From Survival to Sustainability

You may think things are bad now -- and you’re right, they are. But today’s economic concerns are obscuring what may prove to be even bigger strategic challenges ahead for higher education.

Everyone knows that we’ve entered a period of profound anxiety and uncertainty. Everywhere we look -- from this publication’s own headlines, to university cabinets’ strategy sessions, to our now more thinly attended professional association meetings -- we see people devoting tremendous amounts of energy to the work of decoding the economic predicament in which we find ourselves. We’re working feverishly to understand what this economic downturn will portend for everything from bond financing to financial aid to endowment management to enrollment performance, and much else besides. In many respects, our key focus right now is survival. We are striving to protect the core of our colleges and universities. And we are hoping that higher education may yet again prove to be counter-cyclical to prevailing market conditions – a rare winner in the economic lottery.

Beyond survival, however, higher education has to be thinking about its own sustainability. Even as we struggle with present conditions, a number of farsighted universities are working hard at decoding the future, too -- because change is certainly coming. Demographics are shifting. Competition for talent is global. And the very financial structures that have supported higher education for the past 40-plus years may now be at risk.

In our current circumstances, these forward-looking universities read signs that the old ways of doing things may be approaching obsolescence. As a senior executive at one large, private university recently said to me, “We’re not persuaded that the business model or the economics of higher education are sustainable. We’re asking the question, ‘What if we were to start from scratch?’ ”

In short, now more than ever, we in higher education need to rethink our place in the economy and how we deliver value. What markets will we serve? What programs and credentials should we offer? How will they be delivered? How should we define success?

Faced with these questions, many of us will retreat to our intellectual comfort zones -- those familiar ideas supported by anecdote as often as by evidence. “Why should higher education change?” some of us will ask. “We’re doing just fine.” Others will be certain that we should follow this or that path -- stick to our knitting, or reinvent ourselves completely. But it pays to spend some time with these questions before rushing off to whatever answers may be nearest at hand. As former Secretary of the Treasury Robert Rubin once observed, “Some people are more certain of everything than I am of anything.” In transitional and uncertain times such as these, we should be cautious of following the lead of those who peddle certainty, those who know exactly what they think.

“It’s much harder psychologically to be unsure than it is to be sure,” wrote the investment guru Seth Klarman recently. “But uncertainty also motivates diligence, as one pursues the unattainable goal of eliminating all doubt.”

Diligence is critical to evaluating not only the challenges that higher education faces today, but also the opportunities. In a number of respects, this is a best-of-times/worst-of-times moment in higher education. For example, President Obama has asked “every American to commit to at least one year or more of higher education or career training.” The Lumina Foundation and others have called upon the higher education community to produce 16 million additional degrees by 2025. And old industries -- energy among them -- are about to become new again.

At the same time, we may at last be reaching the tuition ceiling for many parents, and there is the very real prospect of enrollments drifting toward less expensive institutions. Shrinking endowments are creating significant challenges for managing university operations. And a business model based on exclusivity does not scale; it limits the potential for impact -- whether intellectual or economic.

Growing numbers of universities see this special moment as a unique opportunity to reassess their business strategies. Developing a strategy, of course, involves not only deciding what you will offer and how you will serve the market, but also -- and just as importantly -- what you will not do. Many higher education institutions suffer from trying to be too many things to too many people -- a very risky strategy for any enterprise. If we are going to successfully protect the core, and also plan for the new realities awaiting us in the future, then we are going to have to focus our investments of time, money, and human capital.

Because higher education in the U.S. involves so many diverse types of institutions serving so many diverse markets, the choices we face as a system of higher education are myriad. But among the choices that college and university leaders must face are these: by what means can a quality institution be simultaneously selective and open? Should the institution strive to be “global” in reach or regional? Will it continue to prioritize so-called “traditional” students or adjust its operations to better serve working adults and employers? Will it emphasize a unique, place-bound experience at a single campus or the delivery education services through multiple and widely dispersed sites and online? Will it prioritize research or teaching? Will it be a leader in emerging industries? Fundamentally, what form of value will the institution create?

