Published on 2014/10/27
Efficiency or Irrelevancy: The Time is Now to Choose
Given the current postsecondary climate, higher education institutions need to improve their operational efficiency or face major transformations.
The following interview is with Michael Horn, co-founder and executive director of the Clayton Christensen Institute for Disruptive Innovation. The higher education industry is undergoing massive changes on all fronts; from the way education is delivered to the way institutions themselves operate. As operational resources continue to dwindle, committing to efficient operating procedures is going to become increasingly important for postsecondary leaders. In this interview, Horn shares his thoughts on this trend and discusses the importance of focusing on creating efficiencies sooner rather than later.

Click here to read key takeaways.

1. How does operational efficiency impact the cost of the higher education “product”, both for the institution to deliver and for the student to consume?

It’s a really important issue. The one that grabs headlines is the debt crisis for students and the cost to students. That would be one reason to think about it — to lower the cost to students — but the other reason that concerns the institution itself is the one that gets far less coverage. Resources are not as abundant as they were to continue to support the rising cost to stay competitive.

Becoming more operationally efficient to create a sustainable college and university over the next hundred years is an increasingly important area to pay attention to, or else a lot of institutions are going to go to the verge of bankruptcy.

2. Why are higher education institutions so wary of making process changes or implementing systems that would directly contribute to back-end efficiency?

There are a couple of things. One is historical and the second one is just the day-to-day difficulty of marshaling efforts to change what you’re currently doing.

A lot of the cost overruns in higher education stem from the fact that they’re conflating multiple operations — teaching, research, the social experiences that they create for students, the alumni that they continue to coordinate after students leave. All of those disparate activities really require a very different business model and very different models of cost, and require a lot of administrative overhead to manage. To be a really good institution, historically, we don’t think about specialization as necessarily good but we want to see how broad-based can you be, how many different types of academic programs can you offer to students, allowing them to jump between different programs and try to be all things to all people. That adds even more administrative cost.

When you talk to people about having strategic focus, when you start to talk about the cost efficiencies that might come from fundamentally scaling back in some cases; that feels threatening and very different from what people have done in the past. In some cases it could mean that departments are not where you continue to spend money; that’s a difficult conversation for universities to confront. It fundamentally challenges how they’ve done business. That’s why you see that institutional resistance but also that difficulty in marshalling the day-to-day repeated effort it takes to gain those operational efficiencies.

3. Why is it so critical that institutions commit to improving their operational efficiency sooner rather than later?

Even though the precipice may not be clear in the here and now, the cumulative effect of continuing to take out debt as an institution to pay the way for growth and changes and so forth, or the continued impact of running out of endowments to continue to support operations, or relying on a loan to pave the way, if you continue to let those sorts of things stack up, there could be a moment that all of a sudden becomes a crisis.

If you don’t pave the way with long-term thinking starting now, those events are likely to be much more dramatic in the future. Start to take some measured steps now in the immediate term to avoid those longer-term nightmares.

4. What will happen to institutions that either continue to delay—or outright refuse—making changes that will improve their operational efficiency?

If things continue on their current path, out of the 4,200 institutions in the U.S. that are accredited, you can easily see a quarter to maybe even as high as a half over the next 15-20 years hit these sorts of crises, either bankruptcy, merger or things of that nature.

Dealing with those things sooner rather than later makes all the sense in the world when you frame it in that light.

5. Is there anything you’d like to add about the importance of operational efficiency to the long-term viability of today’s higher ed institutions and what it’s really going to take for institutions to overcome that hump and really start operating in a more efficient and a more streamlined manner?

Really changing our notion of what it means to be a high-quality institution is probably at the root of this. Seeing strategic focus, strategic thinking of any kind, to focus and decide this is where we’re going to allocate scarce resources should start to be seen as a virtue, not a vice, and something that we celebrate in the rankings. It’s interesting that we talk about this now because US News and World Report Rankings Top Colleges have recently come out and once again they’ve rewarded breadth and an elite view of the world.

Increasingly considering how we think about quality in this sector, and rewarding strategic focus, is a really important part of helping institutions bridge what can be a scary divide from where they’ve been.

This interview has been edited for length.

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Key Takeaways

  • It’s critical for institutions to begin operating in a strategic and efficient manner in order to stave off the negative repercussions of recent market changes.
  • The culture of higher education, which rewards broad-based programming and old-world thinking, needs to change if institutions are to remain viable in the long-term.
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Readers Comments

PDL 2014/10/27 at 10:09 am

I completely agree that old-world thinking is what’s holding institutions back. “Because that’s how it has always been done” is the poorest excuse for resisting change a person can possibly give. Students are changing and schools need to change too.

Amy Smith 2014/10/27 at 10:41 am

Would it really be the worst thing if there was a slightly smaller number of colleges and universities around? I’m from Canada and in Ontario alone there are at least 19 accredited universities. It’s diluting the talent pool and spreading federal funding thin.

A. Cohen 2014/10/27 at 11:39 am

I’m surprised universities haven’t come to crisis point sooner. Businesses have to constantly evolve their practices to keep up. Universities, whether they like it or not, are businesses and should be responsible for adapting in the same way.

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