Published on 2018/03/28

Education Or Revenue Generation? Revisiting Business Practices in Higher Education

The EvoLLLution | Education Or Revenue Generation? Revisiting Business Practices in Higher Education
By scaling in their mandates while broadening their perspectives, institutions will be better positioned to meet the next challenges that will face higher education.
In 2010, Mark Kretovics published Business Practices in Higher Education: A Guide for Today’s Administrators, a breakthrough guide offering higher education and student affairs professionals an understanding of the fundamental business nature of colleges and universities. In this interview, Kretovics discusses how the higher education landscape has changed since his book was published, and offers his insights into the business challenges facing higher education administrators. 

The EvoLLLution (Evo): It has been eight years since Business Practices in Higher Education was published. How have the attitudes of college and university administrators evolved since then, particularly when it comes to thinking about higher education as a business?

Mark Kretovics (MK): I wish I could say their attitudes have evolved, but for the most part colleges and universities are operating in much the same way as they have for the past 30 to 40 years. Right now, we’re witnessing broad economic changes that higher education isn’t responding to, and that’s an issue of perspective. Administrators are asking “how didn’t we see it coming?” but the simple fact is that they haven’t wanted to look at how those changes have been and continue to impact our industry.

Evo: What are some of the most significant missteps that institutional administrators are making when it comes to the effective management of colleges and universities?  

MK: Institutional administrators have been making three major missteps.

The first is that, for far too long, universities have been over-reliant on out-of-state and international enrollment as a means of generating revenue.  It reminds me of the 70s and 80s, when the baby boom generation aged out of postsecondary education and the industry responded to the enrollment gap by heavily recruiting international students and non-traditional learners. Back then, western institutions recruited Japanese students, and they’re targeting Chinese, Saudi Arabian and Indian students in much the same way now.

That’s going to be a real problem moving forward because overseas demand for our institutions is going to drop. International students don’t need to come to North America for a western education anymore: They’ve got two decades of western-educated faculty at home, opening institutions that directly compete with ours. Whether it’s international, non-traditional or veteran students, relying on specific student populations because they’re seen as revenue- generators is problematic, and the problem will only grow larger if our financial reliance on them grows.

The second misstep is tuition discounting. This happens at both public and private institutions, where, in an effort to attract students, they offer scholarships in excess of what the institution can afford. Back in the fall, The Chronicle reported that some institutions are offering discount rates in excess of 50 percent, which means that for every dollar they’re bringing into the school, they’re only making 48 or 49 cents. That’s unsustainable. Unless the institution has a huge endowment, it can’t offer a 50 percent discount rate.

Third—and most important—universities and colleges are falling prey to a growth mentality that’s at odds with the fundamental nature of higher education. We have a generation of university and college leaders who believe that in order to be successful, institutions must grow, and in terms of sheer numbers, this cannot happen. There aren’t enough students for every single university to grow every single year. Too often, this is the result of an ego-driven administrator who thinks, “if I leave an institution and it has more students than when I left, I did a good job.” That mentality reflects what’s best for the administrator, not what’s best for the university. We need to bring the focus back onto what’s best for the individual student—not for what’s going to look good on an administrator’s CV. If administrators can start focusing on their students rather than on their own legacy, I think higher education would be much better off.

Evo: You mentioned that the first misstep is an over-reliance on a single audience. Should institutions focus entirely on those niche audiences like international students, non-traditional learners or veterans; strive to bring in that traditional 18- to 22-year-old student population; or seek a balance?

MK: Most institutions were founded for a specific purpose. If you look at smaller liberal-arts colleges like McAllister or Kenyon College, they are directing their recruiting efforts at the students they were founded to serve: 18- to 21-year-old, primarily residential, students. They’re not trying to be everything to everyone. That’s not their mandate. Their mandate is to provide small-scale, liberal arts education to regionally based young adults. That’s their focus, and by sticking to that focus, they’re thriving.

By contrast, larger, mid-range state institutions are going after anybody and everybody. Just like McAllister and Kenyon, these institutions were founded for a specific purpose, but a lot of them have lost sight of what that purpose was. Rather than focusing on what their market should be, they’ve morphed into something without a guiding identity. As a result, revenue generation has become their guiding identity. I would advocate that these institutions need to go back to being mandate-driven, rather than growth-driven. For many—for most—that will mean focusing primarily on the population within a hundred-mile radius of the campus. By all means, this can include out-of-state and non-traditional students as well as those 18- to 21-year-olds.

