The business model for higher education: II. How might it be fixed?

In the previous post,The business model for higher education: I. What doesn't work? , I described some of the approaches used by a fictional corporation, VPI, to create ongoing financial health, and looked at higher education’s use of similar approaches. The mainstay of higher education’s search for financial health thus far has been to increase price faster than CPI, while the use of other common corporate strategies has been quite limited.  This post uses the corporate model to suggest several approaches that might be useful in redefining the business model for higher education. In fact, many of  the things higher education might chose to do if it could not raise tuitions faster than CPI are things that already have been done at  many institutions at a relatively low level, or have been discussed widely.  For them to become a major component of the activities of higher education institutions, however, would require major changes in perspective and view of mission. 

COST CONTAINMENT

As in the case of VPI, cost containment will have to be part of the solution. Some of the possible components on the cost containment side might be:

Transparent budgeting by activity:  Many have argued that university budgets are purposely kept opaque so that no one will be able to tell what any one activity (e.g. undergraduate education, research) actually costs. Thus, the argument goes, no one can really prove that there is cost shifting from one activity to another. Consequently, the providers of resources cannot really tell whether the resources have been spent in the way they wanted, or have been “laundered” to support activities that have a higher university priority. Whether the argument is true or not, the lack of budgetary clarity on the costs of different functions e.g. undergraduate education, graduate education, and research, makes it very difficult to allocate resources efficiently, effectively and responsibly. Activities that grow well beyond their resource stream put great pressure on an organization. VPI would never dream of allowing a situation in which it did not know if its various divisions were making money or losing money.   With this knowledge in hand, VPI might decide that cross subsidization was appropriate, but it would do so after analyzing the benefits and drawbacks of such action.  Transparent budgeting by activity would, in my opinion, produce a revolution in the way universities are run.  We would understand that some activities require such large subsidies that we either should not do them, or do them in moderation.  Expensive fields of dreams would be harder to build! In the end, each institution would end up with a much more balanced portfolio that reflected the realities of its own strengths and financial situation. 

Administrative costs.  Some authors have speculated that lack of profit motive is one of the major enablers of rising costs in higher education.  Without the constant pressure of profit maximization, activities are not scrutinized regularly to see that they are performing as needed with the lowest possible use of financial resources.  Whatever the truth of that speculation, in my experience the administrative sides of universities are not run efficiently.  In part, universities exist in relatively stable states for too long, and consequently much of our structure is built to solve problems that have long disappeared, only to be replaced with new problems demanding new structures. Periodic from-the-ground-up restructuring of administrative services with industry level information technology to make the new structures almost transparent could result in lower costs and better services for students and faculty.  In addition, higher education seldom has industrial-strength performance goals for its managers, with the result that many managers need not, and do not, manage. Universities are, and should be, humane enterprises, but a misguided interpretation of this ethos has led us to tolerate incompetence on the part of many administrators that in turn makes the institution less humane for students and faculty.  Building a sustained focus on measureable performance outcomes for managers could lower costs and improve services.

Substitute inputs.  The model of researcher – teacher is a particularly expensive one. First class researchers move in an international market and thus command high salaries and demand enormously expensive research facilities.  Because they are expected to do considerable research, they typically have relatively light teaching loads, making the cost/student quite high.   In order to lower overall costs, and create the possibility of growing student numbers in a manner that has economies of scale, this model may have to be broken or at least modified.

Considerable education research does not support the idea that the excellent researcher is necessarily an excellent teacher at the undergraduate level, often because of lack of knowledge of (or interest in) the most effective pedagogical approaches.  A full time teacher (generally with Ph.D.) working under supportive conditions is more likely to be amenable to learning and using the most effective pedagogical techniques, thus improving student learning outcomes. Because teachers do not move in an international market, they command lower salaries than researchers, and because they are not expected to spend a major part of their time on research, they can teach more classes than researchers.  Thus there is a cost savings in this substitution, and very likely an improvement in student learning.  However, to maximize probability of increased student learning, there needs to be a teaching track that provides status, full time employment, appropriate job security, extensive opportunity to learn and improve pedagogical skills, career advancement, and careful monitoring of outcomes. As an additional benefit, if an institution had capacity to recruit and mentor faculty in an effective teaching track, it would have a greatly increased capability to expand student capacity in a number of different ways while simultaneously controlling cost and maintaining quality.

Of course, if all researchers are replaced by teachers, then the research mission of the university disappears.  That obviously is throwing out the baby with the bathwater. The researcher-teacher is irreplaceable at the graduate level in Ph.D. and similar research-focused graduate programs. It is also the researcher-teacher who brings great prestige to the university through his or her research. However, at the undergraduate level, and, indeed, in many skill-focused graduate programs research faculty could play a much restricted role in the classroom.  This would then allow the university to increase enrollment significantly in a number of programs without putting added teaching obligations on the research focused faculty.

No one-size-fits-all prescription is likely to be useful in determining the optimal mix of research faculty and teaching faculty.  Instead each institution should undertake a mission-driven strategic review that looks at its own aspirations and realities (e.g. desire to expand number of students, research expectations, desired student learning outcomes, resource constraints) to find a balance of research faculty and teaching faculty.  This is an area where transparent budgeting by activity could really be invaluable.

