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2019
Sustainability: The Ongoing Challenge in Higher Education
By: Dr. John Donohue
1201 S. Alma School Rd, Suite 9500, Mesa, AZ 85210www.synergiseducation.com
Copyright ©2019
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Sustainability: The Ongoing Challenge in Higher Education
[A] common refrain heard throughout higher education is that hundreds of colleges and universities
are at risk of going out of business. The reality, of course, is that few have closed…lulling many
academic leaders into believing that they are somewhat immune from the disruptive forces of change
sweeping the economy…It would be a mistake, however, for college and university officials to think
that this period of financial distress and the public’s unease about the value of a degree is in any
way temporary.
--Parthenon-EY
Overview
While higher education has not witnessed the dire impact of disruptive innovation that has long
been predicted,i recent closings, mergers, as well as partnerships in the sector are an indicator that
colleges and universities continue to search for
pathways to sustainability, with mixed results.
Regulatory pressures have significantly impacted
the for-profit educational sector.
• In the last few years more than 50 have
closed, merged or consolidated.
• And career-oriented institutions are struggling as well. In 2016 ACICS accredited 250
colleges. Since then, 62 of these have closed and another 100 have found a new accreditor. ii
The trend in more traditional non-profit institutions, while not as severe, is troubling as well.
• Between 2016 and 2018 twenty non-profits closed.iii While not as dramatic as the for-profit
sector, closings are predicted to be double the average rate between 2002 and 2014.iv
• An analysis identified 800 small colleges as vulnerable to “critical strategic challenges”v
• Important factors include those commonly experienced in small non-profit colleges:
“It would be a mistake for college and
university officials to think that this
period of financial distress and the
public’s unease about the value of a
degree is in any way temporary.”
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o tuition discount rates above 35%
o dependence on endowment for more than 85% of revenue. vi
When we focus on these two elements, it’s easy to see why there is a problem:
• In 2017, NACUBO research revealed that the average institutional tuition discount rate for
full-time, first-time freshmen reached approximately 49.9 percent, which is the highest
level recorded in NACUBO’s research history.vii
• The American Council on Education indicates that most public colleges and universities
have no substantial endowments, 54 percent of private institutions have endowments of
less than $10 million, and the median endowment at private colleges and universities is
roughly $7.9 million. viii
The condition of the market spurred Fitch Ratings to issue a negative outlook for higher
education in 2019, noting the impact of “… operating and revenue pressures, which stem from
increasing constraints on tuition growth and more challenging demographic and competitive
markets than seen in prior years.”ix
The Search for Sustainability
For smaller colleges, and particularly those without
programs in growth areas such as healthcare and
computer technologies, the challenge is particularly
acute. We note these important issues:
• Demographic trends – a cyclical decline in
college-aged students that drives up student acquisition costs in areas like tuition discount
rates.
• Market trends – low unemployment, combined with market demand for graduates of
programs typically not well-represented (or valued) at smaller Liberal Arts campuses.
• Systemic inefficiencies –processes in higher education are typically not nimble and make
it difficult to be responsive to market demands and non-profit institutions as a whole are
not typically designed for creating a return on investment.
These challenges continue to fuel ongoing searches for sustainability. There appears to be a
consensus that size and scope are important factors for success, and whether through
partnerships, mergers, or strategic initiatives, colleges and universities are pursuing these
strategies. Each strategy is a rational response to conditions. Yet each strategy poses challenges.
2019 will see…” operating and
revenue pressures, which stem from
increasing constraints on tuition
growth and more challenging
demographic and competitive markets
than seen in prior years.”
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Diversification
Whether through internal development, collaboration, merger or acquisition, institutions are
stressing niche/high demand programs that offer growth potential.
Here are the challenges:
• Competition—Demographic and market trends suggest that smaller institutions will
struggle to remain visible in a competitive (and crowded) market sector.
• Costs—Expansion (whether through partnerships, mergers or internal actions) entails
costs that a resource-poor institution may be incapable of making.
• Skills deficit—New approaches and new programs may require expertise and
experience that does not exist within an institution’s toolkit.
Efficiency
Institutions acknowledge the need for greater efficiency. They look to enrollment growth,
better and more creative utilization of facilities, as well as new delivery models with the
potential to expand the institutional “footprint” while minimizing traditional overhead costs
as ways to promote fiscal stability.
Here are the challenges:
• Reality Disconnect—Higher Education is
notoriously inefficient, and its operational
models are typically aspirational on nature
and not reflective of fiscal reality. Colleges
often operate with practices, workloads and policies designed “as if” their
endowments were far larger than their financial statements indicate.
o One study of New England colleges with annual expenses less than $100
million shows that they are dependent on tuition to cover 70% of operational
expenses. They look to elite institutions as their models, but this is clearly not
realistic—an institution like Harvard uses tuition to cover only 21% of its
expenses.x
• Change Averse—Colleges are operationally conservative, feature a strong ideological
commitment to the status quo and these deeply entrenched systems are highly
resistant to change—especially because higher education’s status as Federally
subsidized market buffers it from more direct market forces.
• Low Margins—Efficiency alone is not enough: given the low levels of endowment
resources typical of smaller institutions, it is highly improbable that reform of college
operating systems alone has the potential to solve their financial woes.
Diversification, efficiency and
expansion are all rational responses.
Yet each strategy poses challenges.
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Expansion
“The Amazon Model” for growth acknowledges
the low margins that exist in the industry but
hopes to offset them through sheer enrollment
volume. The Amazon Model shares many of
the same challenges as Diversification and
Efficiency strategies—crowded and competitive
markets, a shortage of talent and capital—but
one major issue stands out:
• A growth strategy modeled on Amazon
may not yield revenue scale and profit
margins at needed levels or in time to
assist struggling intuitions.xi
Moving Forward
How then do institutions intent on crafting strategies for sustainability move forward? In my
experience, what holds them back is not a lack of vision, or creativity, or willingness to work
hard. What typically handicaps smaller, under-capitalized colleges and universities are two
factors:
• A strong fidelity to their traditional role and an associated fear that new approaches
may undermine institutional mission.
