Reversal of Fortune
BASEBALL LEGEND AND MASTER of the obvious Yogi Berra once said, "The game isn't over until it's over." Truer words were never spoken, especially in the economic context of running a small, tuition dependent college or university. What matters most when adversity exacerbates the vulnerability of fragile institutions is the will not to give up.
College presidents and administrators face fierce competition, spiraling tuition discounts, unremitting capital campaigns to build high-end amenities, and fast shifting demographics. Whipsawed between a fickle economy, pricing wars, and market saturation advertising, contemporary institutions have a keen interest in learning from the turnaround success stories of their peers and aspirants. Doing more with less has never meant more.
What matters most when adversity strikes is the willnot to give up.
Before mapping a course for recovery, entrepreneurial colleges and universities need to take a long, hard look in the mirror and come to grips with the realities of their financial plight. Only by being placed on a single-minded regimen can fragile institutions recover. Indeed, more than recovering, these nimble colleges and universities must, by the terms of their charters and fiduciary responsibilities, operate on a longterm, sustainable basis.
Picking peers and aspirants carefully, institutions should invite external benchmarking and independent validation of their institutional research, environmental scanning, and market positioning perspective. This means opening up the institutions to close scrutiny and measurement based on field-tested peer performance metrics.
Michael Mace, president of Rocky Mountain College in Billings, Mont., knows all about what it takes to shore up a frail institution. Mace, a businessman by vocation who had served on the college's board, was tapped in 2005 to lead the institution after the regional accrediting agency had put it on "show cause" status. For him, it was a matter of the unique mission and vital economic role Rocky Mountain played in Montana.
"When you look at Montana, you tend to see a change happening," says Mace. "A lot of intellectual capital was heading to the western part of the state. I wanted to secure the college as a solid anchor for the future development of intellectual capital in our region of Montana." As it turns out, Mace succeeded, and today Rocky Mountain is thriving as a result of significant belt tightening early on in the turnaround campaign. In so doing, Mace immersed himself in data-driven analysis and institution-specific benchmarking, formulating the eventual turnaround plan.
For example, Mace examined the Risk Management Association's Annual Studies, which amalgamate pertinent financial data and then sort it by industry classification. RMA then creates common size financial statements for each classification, such as small private colleges. "It gave me a benchmark," Mace said.
Cost-containment and staffing reductions were, however, only part of a multifaceted plan that involved community stakeholder input and the unwavering support of the board of trustees. In less than two years the college has gone from a significant budget shortfall to a $2.5 million surplus-with indebtedness down 25 percent and the endowment up $6 million. Moreover, the college is once again fully accredited.
Wendy Libby, president of Stephens College in Columbia, Mo., since 2003, has similarly run this gauntlet of economic challenges and has come out the other side with a stronger institution. "We have seen our enrollment of traditional undergraduates go from 439 in the fall of 2003 to over 700 this year. Of all the indicators [in a tuition dependent turnaround], that's obviously the key. And in two of the last four years we finished in the black even though our plan called for breaking even in 2009-2010. After that, we'll be consistently in the black."
Rocky Mountain and Stephens tell us that up-close inspection often reveals program and human resource redundancy. If a college must consider a reduction in workforce, it is critically important to review with legal and labor counsel the potential dangers and pitfalls that can befall the unwary college administrator. Prior to taking any action, counsel and the administration should examine any statutory and regulatory restrictions, collective bargaining agreements, and applicable personnel policies and procedures.
Stephens cut one-third of the faculty, including tenured and tenure-track faculty. "When you need to make cuts, do it all at once. In retrospect, I probably should have cut more. Another area or two would have given us more freedom for allocation. Remember, you only have one chance to get it right."
At Keystone College (Pa.), employees had to forego pay raises for three years as part of its turnaround plan. Consequently, President Edward Boehm Jr. had to have the buy-in of all the various stakeholders: "While you can be the visionary, you cannot be successful without respect for your people. My vision is their vision."
Increasingly, successful turnaround stories are predicated on counterintuitive strategies such as transforming would-be competitors into collaborators. Take the case of community college baccalaureate completion programs that are offered in collaboration between the community colleges and public and private baccalaureate institutions.
In an age where the baccalaureate degree is the coin of the academic realm, these partnerships are an important piece of both academic and business plans. Partnering institutions can enjoy economies of scale and cost savings through creative resource sharing. Consortia that allow for faculty and student exchanges, revolving semesters, and field practica are one model.
Successful turnaround schools must diversify their revenue streams with, for example, campus-based auxiliaries, and they must reach out for gifts, grants, and contracts, to decrease tuition dependence. Beyond external funding, the institutions can increase conversion yield through leveraged financial aid-thus "buying" the best students with dollars for scholars.
Importantly, these "smart collar" colleges and universities continuously scan the marketplace for purposes of developing state-of-the-art programming and staying ahead of the career curve, a fast-changing demographic, and economic megatrends.
As President Dan Angel of Golden Gate University in San Francisco notes, "Turning around a college or university means making no assumptions." Angel served as president of two universities and three community colleges before taking the helm at Golden Gate, which has had its share of fiscal challenges. He also served on the Dallas Federal Reserve Board. "At Golden Gate we looked at the basics. We were able to change three vendor contracts that saved us $500,000," explains Angel. "See what's really possible and don't assume that everything has already been done. Beyond costs, look for unique niches you can expand upon."
Inspection often reveals program and human resource redundancy.
Depending on how dire the circumstances have become, some schools are all too familiar with having to fend off angry service vendors. To avoid that situation, they must develop creative repayment plans. These plans ease short-term cash flow problems, and preserve goodwill and relationships for future sales and service.
So what have we learned here? We've found that the process of turning around a college or university with its back to the wall involves one or more of the following action strategies:
Transforming competitors into collaborators
Using nonconventional problem solving techniques
Benchmarking performance through external, independent measurements
Scanning the market environment
Finding creative ways of achieving scale and efficiencies in operation
Avoiding duplication of faculty, program, infrastructure, and technology resources
Getting buy-in from all internal and external constituencies' efficiencies in operation
While these several strategies are illustrative and by no means exhaustive, they are key ingredients in modern higher education turnaround success stories.
Perhaps the most common trait among successful turnaround colleges and universities is their single-minded commitment to staying the course, making tough decisions, and fending off collateral political challenges from both internal and external constituencies.
Sadly, we can now safely predict that the confluence of mergers, acquisitions, and consolidations will continue to accelerate at a frenzied pace.
Given these exigent circumstances, fragile institutions would do well to heed the handwriting on the wall and not rely on the elusive wheel of higher education fortune.
Much like Yogi Berra, the ancient Roman poet Horace (who as far as we know never played Major League baseball) believed that people have the innate ability to overcome challenges and threats that life throws at them. This even includes obstacles faced by presidents of American colleges and universities.
"Adversity," Horace noted, "has the effect of eliciting talents, which in prosperous circumstances would have lain dormant."
James Martin is a professor at Mount Ida College (Mass.). James E. Samels is president and CEO of The Education Alliance. Their book is Presidential Transition in Higher Education: Managing Leadership Change (Johns Hopkins University Press, 2004).
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