Question constraints:  Why is the “school year” still defined by a calendar defined by an agrarian society? As a consequence, enormously expensive facilities are greatly underused at least 25% of the year.   A related question – why do classes have the same length, and begin and end on the same days?A semester is not magically the correct period of instruction for all subjects. As distance learning enters the scene, holding courses to the same length with a fixed start date becomes less and less sensible (the misplaced concerns of the Department of Education regarding class hours aside). Why is four years the correct time to a bachelors degree? If one started over by defining what a student today should learn, and then constructed an appropriate curriculum, how long would it take for a student to reach the end?  This, of course, is the Bologna question – maybe we should ask it ourselves. If students come to higher education lacking a good high school background, are college faculty the appropriate group to bring them up to speed? Many universities are now using groups such as Kaplan to help bring international students up to the level of an entering US (or in the UK, British) college student.  This is cheaper and more effective than having the faculty themselves struggle with pedagogical problems that are rightly out of their realm.  Why not do similar things with the remedial problem?

INCREASING SALES

 

With all of this, as in the case of VPI, selling more of the product each year will almost certainly be necessary in order to keep the budget in line over time.  Selling more of the product for educational institutions basically means quite simply -teaching more students. As discussed in the previous post, simply teaching more students while expanding costs proportionally is a losing proposition.  The increased students must be taught in a way that does not carry over the huge burden of legacy costs that exist on our campuses – or helps spread those costs over a larger number of students.

I have always been greatly impressed with the way that Harvard has worked to broaden its student body beyond the typical undergraduate and graduate populations. Type “Harvard summer” into Google, and you get a long list of summer institutes, summer programs, summer executive education, summer schools, etc. that help to spread infrastructure costs over 12 months instead of the more typical 9 months.  Some Harvard schools have learned how to sell some component of their educational process to other educational institutions, e.g. case studies for the Business School.  There is a robust Extension School where one can get a bachelor’s or master’s degree from evening and online courses. Harvard, for all of its wealth, works unusually hard to broaden its educational resource base.  Most other schools do not have the name cachet that Harvard has, but most institutions could still find some useful ideas by looking at Harvard’s portfolio and mapping it on to their own areas of local, regional, or national strength.   

As mentioned in the first post in this series, both distance learning and secondary campuses that lack the enormous fixed costs of the home campus are potential ways to increase students in a cost effective way. Quality of such programs has always been an issue.  However, if there is a robust and expandable teaching track within the university as discussed above, teaching in these programs will not need to be “outsourced”, and quality maintenance should become much more manageable.     

But what to do with distance learning and secondary campuses?  Programs that focus on some measurable outcome, e.g. a degree or certificate generally are likely to be the most successful and supportive of the basic educational mission of the institution.  A more fundamental question is - at what student demographic should they be aimed?  It makes sense to look at populations of potential students that are increasing, and are relatively underserved at present.  Two such populations are:

Adult learners: One of the real growth areas for education in the future will be one that is relatively ignored by most of traditional higher education at present – adults returning for additional education.  They generally will have a pretty clear view of what they need to get from this additional education, and will demand programs meeting these needs rather than reflecting traditional disciplinary agendas. Sometimes they will be looking for degrees, other times for certificates, that demonstrate that they have a new skill to bring to the table. These learners have little interest in the expensive infrastructure that universities and colleges have built for undergraduates – residence halls, student unions, student affairs, and athletics, and won’t expect to pay for them.  They will demand institutional flexibility in course delivery, both in location and in time, in order to accommodate their packed schedules.  Both distance learning and secondary campuses may be more appropriate to meeting these demands than the traditional campus, and provide an opportunity to segregate off the high infrastructure costs of the main campus.  This is a group that has not been a part of the traditional core mission of most of higher education, but it may be time to break out from the narrow educational mission that focuses primarily on the 18-22 year old full time residential undergraduate student.  In other words, to really embrace the idea of lifelong learning as part of our core mission.

International students:  The major increases in demand for higher education are likely to be abroad, predominately in Asia. The greatest demand is probably going to be for high quality education in the home country of the student.  As a consequence, this increasing demand is not likely to be reflected in major increases in international students coming to the US.  To tap into this growing demand in a significant way is going to require going to the students in their home countries. Doing this on a large scale will be a complex undertaking, to be sure, since universities generally lack most of the infrastructure needed to successfully mount a quality educational program at a distance from home. Still, many universities such as the University of Liverpool in England, NYU in the US, are actively engaged in institutional capacity-building experiments in creating quality education in other countries.  The approaches used by these two institutions are quite different, reflecting their differing situations and strategies.  Any large scale effort to educate international students offshore certainly should be part of a strategic vision of the overall globalization of the institution and its mission.     

The reader can certainly suggest other demographics where demand for higher education will be growing.  However, like the above examples, they are likely to be areas which do not lie in the core mission description of most institutions at this time. In general, significantly increasing the number of students taught will require considerable institutional effort and some resources.  This will happen only if the mission itself evolves to recognize these other populations as belonging to the center, and worthy of as much attention and effort as the current students.  

 

 

 

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