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Trusteeship Magazine

Surviving and Thriving in Tumultuous Times

By Terrence MacTaggart and Robert A. Sevier
March/April
2014
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In an era with seemingly relentless new challenges, the colleges most at risk are those that fail to adjust and innovate.

When faced with disruptive competition, colleges and the boards that oversee them have three basic choices to pursue: the legacy model, the hybrid model, and (near) total transformation.

Those institutions that respond correctly to today’s challenges have a great leader, a compelling vision, and an extraordinary senior team.

In an era with seemingly relentless new challenges, many colleges and universities need to change—either to avoid mediocrity or simply to survive. And without active board leadership, much crucial change will not occur or will fall short of its goals. What should boards be thinking about when it comes to successfully overseeing change at their institutions? What are the vital elements for success in today’s environment? Two higher education experts weigh in.

3 Models to Consider

By Terrence MacTaggart

“What kind of institutions are most at risk in today's environment?” Conventional wisdom views the most vulnerable as regional public universities dependent on diminishing state support, independent colleges lacking strong brand appeal, and any college or university located in rural America. All of these answers are wrong.

The right answer is that the colleges most at risk are those that fail to adjust and innovate in the face of disruption.

With online education, campus location is no longer the debilitating constraint or the distinct asset it once was. Given the freedom to compete, public colleges and universities can replace state subsidies with new revenues from market-oriented programs. Thanks to their relative freedom to maneuver, independent institutions can mount competitive programs at times and locations convenient to value-conscious educational consumers. In short, whether a competitive change is disruptive or creative depends on who is leading the change.

Disruptive Innovations in Higher Education

Clayton M. Christensen, a Harvard University professor and business consultant, coined the phrase “disruptive innovation” to describe innovations that upend traditional industries in his 1997 work, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business Review Press). In it, Christensen analyzed the fall of the American steel industry. According to his narrative, low-cost producers of low-margin products like rebar captured the low end of steel manufacturing, then gradually worked their way up the value chain until they hijacked high-end segments like stainless steel. Following a similar pattern, Korean auto manufactures threatened the Japanese, and smart phones and iPads edged out personal computers. The roster of disruptions is a long one, affecting nearly every modern enterprise.

The move from bottom feeder to elite in higher education parallels disruptive change in other industries. For example, once derided as a gimmick or flawed strategy not suitable for many academic disciplines, online delivery is now a major factor in educational delivery. By some estimates, fully one-third of traditional courses are available fully or partially online. Massive online open courses (MOOCs), offered by elite institutions like the Massachusetts Institute of Technology and Harvard and Stanford Universities, enroll tens of thousands of students. Minerva, a project spearheaded by former Harvard President Lawrence H. Summers, promises to make money delivering an Ivy League education using the Web and multiple campuses (without many specifics yet, to be sure).

One of the most significant challenges to traditional institutions these days comes from the proprietary sector, either by starting up institutions from scratch, as in the case of the University of Phoenix, or by buying accredited institutions, as when Bridgepoint Education purchased The Franciscan University of the Prairies and renamed it Ashford University. While for-profits struggle with accrediting agencies and the U.S. Department of Education, they have been the fastest-growing segment of the market. Such institutions will continue to be major suppliers of educational services, although the growth rate of the large providers is slipping as more entrepreneurs, profit and nonprofit alike, adopt the innovations they once pioneered.

The course content differs little from conventional college courses, but the business model is the true disruptive feature. Based on low-cost, part-time faculty, standardization of courseware across hundreds of courses delivered to thousands of students, massive international marketing, and Web-based and classroom learning, this model can yield stunning profits.

Online delivery and the proprietary-school business model, alone or in combination, represent only the most striking disruptions in higher education. Other competition can cause leaders of many colleges and universities sleepless nights, as well. Drexel University of Philadelphia, for example, is just one of the many institutions that defies geographical boundaries, offering numerous degree programs online and on the West Coast, some 3,000 miles from the main campus. There are few safe harbors for traditional colleges seeking shelter from entrepreneurial competitors ready to offer a wide range of degrees anywhere at any time. And the threats are global: More colleges and universities in other countries—Europe, Asia, and elsewhere—are recruiting students from the United States and making inroads in traditional institutions’ markets.

Responding to Disruptions

The pace of change in higher education delivery is daunting, but it need not be overwhelming if a board realizes the three basic choices available to a college or university faced with disruptive competition. An institution can distinguish itself from the rival innovators by emphasizing traditional programs appealing to a traditional clientele of students. I call this the legacy model. The second option is to combine innovation with legacy programs—a hybrid model. The third approach is to radically transform a traditional institution into a highly innovative one, preserving only symbolic vestiges of historic offerings.

The Legacy Model

Emphasizing legacy values and making a virtue of not imitating the innovators can be a workable strategy. Elite institutions may dabble in certain kinds of innovation through participation in MOOCs, for example, but their enduring appeal remains the compelling brand associated with names like Harvard, Princeton, or Stanford.

Religiously affiliated colleges and universities enjoy protection from the ravages of innovators if their ties to the church and the fealty of the congregation are sufficiently strong to attract a critical mass of students and financial support. Specializing in a high-demand field, especially if linked to major employers, can also be a powerful hedge against competition, as Johnson & Wales University has demonstrated for years. It thrives by sticking to its core strengths in the business and practice of hospitality.

