Turnarounds are cyclical events at most tuition-driven colleges as enrollments grow and provide excess income, then tail off, draining reserves from the growth period. Financial data over the past decade reflects this porpoising effect showing how colleges pop above zero net income and then soon dive below the surface. Most colleges accept this precarious existence as just a fact of life. Sometimes internal or external events conspire to send the college into an extended period of deficits soaking up all reserves and exhausting its short-term borrowing potential, pushing it to the very brink of its existence. This is when boards, presidents, alumni and others see turnarounds as a necessity for survival. The issue is: What do the college’s leadership and friends have to do to turnaround a college in dire straights? This question necessarily means that the college must devise a way to set itself on a course where its existence is no longer defined by bare survival at the margin. Successful colleges build resources so that future generations can count on a reputable education that imbues its graduates with the skills to meet life’s challenges.
Turnaround strategies that have a better than even chance of driving a college toward long term stability are built upon these half-dozen principles:
- Presidential leadership that is market savvy is a necessary condition for a turnaround. This requires a president with the personal skills to change the dynamics and culture of a college and the experience to know how to deliver what the market wants. The board must make sure that its president has these skills and must be willing to pay the going price to find the best person to lead the turnaround.
- Top quality leadership team in skilled positions – chief academic officer, chief financial officer, and chief marketing officer – is a critical secondary condition for the turnaround. Good presidents, great plans, strong financial support, and board commitment for a turnaround can be thwarted by mediocre leaders in the skilled positions. Effective change means that these chief officers must get others to do their work well, have the perspective to know what works, and the technical experience to know the right course of action.
- Support for presidential leadership and willingness to implement change is the primary responsibility of the board. The board must not use tradition, personal interests, or intrigue to inhibit strategic change. If the board looks to revive a long dormant culture that is neither relevant to current markets nor pertinent to improving the college’s financial position, then the turnaround will never make headway. The board must make it patently clear that it supports the president’s strategy. If some board members find the president’s strategy unpalatable then they must seriously consider moving to the sideline given that the strategy is reasonable and ethical.
- Process makes change legitimate by involving internal and external constituencies vital to the turnaround in the design and implementation of the turnaround. Nevertheless, process must not divert the direction nor act as a break on the pace of change. The president must assure that the constituent process expeditiously acts to formulate a realistic and timely strategic plan.
- Reliable and valid data to test strategies are imperative so that the board and president can figure out what is available, what could work, and what is needed to make it work. In some ways, putting together a reliable and valid data set can be as daunting as process and leadership. Data at most colleges and in particular at schools in severe financial straits is poorly maintained if it even exists. For example, enrollment data in the registrar’s office is usually not reconciled against revenue reported in the audit. As a result, it is frustrating to build an accurate forecast model on enrollment data that that is out of sync with the financial data. Another area where data and audits are not in tune is expenses. At the end of the audit, the business office is handed changes that must be booked to the ledgers. However, these changes are not made to the budget reporting system, which is the source of detailed expense information. Time and extensive effort must be expended to get precise financial data.
- Money to underwrite the turnaround is essential if it is going to have a reasonable probability of success. There are few instances where the confluence of good luck, a clever president, and a market ripe for new educational services have taken a college from death’s door to financial stability. In most cases, money was also needed to buy time, top quality leadership and professional support to get a turnaround rolling. The board has a key role in finding quick cash – either from their own generosity, from alumni or friends of the college.
These six principles can be summarized as the right people in the right place at the right time with enough new cash to take reasonable risks to kick start the turnaround. Although these half dozen rules do not guarantee success, they do compile practices that have worked in producing successful turnaround strategies. If the president, board, and community work together in good will and concentrate on the turnaround, they have a good chance of turning around even the most moribund institution.
Originally posted March 16, 2008