Flex or Fail
Five major trends are already reshaping the landscape of higher education. Flexibility will be key to turning these trends to your institution’s advantage.
By Paul Jansen and Debby Bielak
But will the sector be able to continue to meet the needs of a changing society and retain its preeminence?
This is a question undertaken by researchers from the Social Sector Office of management consulting firm McKinsey & Company, New York City. In looking for answers, McKinsey consultants engaged with higher education leaders from a range of institutions affiliated with the Forum for the Future of Higher Education, Cambridge, Massachusetts.
While the group’s efforts are ongoing, it is increasingly clear that a number of recent developments threaten the status quo. Higher education is entering a period of change that will challenge most institutions and widen the performance gap between constituent segments. The shift will also create an exciting set of opportunities for those prepared to benefit from this period of change. In our 2007 discussions, McKinsey researchers focused on five potential disruptions or trends that could affect key drivers of sector performance, including the nature of demand, competitor conduct, and the changing social context in which higher education operates.
Trend 1: Growth of Digital and Other Nontraditional Students
If K–12 learning institutions effectively cultivate and educate an evolving student body, the nation could witness a 100-percent increase in the number of college-seeking students across the next 20 years. These students undoubtedly will be more economically and socially diverse than today’s students. Such characteristics suggest that the share of nontraditional students—those attending school online, part time, or at an advanced age—will grow beyond 2005’s 48-percent share.
At the same time, social networking Web sites, user-generated content, and sophisticated simulation games are changing how teens interact and expect to learn. In fact, according to the Pew Internet and American Life Project, 94 percent of students already use the Internet to conduct research, challenging traditional notions of where, how, and when students will learn.
Faculty will need institutional support to leverage new technology and to create learning products that offer applicability outside the classroom. Institutions that create customized online learning experiences will realize lower incremental costs, improved learning environments, and greater opportunities to exploit their intellectual capital to build brands that touch millions rather than thousands.
Trend 2: Price-Productivity Squeeze
Across the past 20 years, institutions achieved revenue growth that, in turn, allowed them to incur higher costs. It appears this game is coming to an end.
Despite tuition growth, schools rarely recover sticker prices, suggesting that many are hitting individual or societal price resistance. While private and public schools have enjoyed 32 percent and 51 percent growth, respectively, in tuition and fees from 1996 to 2006, the average discount in 2004–05 was 22 percent.
Maintaining recent growth rates in investment performance or government-supported research funding seems equally difficult, and it appears as if a revenue squeeze is looming.
Meanwhile, instructional and administrative costs have outpaced tuition, growing 32 percent and 68 percent, respectively, from 1984 to 2004. In other industries, productivity improvements offer a relief valve, allowing customers and employees to meet their respective needs. While productivity is hard to measure in higher education, a number of metrics indicate that most institutions are not closing the gap between costs and revenue.
According to the National Center for Education Statistics, the average student-to-faculty ratio of 14.8 in 2005 represented a 5 percent decline from its 1989 level. Is it surprising, then, that the average unfunded cost per student is $5,000, or that revenue comprises only 59 percent of costs per student?
The coming era will demand that increased attention be paid to this squeeze, with those institutions focused on the “vast middle” feeling the greatest pressure.
Trend 3: New Paradigm Competitors
Scale-seeking universities and new, online-focused competitors—for-profit and otherwise—have the potential to reshape the competitive dynamic in higher education. Consider this: 3.2 million students took at least one online course in 2005, compared with 2.3 million only one year earlier.
For traditional universities, the cost of adding incremental students is high, as student-faculty ratios must be maintained, dorms built, and classrooms constructed.
By way of contrast, the University of Phoenix, with more than 30 percent of its students online, enjoyed a steady drop in per-student costs between 2001 and 2003 from $7,200 to $4,800 as its student body grew from 67,000 to 233,000.
The credibility of online education has also advanced, with now just more than half of employers expressing a preference for traditional degrees.
Trend 4: Globalization
With advances in technology, crumbling trade barriers, and emerging consumer markets, globalization is challenging the modern university. Institutions will be forced to globalize the student experience by shifting research agendas and internationalizing faculty and student bodies at a time when international competitors are being created at unprecedented rates.
