Universities and colleges must develop new business models to deal with scarce resources, increased demand for productivity and lower tuition, and changing demographics. This presentation to leaders in a major corporation outlines the pressures and the actions that a national higher education association is recommending to the institutions.

1. The Higher Education Dilemma: In Search of Long Term Sustainability [Major Corporation} Mid-Atlantic Regional Meeting February 23, 2011 Ellen Chaffee, AGB Senior Fellow and President Emerita, Valley City State University

2. Agenda 9:00 The Changing Landscape of Higher Education * Where funds come from and where they go * Changing expectations and circumstances 10:30 Break 10:45 Our Advice to Universities and Colleges – Can [Corp.] Help? * Getting our minds right * Reverse engineering the future * The discipline/innovation paradox 12:00 Lunch 2

3. Changing Landscape of Higher Education

4. Higher Education Pressure Points Declining/drying-up resources Federal and State budgets Tuition rate ceiling Investment losses, foundation and charitable declines Rising expectations More graduates More focus on results, accountability, performance funding Changing students – less prepared, less able to pay, new learning styles and expectations, more distant 4

6. Corrections

7. Health Care

8. Other Govt.Appropriations/Grants Student Aid Tuition Students Institutions Scholarships &Waivers Dennis Jones, NCHEMS 5

10. Corrections

11. Health Care

12. Other Govt.Private Gifts Appropriations/Grants Student Aid Tuition Endowment Students Institutions Scholarships &Waivers 6

13. The Business Model of Higher Education is Broken 7 We sell below cost. The “customers” of (nearly?) all public, private, and for-profit universities and colleges pay less than their “product” costs. Yet few customers can pay what we charge out of pocket. Our “natural” margins are negative. Without grants from public and private sources, our margin would be negative – typically, SIGNIFICANTLY negative. So we cannot grow our way to prosperity. Growing with tuition only (beyond filling current capacity) drives us into deficit. But we generally choose to ignore that.

14. State Revenue Pattern 8

15. State Funding is Stressed 9

16. State Budget Pressures Pension programs Medicaid – more beneficiaries, $87B stimulus Unemployment assistance $72B shortfall in state budgets for FY12 State Outlook AASCU Nov 2010

17. So Our Prices are Skyrocketing

18. Students have to borrow more & more 12

19. Yet we still have ever-greater difficulty balancing the budget Gap

20. 40% of Americans Struggling “A Lot;” Only 20% “Not Struggling” 14 http://www.publicagenda.org/economy-and-american-dream-2011

21. Views on What Might Help 15 http://www.publicagenda.org/economy-and-american-dream-2011

22. College is more necessary, accessibility is falling fast Importance and Access 16

23. Spending Within Education & Related (E&R) All data are in 2008 dollars. Source: Delta Cost Project IPEDS Database, 1987-2008, 11-year matched set.

24. …where the money goes by major functional area

25. Attainment Goals 19 “By 2020, America will once again have the highest proportion of college graduates in the world” - President Obama, 2/24/09 to increase the percentage of Americans with high-quality degrees and credentials to 60 percent by the year 2025 – Lumina Foundation for Education Currently: 39% VA: 42% OH: 36% KY: 32% PA: 43% WV: 28% MD: 45%

26. Demographic and Competitive Challenges Fewer traditional students, more disadvantaged, more working, more older, more low-income, less well-prepared Opportunities/challenges of international students/experiences Opportunities/challenges of online enrollment Growth of for-profit sector Constraints on serious innovation such as lack of venture capital and multi-faceted regulatory environment 20

27. The Leaky (gushing) Pipeline 100 High School Graduates VA OH KY PA MD WV 46 45 44 49 49 42 * Enter College 13 12 6 16 11 7 * Grad 4-Yr in 4 4 3 3 5 5 2 * Grad 2-Yr in 3 www.complete college.org

28. Enrollment Growth 1973-2008 22

29. Online Enrollment Findings, 2010 • Almost two-thirds of for-profit institutions now say that online learning is a critical part of their long term strategy. • The 21% growth rate for online enrollments far exceeds the 2% growth in the overall higher education student population. • Nearly one-half of institutions report that the economic downturn has increased demand for face-to-face courses and programs. • Three-quarters of institutions report that the economic downturn has increased demand for online courses and programs http://sloanconsortium.org/publications/survey/pdf/staying_the_course.pdf 23

30. The Noose is Tightening Less State Money Lower Family Income Deferred Maintenance End of Stimulus Funds Changing Demography High Cost of Innovation Even LESS State Money Higher Workloads (furloughs, layoffs, productivity efforts, increased enrollment) Limited Revenue Sources More Financial Aid Keep Tuition Down Keep up with technologies

31. Our advice to universities

32. Banish the Iron Triangle 26 QUALITY ACCESS COST

33. Not this! 27 QUALITY ACCESS COST Coping Strategies of Public Universities during the Economic Recession of 2009. APLU, November 2009

35. Align resources, cut costs, increase productivity

36. Innovate, re-inventMonitor your progress and exercise self-discipline - Scorecard, strategic governance 28

37. 29 “The best way to predict the future is to create it.”

38. Old Way New Way Improve today Iron Triangle Inputs, actions Program benefit Continuity Achieve tomorrow Reduce U & student costs Outcomes, outputs, results Program cost-benefit Innovation and continuous improvement

39. Checklist for Reverse Engineering the Future Define the desired long-term future state and understand the gap between here and there. Will the university’s clients’ costs-benefits be in balance? Will the university’s institutional costs-benefits be in balance? What will be the evidence that you’ve arrived? Do less of what won’t get you there – off track, inefficient Do more of what will get you there – cost/benefit and INNOVATION focus LEARN and exercise DISCIPLINE over time Test options for impact on metrics and cost-benefit, learn Test progress on metrics, recalibrate, re-strategize 31

40. Changing the value proposition

41. Strategic Planning by SWOT is not enough 33 Of the university Of the environment

43. Do that better

44. Get more money

45. Make people happier

47. Sample Scorecard – Top Level Target

48. How Could [Your Company] Support Such Strategies? 37

49. Could [Your Company] help with any of this? 38

50. Leadership Mind-Set Defined future as the guiding light Forecast across a rolling horizon Continuous effort to reduce cost and increase productivity Continuous allocation and reallocation of resources in accordance with cost/benefit examinations Continuous transparency, communication, and stakeholder engagement

51. How Much is Already in Place at Your Institution? Please indicate the presence of these strategic finance building blocks at your institution using the following key: 1 = Yes, we have it 2 = Yes, but it needs attention 3 = No, and we need it 4 = No, and we don’t need it

52. Bottom line Reverse engineer to a desired, viable future state Continuously manage costs and increase productivity Communicate openly and often Collaborate, engage Focus on RESULTS 41

53. 20th Century was one of technological innovation 21st Century must be one of institutional innovation David Wiley, BYU, http://davidwiley.org/