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How to build a thriving online enterprise within a private nonprofit university

Lessons learned from the founders of an online university that generated more than $270 million dollars in net earnings over nine years.
University Business, April 2015

The authors were the founders of Touro University International (TUI), which at first was an online branch of Touro College and later became a separately accredited university by the WASC Senior College and University Commission. TUI remained within the Touro College and University System from 1998 to 2007. It was then sold and became a stand-alone, for-profit university, currently known as Trident University International. During its nine years of operation within the Touro System, TUI generated more than $270 million dollars in net earnings. This article portrays the unique experience of the founders of TUI, their explanation of the underlying learning and business models of TUI, and a discussion of significant lessons learned.

Initial development of learning model

While holding leadership positions in several institutions of higher learning, we were involved in pioneering learner-centered distance learning programs (stage one), and online learning (stage two). Consequently, we developed a unique vision for a new online university, based on our own published research, where all functions (academic and non-academic) would be directly linked to one Learning Model. We named the model the Robust Learning Model. It was built on quality standards derived from our own research. The Robust Learning Model is a multi-factorial model based on the theory that successful learning outcomes depend on multiple factors employed together in a holistic approach. Subsequent to the Learning Model, we developed an integrated system of information technology, an elaborate faculty deployment plan with specific roles and qualifications, multi-faceted student services focusing on students and learning, rapidity of response criteria for addressing student questions and providing feedback on student assignments, and advanced indicators of institutional performance and learning effectiveness. We have presented the new approach in various professional forums to a range of audiences who, by and large, were skeptical of its chances of succeeding, given the strength of the existing paradigm of traditional universities at that time.

Strategic choice of an institution

Determined to prove the academic skeptics wrong, we began searching for an enabling vehicle to facilitate the full implementation of the Robust Learning Model. In March 1998, while preparing a master of business plan for a new online university, the first author suddenly received an unsolicited phone call from the president and founder of Touro College in New York (a comprehensive nonprofit university with regional accreditation). He invited us to establish and head a new distance education division for his university in New York. This happened on Friday and we wanted some time to think it through. He gave us his home phone number and asked that we call him back on Sunday. We discussed it over the early part of the weekend and I was determined to push the envelope as far as I could as we fully realized that this might finally be the opportunity we were looking for. We called Touro's president on Sunday, as promised, and let him know our suggested approach. First, we identified our goal to establish a new branch campus of Touro College, named Touro University International, in Southern California. Second, this branch would be fully autonomous (subject to a one-line budget consisting of total revenues and total expenses) as long as we met or exceeded the agreed-upon net earnings. Third, Touro University International (TUI) would offer online degree programs in three levels (bachelors, masters, and PhD’s) and in four different fields (business administration, health sciences, information technology, and education). This item was extremely problematic, as Touro College was not approved to offer PhD degrees, either by the State of New York or by its accreditation commission. We were prepared for the “Thanks, but no Thanks” response but we were fully cognizant that this was the only way to fully implement the Robust Learning Model in a fully autonomous university environment with its dedicated faculty and staff who would share, in most parts, our vision. To our great surprise, Touro's president did not have any problem with these stipulations and invited us to meet with him the following Wednesday, in New York, to present a business plan to him, the Touro CFO, and to selected members of the Board of Trustees. He only had two follow-up questions that pertained to the amount of initial investment needed and how long it would take for TUI to cover its yearly expenses. My response indicated an initial investment of 3.5 million dollars and ability of TUI to cover all expenses by the third year of course offerings. He was very pleased with our responses. The top leader at Touro College, who had a great vision for innovation, could not have been a better fit for what we were looking for.

Accreditation and approvals After our visit to New York, the Touro College Board of Trustees approved the new branch and its autonomous status. We then approached the California Bureau of Postsecondary Education and submitted the required studies indicating academic quality, student-centered services, and financial responsibility. The Bureau approved TUI in six weeks. The branch was created with the intent of being accredited within the scope of accreditation of Touro College by the Middle States Commission (MSC). Initially MSC did not know how to approach the new branch as they could find no precedent for what we were trying to accomplish. We submitted an elaborate self-study for a substantive change for offering undergraduate, master, and PhD degree programs followed by a visitation of a large team chaired by the then Chair of the Commission in April 1999. At the end of the day, the Learning Model, the quality of faculty and staff that we assembled, and the quality of learning experience criteria prevailed. All of the proposed degree programs were approved and TUI gained accreditation as the first regionally accredited online learning institution to offer PhD level degree programs with no residency requirements. TUI was initially included as a branch campus in the accreditation of Touro College by the Middle States Commission on Higher Education. Middle States subsequently reaccredited Touro College, including the TUI branch campus, in 2004. Because of TUI’s location in California, its robust growth, autonomy, fiscal and operational stability as well as its online education delivery model, a discussion was initiated among WASC, Middle States, Touro College, Touro University and TUI to transfer the accreditation for TUI from Middle States to WASC in 2005. This was accomplished in February 2005. The learning model

TUI was founded on the basis of a Learning Model.