Where to compete and collaborate and how to orchestrate decentralized academic departments are the questions facing senior-level globalization coordinators. According to the Chronicle of Higher Education, some institutions are already responding by creating separate international enrollment management units to tap the global market.
World-shaping forces are demanding a response, although the challenge is greatest for those institutions looking to compete for faculty or the top students.
Trend 5: Answering to Accountability
Institutions must address the issues of affordability, accessibility, and accountability raised in last year’s Spellings Commission report on the future of higher education. Recommendations to improve college preparation, streamline financial aid processes, reward productivity, and increase research funding all support high performance.
There are positive signs that leaders are embracing and internalizing these encouragements. New pathways to higher education are more closely linking high school curriculums to college entrance requirements. Steps have been taken to increase financial aid and streamline aid processes. Public colleges are using online reporting templates to demonstrate outcomes.
Because these trends affect fundamental forces such as demand, societal expectations, and the determination of whether an industry thrives, change is inevitable. And, while the institution with resources or a reputation will be able to ride out its legacy position for some time, the majority of institutions will enjoy no such luxury.
Editor’s Note: Business Officer invited leaders from several constituent groups to provide examples of their institutions’ initiatives that relate to trends identified by McKinsey & Company. Following are short case studies describing their efforts.
Centralized Support for Distance Learning
Montana is not leading the way in e-learning from a university-system perspective, as evidenced by the likes of the Ohio Learning Network, Minnesota Online, or the North or South Dakota System activities. However, our state’s guidance and support, which included creation and funding of a Montana University System (MUS) staff position focused solely on e-learning, has made a huge difference in our distance learning capabilities. A collaborative approach, with high-level leadership and a statewide perspective, has made economic sense and brought efficiencies to our online efforts.
A New Model Emerges
Support for distance learning grew out of a larger initiative begun in 2003, when the then governor assembled a study group of citizens, business people, and government employees to study issues affecting the state of Montana. One of the six areas in the resulting “Leadership Montana” initiative focused on distance learning, proposing the creation of a central coordinating body within the MUS “… to develop and implement policy recommendations regarding the delivery of distributed and distance education.” The days of total decentralization of online education among the eight campuses of the MUS and the state’s three community colleges were rapidly drawing to an end.
Using initial start-up funding approved by the legislature in 2005, the commissioner of higher education established a temporary position in the MUS, the sole purpose of which was “… to design and implement a statewide approach to distance learning.” In November 2005, I was appointed to the position for 18 months and given the responsibility and authority to seek ways to: (1) increase the efficiencies of distance education; (2) facilitate and fund pilot programs; (3) examine new business models; (4) help identify and respond to needs for distance learning and training in Montana; (5) evaluate and identify the infrastructure opportunities and barriers that exist; and (6) serve as the advocate and arbitrator for a more efficient and collaborative model for statewide distance education programs.
We created the E-Learning Advisory Committee and, in April 2006, established our primary goal: to bring the campuses together by developing a central Web site within the commissioner’s office. The site would host the online MUS general education core courses collectively available at and transferable among all campuses. Each campus would have a presence and develop ownership in the first shared project.
With the help of a Web developer, a working subcommittee identified the layers of pages and the templates necessary to ensure adequate and consistent information for online users. Campuses can update the course database as often as desired, but must do so at least twice yearly. An Excel spreadsheet template allows most campuses to write a bridge program from their respective database to the spreadsheet. The Web site (http://mus.edu/online) is now fully functional and receives about 400 hits per week. Users can view course offerings sorted by teaching campus or by general education program area; they can drill down to specific course information before hyperlinking to the teaching campus for registration.
Developing Benchmarks, Improving Delivery
During the initial 18 months, we developed growth and accountability benchmarks for online courses and programs offered, student credit hours delivered, and a host of other critical factors to be measured across time. The E-Learning Advisory Committee conducted an online student services inventory of all the campuses.
The commissioner’s office provided more than $50,000 in funds to help campuses improve development and delivery of online education. The results of the survey helped us decide to use much of the money for facilitating faculty professional development in online teaching and converting or developing 49 new online courses.
