “New American University.”
Michael Crow and his leadership team have transformed ASU along the lines of inclusion and public value – a different as well as different kind of university. The results have been astounding. The university has grown its student base from 57,000 in 2003 to 119,000 in 2019, primarily by expanding online education — both organically and in partnership with employers such as Starbucks. Look for ASU to continue on that path and expand its growth through the anticipated recession, perhaps with students all over the United States and many local “branches.”
As your campus seeks to differentiate, keep in mind that its uniqueness must resonate with students and speak to the value it offers. Focus on only a few areas, not everything, and invest during the recession toward that vision. You can fuel such strategic investment through endowment drawdowns, growth in enrollments (especially online), and even debt as the cost of capital is extremely low today.
“We should implement across-the-board cuts.”
If I were to present you with a strategy that does not reflect the priorities of your institution and does not achieve your particular goals, but is easy, fast, and appears “fair” to everyone, would you do it? Not likely. And yet this is exactly what many campuses are hurtling toward with across-the-board cuts. In the recent presidents’ survey, 55 percent said they were planning to execute across-the-board cuts. That risks underinvesting in the most critical aspects of your university, and inflicting unnecessary pain on faculty, student services, and research. Of course, there may be logical candidates in those areas, but careful thought should be given as to where, within academic and administrative spending, the cuts should take place.
To make cuts more strategically, you need data. At most universities that means leaning on your institutional research department and increasingly, analytics groups. In 2015, Ken Kaiser, the chief financial officer and treasurer at Temple University, and his team set out on such a journey. They began analyzing their administrative costs to find opportunities to streamline operations and free up resources to invest in the core mission of the university — teaching and research. The first step was to organize their internal data around key administrative activities on campus, both in terms of spending and full-time equivalents. By doing so, they were able to calculate their “Administrative Intensity Measure,” or AIM — the percentage of administrative labor as a percentage of total labor.
They learned that their AIM rate was 18 percent below their peer average. Kaiser then dug down into administrative activity and subactivities and was able to free up more than $23 million over the past three years. Temple introduced cuts to IT, general administration, and finance, and invested the savings in academics, mental health, campus safety, and academic and career advising. Kaiser plans to continue to avoid across-the-board cuts this time around and will do surveys to ensure quality as well as efficiency. “We are indeed asking all the units to seek ways to cut costs for different scenarios, such as 2 percent less, 5 percent less, etc.,” he said. “But they can also suggest where they wouldn’t cut but even grow investment.”
“Significant layoffs are necessary.”
In the recent survey of presidents, 72 percent said that layoffs or furloughs would be necessary. That is a natural tendency but also a risk to their institutions. It’s challenging to make the right layoff or furlough decisions quickly, especially with inadequate data on necessary work-force levels, performance assessment, and the impact of such moves. Furthermore, recessions are perhaps an institution’s best opportunity to hire top talent, given unemployment levels and the layoff activity of competitors.
The University of North Carolina at Chapel Hill has been preparing for such decisions for many years. Linc Butler, associate vice chancellor for human resources, has worked with his leadership team to increase the quality of personnel-evaluation data, streamline processing, and standardize position descriptions. The university also uses data from ABC Insights, the university consortium that I co-founded to compare human-capital investment across areas. “As we look at HR staffing across campus, we focus on ensuring that we have the right people doing the right jobs,” Butler says. “Our focus has been decreasing compliance/transactional positions in favor of more strategic/analytical positions wherever possible.”
Unless you have thoroughly examined the structure of positions across your campus, you should wait to pursue layoffs or furloughs. You are probably overstaffed in some transactional areas, light on strategic/analytical capabilities, and have too many “supervisors” with a very small span of control. Instead of rushing into layoffs, consider this an opportunity to reposition personnel to modernize your institution.
At Kent State, for instance, Mark M. Polatajko, senior vice president for finance and administration, requires a business case for every new hire related to value-add and fit within the organization — including whether too many people are doing the same thing. Such universities may have a leg up on the challenges ahead, but all institutions will face long-term consequences if they make short-term personnel actions.
“Cutting R&D is a good idea.”
In past recessions, private companies have generally seen R&D as one of the easiest places to cut costs. Accompanying that is usually an increase in emphasis on low-risk, short-term projects. Fortunately, the survey of presidents indicates that only 40 percent are likely to freeze or cut R&D (defined as teaching and research). The remaining 60 percent plan to maintain or even increase investment in these critical areas. McKinsey found that higher-performing companies especially focused R&D on creating new or modifying current services to meet changing customer needs.
