Leadership challenges Recognizing external and internal challenges Identifying

Leadership challenges • • • Recognizing external and internal challenges Identifying hard-to-copy niche positions Understanding finances Measuring, tracking and reporting outcomes Communicating what (few) things matter Executing changes

External challenges for universities • • Declining taxpayer financial and political support Increasing competition High student debt Lack of perceived worth of high-quality education Altered student demographics Mobile and informed students Eroding instructional standards in K-12, requiring remedial accommodation

Competitive-market features of higher education • • • Increased demand leads to higher tuitions Demand growth encourages entry Size expansion facilitates specialization Demand changes affect desirable program mix Competition stimulates quality and innovation but also exposes inefficiency

Internal challenges • • Hierarchies versus markets (a big question) Equity versus efficiency Unsustainable internal subsidies Mediocre programs Resistive shared-governance traditions Behavioral issues (binge drinking, harassment, etc. ) Regulations, mandates, and information requests Needed process improvements

Traditional list of values • Developing critical thinking skills (“creating prepared minds”) • Offering broad perspective in liberal arts and sciences • Instilling community and cultural identity • Seeking social justice and egalitarian principles • Achieving diversity and inclusiveness • Facilitating access for residents • Maintaining fairly-compensated, stable employment

Privatization implies: Economic value = willingness to pay – opportunity costs • Willingness-to-pay: – Students: debt-financed tuitions – Patients: insurance, out-of-pocket expenses, co-payments – Taxpayers: appropriations, subsidized loans and grants – Donors: gifts – Opportunity (alternative) costs: – Taxpayers: What is the best alternative use of these resources? – Colleges: What activities should we not be doing?

The “value” dilemma: Jackson Pollack’s Mural • A credible willingness to pay in 2006 of $155 million • Opportunity costs: forgone annuity of $6. 5 million, insurance, security expenses • Unmeasured intrinsic value was perceived to be enormous • “This attempt to ‘monetize’ a university collection should stop right where it started. ” • Mural has not been on campus since 2008, but might return in 2019 (three generations of students on)

The Way Forward: “If you don’t know where you are going, you will end up someplace else. ” (Y. Berra)

What is effective strategy? A strategy is an integrated set of choices that position programs, among competitors, to achieve superior outcomes over the long run.

Contributors to effective strategy • Strategic choice • Making trade-off decisions involving opportunity costs • Differentiating programs from others • Operating excellence • Aligned processes and activities

Operating excellence by itself is not strategy

A distinctive position • A positioning strategy is NOT – “We do everything” – “We serve everyone” – “We like every idea” Ezra Cornell, in 1868, said: “I would found an institution where any person can find instruction in any study. ”

Developing a positioning strategy • Define distinctive, hard-to-copy positions • Determine a mission-consistent program scope • Target investments (processes, people, and activities) to complement selected positions • Avoid reliance on unreliable subsidies

Generic positioning Type of strategy Description Examples Share Low tuition, open access, subsidy Community colleges, supported, California state colleges large scale, and elastic demand Niche (highly selective) High quality, high tuition, restricted access, inelastic demand, limited scalability Convenience of local geography, time of delivery MIT, University of Michigan, Rice Program or demographic selectivity US Naval Academy, Nursing schools, Julliard, Evening MBA programs Access-based Variety-based Univ of Phoenix, Community colleges

Highly selective universities • Compete for students, staff, and faculty. • Schools are informed about applicants; students are informed about schools. • Students internalize their education, because they pay for it. • Students make choices that are responsive to a school’s capabilities and resources. • Strong associative matching exists between students and schools.

Positioning decisions: Iowa & Michigan University of Iowa University of Michigan Enrollment 30, 893 43, 426 Tuition Revenue/Enrollment $12, 539 $25, 108 State Appropriation/ Enrollment $7, 004 $6, 189 Annual Total Cost/student (expenditure/student) $20, 168 $30, 811 Student Acceptance Rate 79. 8% 40. 6% Six-year Graduation Rate 69. 6% 89. 7% $64, 000 $59, 600 Median Family Income

Strategy without financial discipline is fantasy

Understand the financial environment • What are the efficiency/equity implications of maintaining vast instructional subsidies? • What are the implications of turning variable costs into sunk costs? • How can we support basic research? • What are the opportunity costs of any activity or academic program? • What is the true cost of fundraising?

A minimal financial model • Revenue: generated revenue plus sustainable subsidies (taxpayer, university, and private donations) • Cost structure: variable costs, fixed costs, sunk costs, scalability • Resource usage: staff scheduling and facilities turnover rates • Margin: targeted net revenues

Comparing Iowa-MBA for Professionals (off campus) with the Iowa Law Program (on campus) • The programs had about the same number of students (750) • Both program were taught by a comparable mixture of faculty, who were equivalently compensated • Full cost per SCH was $340 in the MBA and $1, 035 in Law • Tuition revenue per SCH in the MBA was $598; Law was $543 • The MBA students were employed and well compensated, while employment was a challenge for Law graduates • Law , receiving a $344 subsidy per SCH, was running a deficit

Communicate relentlessly • Communicate selected position: – Effectively and clearly – Frequently (redundantly) • To: • Faculty and staff • Students and parents • Donors • Legislators and taxpayers

Again, the elements of strategic thinking are: • Make ENVIRONMENTAL assessments. • Articulate a VISION with measurable objectives. • Identify POSITION AND SCOPE; demonstrate distinctiveness, within context of the guiding institutional mission. • Configure ACTIVITIES to support the position. • Have COURAGE to make tough tradeoffs. • Relentlessly COMMUNICATE what matters.

Some key points • Declining taxpayer support and competition drive down net revenues • Understanding willingness to pay and opportunity cost are critical in creating value and in making hard choices • Effective strategy requires distinctive positioning, with aligned processes and activities • Good budgeting increases transparency, improves incentives, reduces subsidies, and facilitates implementation

Tradition contrasted with the new reality Traditional Approach Regulated, flat tuition structures Low tuitions-high subsidies Fixed admission criteria Unrestricted subsidy use All revenues are spent Limited accountability “Hour-glass” governance “All things to all people” Opaque financial reporting Numerous internal subsidies Donations provide “extras” New Reality Tuition discretion and flexibility High tuition-low subsidy-high aid Flexible admission requirements Focused subsidy use Retained efficiency revenues Increased accountability Top-down “shared” governance Focused program scope Transparent financial reporting Fewer internal subsidies Donations support extras and operations

How to set tuitions to ration enrollment to the highest-value programs? • Efficient tuitions are a weighted average of maximum willingness to pay and marginal program cost • The assigned weight reflects the common (across all programs) degree of economic efficiency • Tuitions = (1 -α) Willingness to Pay + α Marginal Program Cost

Thank you