• A real shortage of resources to be committed to new initiatives. These include:
o Fiscal Resources – capital that can be invested over multiple years to support
program development, marketing and enrollment activities.
o Personnel Resources–the staff positions needed to undergird the interrelated
systems and activities absolutely necessary to compete.
o Expertise–knowledge of and experience with the design, launch and
management of systems and programs.
At Synergis, our success is based on a proven strategy to address these issues. We summarize our
approach to assisting colleges as “Targeted Innovation.” It’s a way to address concerns about
institutional identity and simultaneously support collaborative innovation through our capital,
expertise and efficient systems.
The Question of Mission
Synergis prides itself on creating solutions crafted to fit the needs of our partners. We make it
clear from the outset that we think that the challenge in higher education today is not how to
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redesign the academy, but rather how to engage in innovation while staying true to academic
values of our partner institutions. In this regard, we emphasize the importance of having any
potential program closely aligned with an institution’s strategic vision. Echoing our approach
to course and curriculum design, we stress a process that focuses on objectives to be achieved
and then work backwards to create pathways to reach those objectives. New initiatives are
conceived of as part of an academic portfolio of programs, each element possessing distinctive
features that contribute in differing ways to institutional strategic plans.
Resources
Synergis has the capital needed for long-term investment in new initiatives. It provides front-
loaded financial support that is essential to establish and grow new programs. We make
substantial commitments for ongoing support during the life of our partnerships as well.
In addition, the expertise of our staff in terms of systems, marketing, enrollment and
instructional design puts greatly enhanced resources to work for our partners. This greatly
shortens the time needed to launch new initiatives–a key factor in a fast moving and
competitive market environment. The structure of our partnerships yokes Synergis with the
fortunes of the institutions it serves, providing an organizational culture that is results
oriented and committed to
continuous improvement. And the
decades of collective experience we
have in designing, launching and
growing programs provides partners
with a blueprint for success.
Contemporary higher education faces any number of challenges. Responsiveness to market and
demographic factors, efficient systems, and creative program design and delivery can all assist in
charting a path toward sustainability. It’s a complex endeavor, however, and many institutions
are coming to see the benefits inherent in strategic partnerships. Synergis has uniquely positioned
itself to provide support and expertise for colleges and universities. Our approach to Targeted
Innovation can provide real assistance in the critical search for sustainability in higher education
today.
The Author
John J. Donohue is a higher educational professional with over thirty years’ experience in higher
education teaching, administration and leadership. He has served as tenured professor, dean, vice
president, provost and acting president. He is an expert on curricular design and program
development and currently serves as Chief Academic and Development Officer for Synergis
Education.
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i Warner, John. 2017. Disruptive Innovation? More Like Destructive Innovation. Inside Higher Ed.
November 21, 2017. https://www.insidehighered.com/blogs/just-visiting/disruptive-innovation-more-
destructive-innovation
ii Flores, Antoinette. 2018. The 85 Colleges That Only ACICS Would Accredit. Center for American
Progress. July 3, 2018. https://www.americanprogress.org/issues/education-
postsecondary/news/2018/07/03/453079/85-colleges-acics-accredit/
iii Lederman, Doug. 2018. For-Profit Free Fall Continues, U.S. Data Show. Inside Higher Ed.
June 6, 2018. https://www.insidehighered.com/quicktakes/2018/06/06/profit-free-fall-continues-us-data-
show
iv Seltzer, Rick. 2018. Moody's: Private-College Closures at 11 Per Year. Inside Higher Ed.
July 25, 2018. https://www.insidehighered.com/quicktakes/2018/07/25/moodys-private-college-closures-
11-year
v Parthenon-EY Education Practice. 2016. Strength in Numbers: Strategies for collaborating in a new era
for higher education. https://cdn.ey.com/parthenon/pdf/perspectives/P-EY_Strength-in-Numbers-
Collaboration-Strategies_Paper_Final_082016.pdf
vi Busta, Hallie. 2019. How many colleges and universities have closed since 2016?
Education Dive. January 29, 2019. https://www.educationdive.com/news/how-many-colleges-and-
universities-have-closed-since-2016/539379/
vii NACUBO. 2018. NACUBO Releases the 2017 NACUBO Tuition Discounting Study. NACUBO. April 30,
2018. https://www.nacubo.org/News/2018/4/NACUBO-Releases-the-2017-NACUBO-Tuition-
Discounting-Study.
viii American Council on Education. 2014. Understanding College and University Endowments.
Washington DC: American Council on Education. Retrieved from http://www.acenet.edu/news-
room/Documents/Understanding-Endowments-White-Paper.pdf
ix Fitch Ratings. 2018. Fitch Ratings Revises U.S. Higher Education Sector Outlook to Negative for 2019.
New York: Fitch Ratings Inc. https://www.fitchratings.com/site/pr/10054235
x Krantz, Laura. 2018. Small colleges are struggling financially, and they can’t raise tuition high enough to
fix it. Boston Globe. August 11, 2018. https://www.bostonglobe.com/metro/2018/08/11/new-england-
smallest-colleges-are-struggling/v60cnP1oEhBX1MEOMb9oSP/story.html
xi Del Rey, Jason. 2018. Amazon has posted a profit for 11 straight quarters — including a record $1.9
billion during the holidays. Recode. February 1, 2018.
https://www.recode.net/2018/2/1/16961598/amazon-jeff-bezos-record-profit-11-quarter-q4-2017-earnings