In addition, the campuses submitted brief proposals noting their greatest needs; central funding was provided on a matching basis, up to $7,500 per campus. The results of campus efforts were freely and openly shared, as both successes and failures in projects were identified.
Based on the initial work’s outcome and the need for continued coordination, the 2007 legislative session again supported our e-learning activities, including retention of my position. Shared funding in excess of $165,000 has been distributed based upon written proposals from the campuses, not to exceed $15,000 at any one location. Developments from the MUS’s continued support include the following:
Accepted best practices. Looking to Transparency by Design, Quality Matters, the Sloan Consortium, and others for established practices, a subcommittee identified best practices in online development and delivery. The resulting MUS Core Principles of Quality for Online Courses were ultimately reviewed, discussed, and adopted collectively by all MUS campuses and now appear on our Web site under Faculty Resources at http://mus.edu/online/CorePrinciples0308.asp. This was a huge step for the e-learning program. Rather than reinvent many wheels, we continually look elsewhere for opportunities to learn from others and to enhance our efforts.
Web site enhancement. We’re working to further develop the MUS Web site as the single gateway to all campuses and online opportunities. Next, we’ll identify and post all fully online certificates and programs, using formatted, consistent templates by which users can compare programs.
Instructor training and support. Another team is developing a “faculty-teaching-faculty” pilot project to share what has worked best in online course development and delivery. These webinars will feature active online faculty at the MUS campuses, will be presented live the first time, and then will be archived at the Web site for future access by faculty. We have scheduled four pilot webinars for development by March 2009.
Campuswide awareness. We continue to centrally fund monthly or bimonthly video telecommunication for campus representatives and other interested personnel. Participation facilitates open communications, shared issues and solutions, and awareness of activities across the system. The MUS is also playing an active role in the development of the Western Interstate Commission for Higher Education (WICHE) Internet Course Exchange program, which encourages greater student opportunities at the campuses without the burden of course development costs.
At the core of our significant leap in program development and performance is a framework of accepted templates, guidelines, and operating practices. Those practices are driven by these shared perspectives:
- Every campus has a presence and an equal voice in the E-Learning Advisory Committee.
- Each committee member leaves his or her campus hat at the door to best work toward the common good.
- Regular and timely communication with all constituents is intentional and necessary.
- Issues that arise are brought to the advisory committee, shared openly without fear of ridicule, and become the basis for seeking solutions.
- Regardless of the discussion issue that arises, the committee looks for the common ground, where everyone can walk away winning without feeling a compromise in principles or quality.
- The MUS governing bodies and leadership are well advised on a regular basis.
- The campuses can best identify their greatest needs in e-learning development and delivery. Sharing the related costs is quite positive—and today such expense represents a long-term investment rather than an expenditure.
- The process is interesting, fun, and productive, and one in which everyone feels engaged and has a sense of ownership in the outcome.
- Campus “distance education teams,” including registrar, fiscal, administrative, academic, and business office staff, are encouraged to identify and discuss issues and look for possible solutions.
- For most campuses to meet current-day student demands and regional accreditation recognition of commitment to e-learning, a central voice must consistently identify distance learning as critical in the long-term perspective.
- Emerging trends are resisted in order to focus instead on more of the “tried and proven” technologies. In this way, central funding is used wisely, and we can stretch each dollar for the greatest result, regardless of the campus type, size, or mission.
We recognize that collaboration on e-learning initiatives at a somewhat high level does not apply to everyone, nor should it. However, in a state as large as Montana—with a central system of eight campuses plus three community colleges—we need to look at what we can do better together to develop and deliver high-quality online education to our students and citizens. In the end, we know that not everything is a candidate for centralization. But, when a centralized process makes economic sense or brings efficiencies to campuses and online students, it should be considered.
Thomas H. Gibson is director, e-learning business development, the Montana University System.
