By Mike Townsley & Bob DeColfmacker, Senior Consultants
Stevens Strategy, LLC
Last year was the 50th anniversary of the Woodstock Music Festival and an appropriate time to reference Bob Dylan’s 1964 hit “The Times They Are a Changing.” The song was an anthem to the tumultuous 1960’s, and its simple lyrics and message became a rallying cry for millions of youth seeking change in American Society. And it was true then, as it is today, that at times there are significant waves of disruption to our social order, government policies and operating environments. Here we are again.
For those who govern and manage colleges and universities, once again, the times are changing. The operating environment for colleges today is turbulent with many schools facing enrollment challenges, financial difficulties and increased competition. Some question their ability to remain solvent or have already shuttered. At a minimum, these challenges require a sharper focus on governance and management, and in some cases, a complete overhaul of a governance structure. This is not a temporary blip. These are long-term, dynamic, structural changes that require us to manage and govern in different ways. Just think of the past decade; physical newspapers have almost disappeared, many shopping malls are emptying, retailers are experimenting with drones, video gaming is becoming an intercollegiate sport, and we all carry a portable device that can call, take pictures and search the world in a few keystrokes. We can’t run away from the future, but we can shape how we adapt.
And what’s different now? The “3D’s” are now colliding in a “perfect storm” impacting higher education: Demographics, Disruption and Dysfunction. Of the three, we have limited control over two and significant control over one. Taken together, these forces often overwhelm a weak management and governance structure, especially for institutions that are less nimble, lack a well-analyzed strategic plan with appropriate capital or suffer from weak leadership. If this sounds like your institution, it’s time to batten down the hatches, pay close attention to the radar and prepare to change course. What follows is a quick review of what to expect.
The Y-2K recession, the 9/11 recession, and the deep financial crisis of 2008 were heavy blows to endowments. Many colleges faltered, but they slowly recovered. Now, a demographic melting away of prospective student pools threatens to devastate the financial reserves of many private colleges, in particular, small, tuition-dependent colleges. The future does not bode well for many private colleges in this decade as they struggle to maintain financial viability in the face of a decade long collapse in the prospective student pool.
Some of the most recent work completed, published and presented by Dr. Nathan Grawe, Professor of Economics at Carleton College shows a troubling demographic future for many postsecondary institutions. Among some of trends:
· Both the total fertility rate and total number of births in the United States declined significantly between 1985 and 2019. Specifically, there have been 5.7 million fewer births between 2008 and 2018 than if the birth rate in 2007 had held steady over that period.
· Between 2017 and 2032, the projected number of college-going students will decline significantly for 2-year institutions and regional 4-year institutions. While national 4-year institutions may fare better in the long run, they also face significant enrollment challenges between 2025 and 2030. While they also will face some ups and downs in demographics, elite 4-year institutions will see an increase in the projected number of college-going students between 2017 and 2032.
· Geography does matter. The Northeast will see significantly more challenges than other parts of the nation.
Other factors will be at work. Students may choose not to enroll in college due to the high cost of a degree, their level of debt or expected decreases in future earnings for some majors. Enrollment specialists have known for years that schools also compete with the labor market, and in a strong economy like our current one, young people often forsake education for the gratification of immediate earnings.
With tuition being the primary financial driver for so many schools, boards and management teams today need a detailed and predictive geo-demographic analysis of the direction of their current student markets. It’s blasphemy on certain campuses, but a campus master plan today may include downsizing or “rightsizing” physical space, creating an “E-Sports Arena” or even locating in a shopping mall.
Just recently, Moody’s Bond Rating Service wrote a note suggesting that Southern New Hampshire University’s articulation agreement with Pennsylvania’s Community Colleges will be “Credit Negative” to Pennsylvania’s Four-Year Universities. Yes, that’s the same SNHU that spends millions and millions on nationwide marketing and advertising. Think about that. A formerly small, on the cusp university in small city New Hampshire now has the ability to impact the credit standing of an entire group of a state’s colleges. SNHU, boldly and successfully seizing on the disruptive force of technology and a market of adult learners left almost stranded over the years by traditional colleges and universities, has a nationwide, online student population of well over 100,000 students and is now opening a western operations center. This did not happen easily. It required significant capital, dynamic leadership and a board willing to understand and support these high-risk changes. (Disclosure: Bob DeColfmacker served on the SNHU Board of Trustees during this time and knows full well the great effort, capital and risk it took for SNHU to become a nation-wide university). Similar to financial services decades ago, state boundaries are now disappearing for college and universities. Terms like learning management systems, adaptive learning software, predictive analytics, call centers, speed to lead, and hybrid delivery are all part of the new world of college management and governance. Technology is now shaping the way we deliver postsecondary education to an increasingly broader audience.
And this won’t be limited to long-distance, adult learners. The next revolution may well be the disruption of the traditional campus model, like Stevens Strategy’s Chronos University concept, allowing residential students to take a good portion, or even all of their courses, online. Ask this question: does your board receive education and updates on the disruptive forces that may have an impact on your institution?
So, in the case of demographics, we have little control. If your institution is on the leading edge of disruption (which we might add is risky and expensive), we may have a bit more control. But we definitely have control of the functions or dysfunctions of our management team and board. Collectively, we’ve sat through thousands of hours of board meetings, as Presidents, Trustees and Board Chairs. In days past, the agenda was routine, the reports were familiar and many items on the agenda were already vetted by a board committee before being presented a second time to the full board. Often, the reports by area Vice Presidents reflected the good news items, and often there was not time for a more thoughtful discussion and analysis of the bad news. That board model is no longer effective today, and we think it’s also dysfunctional. Today’s boards need predictive, university-wide metrics and dashboards, received in a timely manner. Financial and quality metrics and targets should be set by Trustees and routinely reviewed. There should be significant time to discuss routinely mission and strategy. More time needs to be spent discussing what will happen as opposed to what has happened. Boards need to accept that they will be risk partners, along with their Presidents and management teams. There will be more risk, difficult decisions and financial commitment; all will be necessary to secure sustainability. Many of the dedicated and well-intentioned trustees with whom we’ve all served have seen the university through the lens of their own undergraduate experience a decade or more ago and manifest a board culture that is equally dated. It’s time to rethink board culture, board structure and board roles and responsibilities.
Today’s trustees must be up to governing in this new and more challenging environment. To succeed, they need to face the 3D’s of Demographics, Disruption and Dysfunction as well as the 3K’s.
Know their institution’s markets,
Know their institution’s industry, and
Know their institution’s culture.
1Grawe, Nathan, Demographics, Demand, and Destiny: Implications for the Health of Independent Institutions, 2020, National Vital Statistics Reports, Various Years
2Grawe, Nathan Demographics, Demand and Destiny: Implications for the Health of Independent Institutions, 2020, Data from 2017 American Community College Survey, Centers for Disease Control and Prevention, National Vital Statistics Reports, 2009 High School Longitudinal Study and the Panel Study of Income Dynamics
3Grawe, Nathan Demographics, Demand and Destiny: Implications for the Health of Independent Institutions, 2020, Data from 2017 American Community College Survey, Centers for Disease Control and Prevention, National Vital Statistics Reports, 2009 High School Longitudinal Study and the Panel Study of Income Dynamics