What does that mean for higher ed? Strategic university leaders will use the opportunity to advance gains in areas that they have been considering or create new offerings that are needed now more than ever. An obvious area would be online education. Universities must find creative ways to compete in online offerings on a continuing basis as large online players in higher ed will very likely grab even more national market share over the next few years.
Another area where universities could move forward is partnerships with private industry — both in terms of designing more relevant academic degree and certificate programs as well as in co-investing in knowledge development and intellectual property with commercial applications in mind. This could be the ideal time to break down institutional silos between units and disciplines on campus for the greater good.
That philosophy has been at work at UNC at Chapel Hill. Its current strategic plan, initiated by Carol L. Folt (who now leads the University of Southern California), focuses on “innovating for public good” based on two pillars: “Of the Public, for the Public” and “Innovation Made Fundamental.” A key priority of the plan, as finalized by current Chancellor Kevin M. Guskiewicz and Provost Robert A. Blouin, is to continue to expand high-impact research, which has grown significantly over the past 15 years, even through the Great Recession.
As Holden Thorp, former chancellor of the university and now editor in chief of Science, puts it: “While others were freezing all hires and cutting research programs, we saw the opportunity to make some strategic moves that wouldn’t have been possible in a normal situation. Our state supported us through this, and we ignited many new priority research areas with great faculty hires that paid dividends over the next decade.”
Shown below is the research trend at UNC-Chapel Hill over the past 15 years. Note the spike in 2010 that came as a result of key faculty hires in 2009 and 2010. The university also benefited from the American Recovery and Reinvestment Act. It received $4.5 million from ARRA in 2009, $126 million in 2010, and $55 million in 2011, before tapering off. While the current federal stimulus act does not provide anything like that level of support, there’s still hope: Congressional leaders are signaling needs for additional funds.
So don’t cut your most important strategic priorities. To be fair, there are probably parts of your priority areas that could be trimmed (like low-impact research areas or low-enrollment academic programs), but I recommend finding ways to invest in your core mission.
“Adopt continuous improvement.”
Continuous improvement and related methodologies from the business world have been sneaking their way into higher education with great success (with some faculty resistance to “corporatization”). According to Brian Fairhurst, director of continuous improvement at Florida State University, and Kyle Clark, vice president for finance and administration, their institution has achieved considerable results in redesigning processes and using data for better decision-making. But what exactly is continuous improvement?
“Continuous Improvement is a gradual, never-ending change … focused on increasing the effectiveness and/or efficiency of an organization to fulfill its policy and objectives,” according to the Chartered Quality Institute, an organization of quality-management professionals. “Put simply, it means ‘getting better all the time.’”
In 2014 the State of Florida launched an aggressive strategy to improve the effectiveness of its public universities while controlling its resources. It imposed performance-based budgeting and required all universities to align strategies and metrics accordingly. Florida State University created a board-supported efficiency-and-effectiveness committee with a clear mandate: Raise the national ranking of FSU, decrease administrative spending, and invest strategically in academics.
The committee — comprising finance, administration, and academic-affairs representatives — developed a plan centered on continuous improvement. That included project management of enterprise-resource planning, PeopleSoft modules, human-capital teams, and extensive metrics creation and reporting. Key success factors were active leadership participation, quantification of improvement opportunities, consideration of quality impact, and continuous communication across campus.
The results? FSU now ranks 18th among national public universities, according to U.S. News and World Report, well exceeding its goal to become a top-25 public university. U.S. News calls FSU the most-efficient university in the nation. Kiplinger’s ranks it as the fourth best-value public university for out-of-state students. The university has also generated some $300 million in savings since July 2014, money that has mostly been invested in more than 200 new faculty positions and programs. Adopting continuous improvement is a worthwhile pursuit for all universities.
As economic headwinds become stronger, college leaders must avoid predictable, knee-jerk reactions and craft the right strategies for their campuses. If they do, this may be a time of bold moves and positive transformation. To get there, we must avoid biases toward short-term thinking and safe, low-stakes strategies. Higher education will survive the pandemic and looming recession, but the creativity and boldness of its leaders will go a long way toward determining what it looks like in the future.