Meeting Demands Despite the Cost
State University of New York–Geneseo is focused on providing students with an outstanding liberal arts education. When students come to college today, their expectations are much higher than those of students who arrived on campus 15 or 20 years ago. In the face of ever-greater demands, we maintain our mission of delivering an exceptional experience: Our reaction to rising costs and other challenges is to be completely mission-driven.
We’ve added value to our school educational environment through our capital program, which has allowed us to provide ongoing enhancements to student services and learning. Understanding that we have limited resources, we have made a concerted effort to be strategic in the way we use those resources. Beginning in the mid-1990s, we undertook a master planning process for our residence halls, renovating nearly all of them and constructing a new 200-bed townhouse residence complex, an 80-bed hall, and another 84-bed hall to complete the North Village complex on campus.
These projects are supported by revenue bonds secured with the rental income from our residence hall program. In addition, 10 years ago, the state of New York (under then governor George Pataki) began to invest in renewing the long-neglected academic infrastructure of our 30 state-operated campuses. This came in the form of two five-year construction programs, in which the state invested more than $3 billion in a capital facilities program to help campuses with critical maintenance. The funding is financed by the Dormitory Authority of the State of New York under the state’s personal income tax financing mechanism.
Facilities and Services Upgrade
At the beginning of the program, a consultant evaluated the condition of our buildings and building systems, helping us to prioritize our critical maintenance needs. We took advantage of these two five-year programs to improve our facilities. Here is a summary of those projects.
Science focus. In fall 2006, we opened our state-of-the-art Integrated Science Center, a $57 million facility that houses all our science programs—chemistry, astronomy, geology, physics, and biology. With all departments under one roof, we have the ability to conduct cross-discipline research and comprehensive science education.
A wave tank and flume in the hydrology lab allow for the study of rivers; a two-story, three-dimensional periodic table creates an overwhelming image that makes it clear we are promoting scientific learning.
Technology tune-up. We support increasing demands for technology services and solutions. Students come from homes where technology is ubiquitous. Their environments are high-speed and wired—and they expect to have the same technology on campus. Our challenge is to upgrade our technology, while making sure that faculty can keep pace.
We’ve been able to match expectations in the following ways:
- With annual renovations, our library is cutting-edge, with a focus on the ability to access information. A café, meeting rooms, and multimedia capacity make the space perfect for seminars and conferences. The library has become one of the most-used buildings on campus.
- A “wireless cloud” covers all of campus. We offer an e-mall, like Amazon.com, where students get a virtual shopping cart by which they can pay tuition, make a donation to the college, or put money on a meal plan. Knight Web allows students to register online, chart their progress toward a degree, and keep an eye on their grades. We’ve moved technology into our classrooms with “myGeneseo,” a customizable, Web-based portal that students can use to track news, manage courses, download maps of campus, and more.
- We offer other lifestyle amenities. As mentioned, we’ve placed great emphasis on making students feel at home by committing $40 million to building new residence halls and renovating others. Townhouses and suites include academic spaces and seminar rooms, a mixed-use concept that integrates curricular and cocurricular activities. Students can use their meal plans at nine points of service, including a fine-dining restaurant run by the college. We’ve added front-loading clothes washers and dryers in our residence halls. They feature a computerized system that notifies students in their rooms when machines are available and when their loads are done.
Of course, as a state entity, we are never sure whether the kind of capital support that has funded these projects will continue. Fortunately, this year the governor’s executive budget has recommended another five-year program with an investment of nearly $5 billion, which would provide our campus with twice the capital funding to deal with critical maintenance. So, we are hopeful that we can continue to invest in facilities and services that meet student demands.
Achievements and Challenges
Our graduation rate of nearly 80 percent is among the highest in the country. Forty-two percent of our undergraduates go directly to graduate school. Our retention rate is 92 percent. Our student-to-faculty ratio at 19:1, however, is much higher than we would like and is not responsible for our outstanding retention. Rather, it is our enthusiastic student body and dedicated faculty who make the difference. Clearly, in an area where people vote with their feet, we are providing exceptional value with our education.
Last year, Kiplinger’s Personal Finance magazine listed us the best value in the country among all public schools for out-of-state students, and the sixth-best value nationally for in-state students. It was the second time in three years that we’ve topped the list.