Evo: On the same token, though, many institutional leaders are turning to international students as revenue streams in a panic because they need money to keep the doors open. So, what’s the alternative?

MK: The driving force of any institutional leader shouldn’t be unconsidered growth. It should be a careful consideration of its mandate. What do its students need? What does its region need? If it’s a national institution, what does its nation need? Our country doesn’t need bigger institutions. It needs well educated individuals.

There’s no mandate that says every university has to grow three percent every year. That’s a Wall Street mentality borne out of the idea that corporations have to grow or stockholders will sell up and out. Universities don’t have stockholders. They have students. Their goal isn’t gain. It’s education. We have to focus on the quality of the education we provide to those students, and we do so by becoming more efficient and more effective at what we do. If we do that, and focus on cost containment, we can meet those original mandates of providing education.

Going back to my earlier question, why are small liberal arts colleges so successful? Most aren’t growing. Why’s that? Because they know their mandate, and they’re following their mission. They’re not trying to grow for growth sake. They’ve learned how to be efficient and effective with what they’ve got. Kenyan and McAllister aren’t putting up new buildings every year because they don’t need to. They’re maintaining the ones they have. You see growth in the regional public institutions because they’re being run by a cadre of leaders who think bigger is better, when that’s just not the case.   

Evo: We’re in the age of Amazon, where students, whether traditional or otherwise, are accustomed to having their needs immediately met. Do institutions need to make sure that they’re still delivering on the customer expectation side of students by creating a high-quality educational experience?

MK: First off, students are not customers and we have to remind ourselves, and them, of that. If we dealt with students as customers, we would only ever offer classes in the afternoon.

Students come to educational institutions to receive an education, which is a service that cannot, by definition, be provided on an immediate basis. It takes two to six years to gain a credential that will be of use in a world that may be vastly different down the road, but the credential alone isn’t the important outcome of those two to six years. It’s the process of learning that equips students to adapt in the real world and the workforce.

Institutions often fail to explain this to students, and that’s our own fault. We’ve led students into thinking that if you get a degree, you’re going to get a better job and a better return on investment because of that degree. We’ve framed it all as a question of the end product, when in reality it’s the educational process that prepares students to be successful, not the piece of paper they receive at the end. After all, you can parlay education into a variety of job opportunities or career fields that are completely disconnected from the degree itself.

It’s difficult to manage these expectations in a world where I can order something online and it’s at my door tomorrow, but we have to keep sight of the fact that our first priority as educators is high-quality education.

 Evo: It’s interesting when you start to try to balance the difference between the student as a student and the student as a customer. As you say, in the classroom a student is always a student, but what happens when they’re trying to manage everything else involved in their enrollment?

MK: I’ve been in several administrative positions throughout my career where a student would come into my office and say, effectively, “I want to see your manager.” As the Dean, I was the manager, and no matter the issue at hand, it was my call as to how to respond to it, bearing in mind their needs as a student, not as a customer. Parents are probably the worst offenders in misconstruing education as a customer service experience. They expect university administrators to drop everything if a parent calls, but that’s not the case. So many schools have 40,000 to 50,000 students, and if we tried to kowtow to every “customer service” demand a parent brought to us we would never get anything done. That’s where, again, we have to prioritize a student’s needs over their wants.

Evo: Is there anything you’d like to add on how important that shift in mentality is for university and college administrators, especially when it comes to focusing on efficiency and effectiveness as opposed to profit or revenue?

MK: The key for administrators moving forward is going to be cost containment, not revenue generation. If we can break institutions from their reliance on revenue and get them to focus in on a cost containment model, we can make some progress. There have been a number of large institutions that have moved towards a decentralized, responsibility-centered management structure and budgeting processes. If those models are adapted and executed properly—meaning we take the administrator’s ego out of the equation and let smaller units operate more independently on campus—we will see gains in efficiency and effectiveness. In this structure, deans and department chairs will have greater responsibility for their decision making.

This interview has been edited for length and clarity.

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Key Takeaways

  • By putting students first, and focusing on becoming student-centric and serving the niche of learners they are best suited to serve, institutions will become more efficient and effective.
  • As technology has advanced, it has become possible to deliver on the “wants” of students when it comes to improving their engagement with the institution, allowing them to focus their time and energy on their studies rather than administration.
  • In over-relying on individual student groups as revenue streams, institutions risk building an unsustainable funding model.