Published on 2017/09/20

Efficiency, Effectiveness and Collaboration: Three Keys to Managing Spending and Serving Students in Today’s Market

The EvoLLLution | Efficiency, Effectiveness and Collaboration: Three Keys to Managing Spending and Serving Students in Today’s Market
Colleges and universities across the United States are still struggling to manage increasing costs without placing the burden on students. Succeeding in this environment requires creative thinking, collaboration and active prioritization from institutional administrators and trustees.

College and university leaders are facing trying times. State funding reductions and adjustments are coming at the same time as increased expectations from students and needs from staff, pushing postsecondary institutions into challenging budgetary situations. With market conditions like these, efficiency and managed spending needs to be a high priority—but how do school’s achieve that when students expect “more” and “better”? In this interview, Michael Poliakoff shares his thoughts on some creative ways colleges and universities have gone about managing their spending through collaboration.

The EvoLLLution (Evo): What are a few likely long-term outcome scenarios for colleges and universities that refuse to commit to reform and spending reductions?

Michael Poliakoff (MP): In 2013, Clayton Christensen, father of the theory of disruptive innovation, made the bold and shocking prediction that half of colleges and universities would go bankrupt or merge by 2028 as degree seekers pursue more accessible and less costly alternatives. While this estimate may be too high, Dr. Christensen’s prediction is proving prescient as more small, mostly private colleges begin to go out of business, alongside for-profit institutions that have engaged in reckless practices.

Institutions that maintain high administrative expenditures often can and do continue to raise tuition and expand discounting programs. Given that student loan liability now exceeds total U.S. credit card debt and today’s students are more likely to graduate with debt than a degree, high tuition and expanded discounting are not a viable solution. Raising the net price for students is a cost-shifting approach that simply disguises the problem and is an unacceptable strategy.

Institutions of higher education will need to adapt to a highly technical, post-industrial economy, cut and contain administrative costs, and work to hold—and yes, reduce—tuition. This transformation process will not be easy, but American society requires our beacons of higher education to thrive.

Evo: What is driving the modern push for greater administrative efficiency?

MP: ACTA’s report How Much is Too Much? does not theorize on the reasons behind greater administrative efficiency in the public higher education sector, but there are a few plausible explanations. For one, many public universities, particularly larger institutions with high levels of research activity, employ more faculty and are able to achieve greater economies of scale due to their robust faculty workforce.

In addition, it’s possible that new accountability measures at the state level are also encouraging efficiency. Performance-based funding has become the gold standard in state higher education finance. Approximately 35 states are now using or developing performance-based funding models, which reward institutions based not just on enrolling students, but actually graduating them. Gone are the days when public institutions could expect automatic funding simply for admitting students who would fail to earn a degree in a four- to six-year period. Legislators, governors, and state systems of higher education are wisely using public funding to incentivize and reward institutions that show the greatest results. New state accountability measures may be encouraging institutions to do more with less and weed out inefficiencies.

Evo: What impact can greater collaboration between institutions have on spending reductions and efficiency improvements?

MP: Higher education has often been adverse to resource sharing and collaboration because of competition for prospective students, grants, research funding, and other resources.

Increasingly, “going it alone” is a dangerous mentality for institutions that are struggling to navigate a competitive and swiftly changing market. In order to adjust to dire new financial realities and to begin the types of institutional improvements needed for today’s students, it has become even more urgent to share funding, human capital, and other resources. This financial reality demands that consortial approaches and cross-institution collaboration become the norm for colleges and universities to survive this turbulent market.

One example of this collaborative model is the University Innovation Alliance (UIA), a coalition of 11 public research universities that embraces data sharing and cooperation with the goal of improving student success. Their members are advancing innovative practices, such as the use of predictive analytics and proactive advising, which are designed to improve on-time graduation, reduce excess credits, and improve the efficiency of student support. Since the UIA’s formation in 2014, member schools are on track to meet its goal of increasing the number of graduates at its universities by 20 percent by the 2022-23 academic year.

The development of shared course initiatives is another example of how struggling colleges can maximize their instructional efficiency. Institutions with similar teaching missions are beginning to co-create shared courses and instructional consortia with the goal of offering the richest curriculum possible, while reducing overhead. Some examples of this highly successful approach include the Associated Colleges of the South; the Shared Course Initiative created by Columbia, Cornell, and Yale; and the Sunoikisis Project at Harvard University’s Center for Hellenic Studies.

Evo: Looking more broadly, what are a few other approaches public universities and systems have taken to manage spending while improving their end product?

MP: Colleges and universities face a serious problem: How do they cut administrative costs, while at the same time expanding educational programming? Institutions find resource sharing will help them enhance the viability of their business model while improving educational experiences and results for students.

The University System of Maryland (USM) and the State University System of Florida (SUSF) have set the pace for innovation and efficiency. Through its Efficiency and Excellence initiative, Maryland has encouraged its campuses to adopt the use of predictive analytics. System leaders and regents streamlined procurement policies and procedures and conducted a statewide analysis of system-owned real estate and assets in order to optimize their value and use.

Florida’s bold approach to accountability and performance funding has similarly led to improvements in student outcomes. SUSF uses detailed accountability metrics that reward institutions for high performance. Through a rigorous program review process, the state system has also taken steps to support degree programs with high enrollment and labor market value, while shuttering or consolidating programs that are under-enrolled or underperforming.

Evo: What are the first steps institutional leaders can take to drive these kinds of changes at their institutions?

MP: Institutional leaders should take a rigorously honest self-assessment of their own financial performance. Metrics such as the ratio of administrative to instructional spending provide one such powerful data point for understanding the institution’s efficiency and overhead.

However, getting detailed metrics and financial data is only a starting point. An institution of higher education serves many various functions—school, research laboratory, hospital, adult-learning program, performing arts organization, athletics program—and senior administrators and trustees often face internal pressure to approve lavish spending on a wide variety of priorities.

While it is often more satisfying to say yes than to say no, trustees and the administration have a fiduciary responsibility to ask themselves whether or not investments truly serve the college’s educational mission or if they are desirable, but ultimately non-essential.

It is imperative that presidents, boards and senior administrators at every institution practice discipline and frugality in fiscal management. After all, who but the administration ultimately has control over managing expenses, and ensuring the institution’s financial solvency?

Evo: What role must institutional trustees play in driving this paradigm shift?

MP: Boards of trustees play a vital role in ensuring the long-term academic and financial health of institutions and maintaining the fundamental elements that are the strength of America’s higher education system. Trustees bring a wide variety of perspectives as academic, civic and business leaders. They must be willing to ask the tough questions, to set institutional priorities, and to seek quantifiable outcomes of success in line with those priorities.

The signatories of ACTA’s seminal report, Governance for a New Era: A Blueprint for Higher Education Trustees, said it best: “Board members should be receptive to all, but beholden to none. Their indispensable value to students, institutions, and to the nation rests upon their independent judgment. They must always remember that they are ultimately responsible for ensuring the financial health and academic success of their institutions.”

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Key Takeaways

  • Raising tuition and fees to paper over significant administrative expenditures is a cost-shifting approach that will have significantly negative long-term ramifications for postsecondary institutions.
  • As efficiency and reduced spending is becoming increasingly incentivized, postsecondary institutions could find significant benefits in collaborating to manage costs and improve service and quality.
  • Trustees and administrators have a fiduciary responsibility to define and stick to institutional priorities, ensuring spending is weighted towards elements that will be most impactful and beneficial.
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