Many of the anecdotal reports I’ve heard from higher education clients and colleagues this year seem to have a common theme: either enrollments were down or the cost of meeting enrollment targets was higher due to increased discount rates, marketing budgets, or both. Either way, colleges are facing significant pressure on the bottom line. Responses have varied, but reducing staff and cutting operating budgets have been the tactics used by many to address their financial challenges. Some institutions without good predictive models or financial forecasting tools have struggled to determine exactly what financial shape they would be in by year-end. In some cases, boards and management teams were surprised when various financial ratio requirements were not met and the institution faced pressure from bond trustees or the Department of Education.
Is there a better way for colleges and universities to respond to a difficult economy and the effects of recession? I found a recent article in the Harvard Business Review intriguing. In Roaring Out of the Recession (HBR, March 2010), authors Ranjay Gulati, Nitin Nohria and Franz Wohlgezogen posit that how organizations deal with forces of recession will ultimately affect their future financial strength. While their research is with private business enterprises, I believe the results may apply equally to colleges and universities. In short, their research demonstrates that “companies that focus simultaneously on increasing operational efficiency, developing new markets, and enlarging their assets bases show the strongest performance, on average, in sales and EBITDA growth after a recession.” Would it then hold that colleges and universities that do the same would have increased tuition revenue and operating margins?
For those of us in higher education, what would “improving operational efficiency, developing new markets and enlarging assets bases” look like? How difficult is that in the private, non-profit institution, where a governing board has the ultimate authority and responsibility and we operate under a shared governance model? How can we make that happen in an institution that has limited staffing and cash?
I would enjoy hearing your thoughts and experiences on this topic and how colleges and universities might best use this research as they prepare for better days ahead.
Originally posted April 20, 2010