Beyond accolades such as these, one of the key elements behind our effectiveness is assessment. In today’s environment, we know that every single operation has to be excellent. The only way we can stay at a high-performance level and continuously improve is to honestly assess what we’re doing and how well we’re doing it.
Every academic program has an assessment plan, which is reviewed by a college assessment committee. Results are reported to the provost, who also requires each academic department to produce an annual report detailing its performance in critical assessment areas.
This kind of evaluation has been embraced campuswide. Our faculty and staff understand its importance and that it is not a weapon pointed at negative performance, but rather a tool used to improve what we do.
Kenneth H. Levison is vice president, administration and finance, State University of New York–Geneseo.
Building on an International Base
For Calvin College, Grand Rapids, Michigan, globalization has been less a buzzword or initiative and more an integral part of our overall structure. Consider, for instance, that nearly 10 percent of our 4,090 undergraduates are international students who come to us from five dozen different countries. Among baccalaureate institutions, we rank fourth in sending students to study abroad.
Inbound and Outbound
This steady flow of inbound and outbound students positions us well to compete in a market increasingly focused on a broader global agenda.
A magnet for multinationals. Consistently, nearly 8 percent of Calvin College’s students maintain citizenship outside of the United States. They are attracted to Calvin because of its reputation for academic excellence and its faith-shaped perspective. What else draws them? It’s our ongoing commitment to internationalization along with student referrals, targeted communications, dedicated financial resources, success stories from our current international students, and other related activities.
Timing allows for overseas travel. The large number of outbound students is primarily a product of our 4–1–4 curriculum (four courses in fall, one in January, and four in spring), which allows us to offer a three-week term in January. This period of time has historically been devoted to innovation for staff and faculty; as a result, off-campus and international travel took root as part of campus culture.
Each spring, our faculty members gather to identify international courses for the following January, with options varying from year to year. One colleague, a biologist, takes students to the Galapagos Islands. We’ve got students going to Belize, Costa Rica, China, and Cambodia. A professor of civil engineering takes his students to Holland every other year to study the country’s dike and water management systems that keep the nation from being submerged underwater. Many of these overseas programs incorporate very extensive hands-on activities and become, in essence, learning laboratories.
The students in our preprofessional programs, such as engineering, education, and nursing, are rather tightly constrained due to academic requirements. For students who can’t spend an entire semester away, faculty members in these programs are particularly adept at providing shorter-term international experiences. My daughter’s friend, a nursing student, is going to Ethiopia to do rural community nursing in the Third World. Similarly, a pre-med group is going to Ecuador to work in a clinic.
According to our admissions department, these international opportunities factor strongly in many students’ decisions to come to Calvin. We are intentional about highlighting these programs as a benefit of the Calvin experience when we speak with prospective students and parents.
Expectations and Expansion
Because we offer so many options, students almost expect that they will participate. They do it because it fits their course of study, but also because it fits their interests.
These expectations have grown over a long period. I can recall 35 years ago, when, as a freshman at Calvin College, I wrote a letter home to my parents telling them that I would like to go to France for the January term. I can still remember the “What are you thinking?” phone call I received from them in response. Times have changed dramatically since then.
But, even three decades ago, we were sending students away from campus. This program has been a primary factor as we’ve developed a sense of who we are as an institution: a community that embraces the importance of an international spirit.
Now, we continue to add programs every year—one in Thailand and one in Mexico this year—the latter because we’re so oversubscribed in Spain and Honduras that we had to add a third Spanish-language program.
The Business of Being Multinational
Apart from building culturally aware citizens and communities, the business of international education is a crucial one. So, for the college, a global perspective is part of our strategic planning exercise.
For the students, part of what they bring back from their travels is an understanding that going off-campus is part of the college experience here at Calvin College. We’ve built in components around campus to welcome and emphasize an international structure. For example, included in the college’s expectations is that all students fulfill a global and historical studies requirement by taking a non-Western or pre-Renaissance subject.
Our students have a sense of travel and an appreciation for the experience; I think that’s what makes the program so popular. They don’t think much about picking up a ticket and going to Europe for spring break, for instance. It’s just part of who they are. Their world is limitless, thanks in large part to the Calvin experience that fosters this philosophy.