In conversation with university presidents, provosts, and other academic leaders over the last six months, I’ve often asked what higher education can do to avoid the classic investor error of buying high and selling low. Jack Wilson, the president of the University of Massachusetts, responded to this question by saying that he anticipated a return to “value investing” in higher education -- something akin to the longstanding investor practice of buying stocks in companies that are trading below their intrinsic value. “The last few decades, people have not thought about higher education as a place to look for value,” Jack said. “But now, they’re going to be looking for quality institutions that offer a great experience, and a great value at a great price. There’s going to be a lot of pressure on higher education institutions to get their value propositions in place.”

This is what’s coming down the track at us. We have to protect core. We have to survive. We have to stay in business. And yet at the same time, we have to create more value and become more competitive. We have to develop a focused strategy and choose from among numerous competing opportunities. And if that weren’t enough, we have to achieve all of this in a period of tremendous demographic transition.
According to the National Center for Education Statistics, in 2007, 37 percent of the U.S. population over the age of 25 had earned an associate degree or higher. That doesn’t sound altogether bad, but degree attainment rates within the U.S. have been relatively flat for decades while countries such as Canada, Japan, and Korea have advanced beyond 50 percent of their adult populations earning the equivalent of an associate degree or higher. Reading the economic tea leaves and sensing where this growing asymmetry may leave us, the Lumina Foundation has set out what it characterizes as an “audacious” goal of ensuring that 60 percent of the adult U.S. population possesses an associate degree or higher by 2025.

There are numerous challenges associated with meeting this very laudable goal. First, it represents a roughly 50 percent increase in our annual degree productivity on an annual basis for the next 16 years, and would require an effort several times the scale of the post-WWII G.I. Bill. Second, if we were to achieve it, we would have to accomplish it under circumstances in which the demography of the college age population is shifting dramatically.

Today, 29 percent of U.S. adults aged 25 to 29 possesses a bachelor’s degree or higher, according to the National Center for Education Statistics. If we disaggregate this figure by race/ethnicity, however, we see that 32 percent of whites, 19 percent of blacks, and 13 percent of Hispanics in this age group has a bachelor’s degree or higher. What makes this especially significant is that Hispanics and blacks are among the fastest growing populations within the U.S.

According to the National Center for Public Policy and Higher Education, in 1980, whites accounted for 82 percent of our population. In 2020, this figure is projected to be 63 percent. Over the same 40 year period, the proportion of Hispanics in our population is projected to have increased from 6 percent to 17 percent, and the proportion of blacks is projected to have increased from 10 percent to 13 percent. In a paper published in 2005, the National Center for Public Policy and Higher Education goes on to argue that if current racial and ethnic enrollment gaps remain, the net result would be a projected 2 percent decline in per capita income over the period from 2000 to 2020. That may not sound like much, but consider that per capita income grew by 41 percent from 1980 to 2000. If higher education leaders don’t attend to these challenges now, the result in another 10 years’ time may well be a shrinking tax base and a weakened competitive position on the global stage.

Such an outcome would represent a more subtle but potentially longer-lasting economic downturn -- a quieter crisis, but perhaps more profound.

Changing markets call for a change in strategy. Even if it doesn’t prove necessary for most colleges and universities to “start from scratch” to respond effectively to our changing demographic profile or to global competition for the best students, it will be vital for us to move beyond our comfort zones and question some of our basic assumptions about how higher education is financed and managed -- and fundamentally reexamine which challenges and opportunities each of our thousands of colleges and universities is best positioned to address.

Now is the time to reflect on our strategic objectives, our missions, and our success measures. The institutions that are among the future leaders of U.S. higher education are likely to be those who embrace these challenges and reflect upon these questions most seriously. It may well be that we need to do something truly audacious to generate lasting value – for our institutions, our students, and our economic health.

Think about it.