Monthly Archive: December 2018

The Latest from Moody’s – TL/DR – Not So Good

Moody’s released their higher education credit outlook report (IHE article, too) yesterday. This is the second year in a row that it’s been a negative rating (used to be “stable”). I found a few interesting points in the report. A quick summary is that low net-tuition revenue growth continues to make for a bleak forecast, and that expenses should outpace that revenue, to boot. We’d have to get to a 3% increase in revenue to get level again, and to get to a stable rating. Privates are forecast to be a bit better off than state schools. The full report, which is for subscribers only, is a lot more illuminating, but I’ll reference information in the linked article only.

Labor remains the biggest cost for higher education institutions, up to 75% of total expenses. A professor at U Wisconsin Madison says that it’s just the “nature of the beast” that it takes a lot of staff and faculty to run a higher education institution. This is completely true, and Baumol’s Cost Disease speaks to the fact that economies of scale are extremely difficult in labor-intensive industries such as higher education (massive oversimplication). If you want an 11:1 student to faculty ratio, you have to hire enough faculty to achieve that result. Faculty salaries go up. Labor expenses go up. There is no way to use scale that doesn’t erode that student to faculty ratio. It’s like trying to make a musical quintet more efficient in labor. You can’t have a 5 piece band with 4 people.

If this truly is the “nature of the beast” then we need to be asking some hard questions about our business model. I don’t mean that in the “higher ed should be run like a business” kind of way – just how we get things done. None of these questions are all that new – different channels for delivery (online), for instance.

There is another part about how colleges and universities are expected to “control those costs in the coming year.” This is about cost containment. Or, in most cases, cutting costs. But that’s a simplistic analysis, too. What if you’ve already cut things to the bone? What if there are few remaining efficiencies to be gained? At this point, I’m slicing a few thousand dollars off our phone bill and calling that a win (there are loads of other places here at the College where we can save money. I’m not the only one trying to contain costs and I’m not saying that all costs have been trimmed. We are not perfect. My point is that this isn’t a winning strategy forever).

It’s an interesting time in higher education, to be sure. Certainly reports such as Moody’s cast a negative forecast on things, but there are a lot of exciting and positive things happening, too. How we react to the forces identified in reports like these will partially determine where we – as an “industry” and as individual institutions – will find ourselves in the coming years.

 

Higher Education – if not a business, then what?

Use the phrase “higher education should be run like a business” and you’ll usually get polar-opposite responses from a wide range of people. One CIO might agree while another runs at you with a pitchfork or torch. Some presidents may feel sympathy for the argument, while others will take a completely opposite stance. In other words, it’s not as if one group of individuals (like CIOs) agree while others (like presidents) don’t. You get the bi-polar set of reactions everywhere.

Even what one means can be controversial. Do you mean all of higher education? Including the academic side? In which case you probably (but not definitely) mean teaching at scale (large lectures or even MOOC-style ones), accessing new channels (online), and perhaps even modifications to curriculum. Or do you mean the administrative side? In which case you’re talking about business operations. Of course, it’s not a clean separation. What about a business analysis of the output from academic departments? Many institutions (I’ll find some links later) have been cancelling majors due to low numbers of graduates, meaning that the major is not producing the “ROI” that the institution expects. I usually interpret that investment as in the form of the faculty paid to run that program, but I  might be narrow-minded on that.

For me, I generally mean business operations whenever I ponder this phrase. I am not sold that it should be run like a business. We are an educational institution, with service providers and “consumers” (I mean that literally, and not as akin to “customers.” I mean people that consume the service we provide) that are focused on education and the growth of young adults and adult learners. But then I look at how I spend my days trying to do “cost containment” (ie – cutting expenses) on things such as phone bills and internet service, or getting bids on projects, and it sure does feel like a business sometimes.

So my question is – if not to be run like a business, how is an institution to be run, on the administrative side? What is the framework or model that one would prefer to use? And can you articulate that framework?