To achieve Learning Effectiveness in an online learning delivery mode, a Unique Pedagogy was designed and developed so that Learning could be effectively supported by Information Technology, Faculty, Student Services and overall Organizational Performance. High quality Faculty, focused on and committed to Organizational Performance and Learning Effectiveness, were recruited and hired. Information Technology was developed to support Faculty, Student Services, Organizational Effectiveness and Learning Effectiveness. Student Services was established to provide high quality student service in order to enhance organizational performance and learning effectiveness. Organizational Effectiveness was envisioned, designed and developed to ensure that efficient and effective use of resources result in Learning Effectiveness.

The Learning Model serves as the conceptual map from which all other TUI activities and policies were derived (a complete portrayal of the Learning Model can be found at Neumann and Neumann, 2010).

The business model

The opening of the various schools was deployed in four-year sequences starting with the school of business administration (1999) and concluding with the school of education (2002). Courses were offered during four sessions a year (12 weeks each) and all courses were offered each session. Each course was a four credit course and included a session long project in addition to case studies and weekly quality participation in threaded discussions.

An enrollment-based faculty deployment was devised for full-time and part-time roles. Full time faculty members were responsible for serving the institution with committee work and course development as needed. Part-time faculty members were employed for instruction and mentoring PhD students. All faculty members were assessed for the quality of their student learning demonstrated by student learning outcomes, retention, and graduation rates, as well as for their intellectual contribution, service, and compatibility with the institution learning culture.

Revenue Mix, Marketing and Recruitment Tuition revenue mix was modeled to be dominated by military tuition assistance and VA benefits, to mitigate the heavy reliance on military by 20% of cash payers, and 10% from student financial aid (federal and state).

The focused target of the division at the bachelor and master degree level was the military market with an emphasis on the active duty servicemembers, military reserve members, and their families. To maximize the affordability for that market segment, a military tuition discount program was designed. It was originally designed for a lower level of annual military tuition support and was later adapted when the military tuition assistance benefits were upgraded. Other market segments included a professional segment for PhD degree programs and other areas where Touro College already had brand recognition.

Military students comprised by design the vast majority of enrollment of TUI. This program allowed servicemembers to earn up to 28 semester credits (seven courses) per year at no cost to them individually by using the full military Tuition Assistance program.

Affordability

TUI was designed to be a tuition driven institution where tuition revenue and related fees should have covered the totality of expense. Although we employed a generous model of full time faculty for quality assurance and sustaining the learning centered culture, affordability was necessary to penetrate the military market and other market segments designed to mitigate the risk of concentrating only on one market. In any given degree program, a positive marginal contribution was key for the success of the Business Model. In reality, the incremental student in any degree program needed to cover the variable and semi-variable costs that were part of that degree program.

Student Centeredness

Realizing that student engagement and the rapidity of feedback are keys to student success and retention, a mandatory response time of 24/72 (excluding weekends) was instituted. All staff and faculty members were required to respond to all students and potential students within 24 hours from receiving any email and/or phone communication while all learning related activities were to be assessed with appropriate feedback within 72 hours from the time that each activity was posted. We surveyed numerous nonprofit, state, and for-profit institutions in 1998 and did not find any mention to this policy in their catalogs.

Technology as a business differentiator

After conducting a technology need assessment, we concluded that in order to fully exploit the competitive advantage of our Learning Model and business strategies, we needed to develop our own Enterprise Resource Planning (ERP) as well as our own Learning Management Systems (LMS). The main reason was that all the "off-the-shelf" solutions that existed at that period did not cover all of our required features and could have resulted, if implemented, in excessive customization efforts. Second, we wanted a fully integrative web-based network that would provide students, faculty, and staff a one-stop destination for all needed business and educational functions. Additionally, the fully integrated system provided management with its needed dashboards and metrics. The initial system was not ready at the start of operations and was implemented later on. Those technology developments were done in house with a modest investment and resulted in process and productivity gains with a direct impact on the university bottom line.

