BY BRIAN C. MITCHELL
Much of the discussion about how to fix the broken higher education business model sounds a little like conversation about how best to squeeze blood out of a turnip. Where can the cuts occur? What can be delayed? What new programs can produce revenue quickly?
These are legitimate questions. They represent a defensive reaction to a looming crisis that will not be solved by moving past the lingering aftermath of the Great Recession. These questions also reflect an incremental approach that presumes that the fix to a broken business model depends upon bandaging its weakest parts.
It’s a little depressing for many higher education leaders who do not believe that the sky is falling. But many of these same leaders also understand the fundamental problems facing society like growing income inequality. These are now fueling profound anxiety among Americans, symbolized by the regrettable and divisive national political campaign rhetoric. Income inequality will not improve immediately even with an economy that is now approaching full employment.
That’s why a new report titled, “Evolving Higher Education Business Models: Leading with Data to Deliver Results,” is particularly welcome. It emerges from a TIAA Institute that highlighted a September 2015 ACE/TIAA convening of college and university presidents, provosts and chief financial officers that explored strategies to improve decision making models by focusing on finance and innovation in higher education.
Let’s start by looking at the problem.
American higher education operates under the rules of shared governance. There are three key stakeholders: administrators, faculty and trustees. Other groups also exercise influence, with the mix depending upon the culture and type of institution.
Within shared governance, there are two key issues. The first is how to define the role of each group in governance. This can lead to politics played out that can be intense and sometimes even debilitating, especially at institutions where the rules of engagement are ill defined or not respected.
The second is how best to keep power however it is defined. This can create a healthy tension among governance groups that can be good for a college or university. At its worst, however, sloppy governance standards can mire an institution in endless process discussions where who won the debate becomes more important than whether a decision was reached in a timely and efficient manner.
The root of the problem is often the failure to educate the key stakeholders properly. This becomes especially critical because only the best endowed and most insulated colleges and universities can operate today like “ a machine that runs by itself.” The broken business model now inhibiting innovation on many campuses exacerbates this problem.
The ACE/TIAA-sponsored study begins with a call to rethink American higher education’s business model. As Walter Massy, a professor emeritus at Stanford, asserts in his Foreword, the “current challenges have revealed significant flaws.”
The study looks at several issues but the real news is its emphasis on the “black box” that defines college spending. Mr. Massy argues persuasively “institutions cannot innovate effectively without knowledge of costs in relation to revenue: both historically, in terms of what they have actually done, and prospectively in terms of what they might do in the future.”
Massy asserts: “What’s needed are structural models that describe how resources are applied to particular activities in sufficient detail to allow in-depth understanding of what’s being done at what cost, and “what-if analysis” of what might be done to effect improvements.”
The report’s authors – Louis Soares, Patricia Steele, and Lindsay Wayt – make the case that “making the black box transparent and deploying the business intelligence therein are among the keys to re-imagining the academic enterprise itself.” Specifically, they argue that “a model that prioritizes granular data transparency provides stakeholders visibility into the connections between expenses, revenue, and educational outcomes.” Put in other terms, data infuses good policy decisions influenced by a transparent process with nothing to hide.
It’s a remarkably simple and telling conclusion. The authors assume, of course, that current governance supports full transparency. But there are some sticking points that must first be overcome if “networked leadership” that will guide transparency is going to work.
Education to prepare shared governance stakeholders properly will shut down older information strategies. Trustees are the least educated and seldom well informed, despite their role as the university’s financial stewards. Opening the “black box” to full transparency means rethinking what kind of information is needed.
The process will also be enlightening because faculties are seldom treated to analysis that goes beyond the use of budgets as a rationing tool. Faculty must be persuaded that a deeper knowledge of the working parts of a college’s budget is worth their investment of time.
Presidents and their senior staff may have the most difficult problem. Full disclosure will result in a healthy discussion on the right issues. But administrators will be the most at risk because they can be accused of a failure to be transparent earlier, manage efficiently and creatively, and prioritize problems when bandaging the old budget models.
The ACE/TIAA report is important. But redirecting and managing the process, expectations, and learning strategies among governing groups must match any effort to redesign a transparent business model.