With this program already entrenched in Calvin College’s academic identity, we feel well positioned to compete for students and to maintain our position as an institution that recognizes the importance of global perspective.
Henry DeVries is vice president for administration, finance, and information services, Calvin College, Grand Rapids, Michigan.
Answering to Accountability
Collaboration and innovative partnerships have played a significant role in ongoing efforts at King’s College, Wilkes-Barre, Pennsylvania, to discover new cost-sharing opportunities and revenue-enhancing solutions. A financially robust institution and surrounding community allow us to hold tuition prices and other costs in check, going a long way to address the affordability and accessibility issues that have been the focus of the Spellings Commission and others. At the same time, these initiatives are improving the quality of life for students, faculty, and the residents of Wilkes-Barre and neighboring towns.
For decades, the concept of economic redevelopment was a pipe dream for our small town in northeastern Pennsylvania. With a history rich in coal and manufacturing, Wilkes-Barre suffered a devastating blow from Tropical Storm Agnes in 1972, which left six citizens dead and damages to the town at an estimated $1 billion. Downtown storefronts were left vacant and shuttered for most of the latter part of the 20th century. Wilkes-Barre was on the decline and desperately needed to rebound.
King’s College would become a major player in the town’s turnaround. By partnering with nearby Wilkes University and the Wilkes-Barre Chamber of Commerce, we were able to negotiate a contract with Barnes & Noble to open the first joint-collegiate bookstore in the nation.
It didn’t happen overnight. We had started discussions about 10 years ago, but not everyone was on the same line of conversation, and the project didn’t come to fruition at that time. Years later, when Wilkes University and King’s College came back to the table, the presidents of both institutions were proactive in working with the city and the chamber to improve relations among the town and the colleges.
The chamber was a major player in the negotiations for the collaborative project because of the physical space—the downtown real estate—they could offer. Their leadership was key in moving things forward. The focus of the discussions returned to who and what it would take to bring people back into the city. And, a college bookstore remained the answer.
Planning Becomes Reality
Negotiations were eventually finalized, and the bookseller moved into a vacant city building—a one-time Woolworth retail space. The remodeled facility, which opened in October 2006, began offering textbooks and general retail, a spirit shop—which represents both schools—and a Starbucks café.
We were able to work with our bookseller to highlight the two campuses, including their students and activities, within the interior design of the space. To represent the community, we also incorporated photographs depicting the former store and café. With attractive décor and a variety of services, the store is now an integral part of the community fabric.
As far as revitalizing the town, the bookstore has brought phenomenal results. Sales in our spirit shop are significant; in fact, this department is our most profitable aspect. The town no longer closes down at 5 o’clock. The project has brought people back downtown and has even spurred the opening of several new restaurants during the past year.
With poetry readings and classes conducted at the bookstore by a handful of professors, community interaction has increased. People come during their lunch hours to shop, and you’ll see young people with Starbucks cups constantly in their hands. For those in the community, the store has really become a place to see and be seen.
The new Barnes & Noble also supports the King’s Cash Card program, which encourages students and faculty to frequent snack shops, laundry facilities, and vending machines on campus. This new relationship has led us to integrate additional off-campus venues, such as restaurants, gas stations, and other small businesses, into the program. It’s really a special program that creates loyalty and customer relationships among community vendors and college students and staff.
We’ve been working for the past three years on a project called Wire-Free Wilkes-Barre, which is a collaboration among King’s University, Wilkes University, the city, and Frontier Communications. It’s essentially a Wi-Fi system centralized throughout the city, including both college campuses, which soon will give students, faculty, and staff free wireless Internet access.
For us, these partnerships with the chamber and other entities were instrumental in building out the Barnes & Noble facility, which, in turn, was key in renovating our town. Working together, the county, city, universities, and governments were able to conceive and execute a huge collaborative project that has delivered great benefits to all—not the least of which are our students.
Lisa Marie McCauley is vice president for business affairs, King’s College, Wilkes-Barre, Pennsylvania.
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