TUI success

TUI reached a break-even point by the third year of operation (2001). Touro College's funding of TUI was at 2.7 million dollars (well below our projection of 3.5 million dollars). Total enrollment grew from a 16 headcount in the first year to a 1,357 headcount in the third year (2001).

From 2002 to 2004, TUI generated combined revenue of 55.8 million dollars from tuition and related fees with a combined EBITDA (the earnings before interest, tax, depreciation and amortization) of 30 million dollars. The combined EBITDA margin for the three years was a remarkable 54%. Total enrollment grew from a 3,082 headcount in 2002 to a student headcount of 5,187 in 2004.

From 2005 to 2007, TUI generated combined revenue of 99.2 million dollars with a combined EBITDA of 51.4 million dollars. The combined EBITDA margin was again above 50% (the actual margin was 52%). The headcount enrollment increased from 5,701 in 2005 to 7,391 in 2007.

The financial and enrollment indicators were compelling. From virtually no students, in nine years TUI had grown to 7,391 in 2007. For an initial funding of TUI of less than 3 million dollars, Touro College generated more than 80 million dollars in net earnings (from an impressive revenue of 155 million dollars). For many years, the funds generated from the online division enabled Touro College to support its other operations as well as invest in new initiatives.

Toward the second half of 2006, Touro College Board of Trustees had begun to consider the sale of TUI. There were various reasons for this strategic choice. First, Touro College did not have any sizeable endowment and TUI monetization was one way of getting there. Second, Touro College made quite a name for itself in Osteopathic Medicine and it desired to add an allopathic school to strengthen that medical alliance. Third, the financial climate for acquisitions (M&A) was extremely favorable.

TUI was a highly valued asset and generated numerous competitive bids from financial buyers. Despite our lack of enthusiasm (this is really an understatement) to move into a for-profit environment, it became clear to us that financial buyers made their bids contingent on top executives continuation with the new for-profit structure. In July 2007, Summit Partners signed an agreement to buy the assets of TUI for a cash price of 190 million dollars. The transaction was closed on October 31, 2007. The new entity was named TUI University and was later renamed Trident University International.

How successful was TUI for Touro College? First, the division was separately accredited by WASC Senior Commission and moved Touro to a level of degrees (PhD) that it did not offer before. Second, in nine years, TUI generated 270 million dollars for Touro College.

Lessons learned

Prior to joining Touro, we insisted on a complete operational autonomy for the new division. When we compare TUI with other online ventures started by nonprofit universities at the same time, we found numerous failures. There are various unique reasons for each case but one common denominator, i.e., too many cooks (meddlers). The written agreement guaranteeing autonomy was a necessary, but not sufficient, condition as the culture needed a new enterprise quite different from the traditional university culture.

It is also clear that our own extensive academic and executive background in higher education was crucial to the development of a detailed vision, operational frameworks, and their execution. We put a premium on faculty selection, training, and development to succinctly implement the Learning Model and its quality assurance. We developed our academic leadership for the various schools and departments from within after they were exposed to the model's teaching and learning components. Similarly, TUI central administration was deliberately lean compared to other separately accredited institutions, let alone for-profit degree granting institutions. For new enterprises within nonprofit institutions, it was essential that the new leaders of the enterprise have the academic and executive track record to deal effectively with the flag bearers of the status quo. This was also quite different from the for-profit environment where representatives of the status quo may not be as widespread.

Another aspect that we developed during the years was the ability to experiment, test, and adopt (or reject) new innovations. Examples of this approach were manifested throughout the development of the unique and customized IT system, by alternating between web-centric and CD-ROM delivery of course materials (the latter was aimed to ascertain access to military students with a sporadic Internet connection), experimenting with non-degree certificates, and by testing a new learning guarantee concept. Consequently, a successful enterprise needs to develop appropriate approaches to deal with ongoing streams of ideas for program and process innovations.

A contrarian approach was an important component of our success. We repeatedly heard, at the time, that the regulatory environment would not tolerate this radical change and that the world was not ready for a totally autonomous online division within the context of a nonprofit university. By and large, the naysayers were probably right. In a regular university mindset, this would not be possible. It takes a unique shared vision between the head of the university (Touro) and the leadership of the division (TUI) to make it happen. Thus, identifying the context and organizational conditions of this type of innovation was paramount to its success.

Yoram Neumann is the Chief Executive Officer and University Professor of Business Administration at Touro University Worldwide. He can be reached at Yoram.Neumann@tuw.edu. Edith Neumann is the Provost and University Professor of Health Sciences at Touro University Worldwide. She can be reached at Edith.Neumann@tuw.edu.

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