Before committing to a status-quo strategy, however, boards must be tough-minded in asking if clinging to historic strengths is a sound strategy or merely wishful thinking. Trenchant discussion of the real value proposition will help separate pleasant fiction from disturbing fact. Boards should ask:

  • Do we have hard evidence that the college truly performs at a superior level as opposed to magical thinking that imagines it does?
  • With respect to brand, does the institution really enjoy a reputation for distinctive excellence? Or is that opinion cherished by faculty members and alumni but far less so by students and their parents when deciding where to go to college?
  • Are there enough able students in the pool who will actively seek and find the means to pay for what the institution offers? And do the demographics indicate that pool is stable, growing, or in decline?

If answers to such questions suggest the legacy model is shaky, the board should quickly turn its attention to more realistic options. It is telling that even St. John’s College of Annapolis and Santa Fe, which traces its legacy to the 17th century and specializes in a “great books” curriculum, has had to adjust. The college’s president was quoted in a Wall Street Journal article (“Private Colleges Face Enrollment Decline,” November, 11, 2013) that, thanks to falling enrollment and declining tuition income, “We had to change our business model.”

The Hybrid Model

As the name suggests, the hybrid option combines traditional strengths that may be less susceptible to disruption with innovations that enable the institution to reach new student markets in new ways. Most colleges and universities in the country probably subscribe to this approach, whether they adopt it as a formal strategy or not. For example, a clear majority of institutions offer partial digital delivery of courses and degree programs. And features of the proprietary-school business model, with its reliance on adjunct faculty teaching in career and professionally oriented programs, is gradually replacing the traditional model of full-time, tenured professors at many colleges and universities.

The University of Dubuque Theological Seminary presents a striking example of a hybrid approach in that it combines strengthening its core programs and mission with innovations that further reinforce its traditional mission. A dozen years ago, this college and seminary faced declining enrollments and revenues, while also experiencing strife between the board and the faculty. With strong support from its board and the able presidential leadership of the former seminary dean, Dubuque recommitted itself to its traditional mission. Along the way, a $30 million gift from the Wendt family enabled Dubuque to reinforce its historic concern for ethics and character-building by developing an institution-wide initiative on the meaning and exercise of character.

Today, the University of Dubuque Theological Seminary offers degrees in divinity that combine online with residential study. One of the most compelling features of Dubuque’s trajectory is that both its traditional and innovative offerings align with its core Christian mission. As a result, the university has quadrupled its enrollment, increased its endowment substantially, and rebuilt its campus into an example of an inviting and attractive place to learn.

The hybrid strategy has advantages over the legacy model in that it preserves institutional strengths while adding innovations that, if successful, enable the college or university to remain viable over the longer term. But this balanced model is not without pitfalls.

A common failing is to regard the traditional programs as sacrosanct, immune from the need to change as long as some new offering serves as a cash cow that balances the budget. And the prospect of change itself, unless managed adroitly, can trouble faculty members and arouse their opposition. Thus boards and presidents must not only make the right strategic choices, but they must also lead a change process that probably won’t be universally embraced.

All this demands that boards ask hard questions, such as:

  • If the president and the board have little experience in leading change in the academy, how do they plan to acquire that skill?
  • What steps will be taken to convert the almost inevitable pushback from some faculty members, and possibly alumni and students as well, into acceptance and even support?
  • Where the hybrid model requires some pruning of legacy offerings, what criteria should be used to decide what stays and what goes?
  • How will the institution ensure that traditional programs remain vital even as leadership attention shifts to new offerings?
  • Does the institution have the human talent and other resources to mount competitive new programs? If not, can the resources be developed internally with current staff, or should outsiders be hired to carry them out?
  • How can the traditional programs and new ventures converge to result in greater strength overall, as in the case of the University of Dubuque?

The (Near) Total Transformation Model

Radical change that amounts to fundamental transformation of the mission, culture, or teaching-learning model of a college or university is extremely rare. Many forces work against it: traditions of shared governance, collective bargaining where it exists, the essentially conservative culture nurtured in traditions with roots in the 11th century, and the near-universal organizational inertia that resists change. To be sure, resistance is not all bad, because not all change is good.

Yet change is inevitable in this environment, and colleges and universities must be more nimble than ever. One of the most widely recognized innovative nonprofit institutions is Southern New Hampshire University (SNHU). Heralded in Christensen’s and Henry J. Eyring’s The Innovative University (Jossey Bass, 2011), SNHU might technically represent the hybrid model thanks to its conventional campus in Hooksett, complete with sports teams, fraternities and sororities, and handsome buildings. But SNHU has heartily embraced the proprietary-service model in its online programs. Enrollment in those enterprises is reported to be more than 25,000, growing consistently in this country and increasingly around the globe—and contributing substantial net income.

In addition to the large and well-publicized innovations at Arizona State University and Western Governors University, Granite State College—New Hampshire’s adult-focused public institution—deserves recognition for the way it is transforming itself. Created in 1972 to serve working adults, it offered a conventional menu of “nontraditional” services featuring intense individual attention to a small number of students. Following the arrival of a new president four years ago, the college began a 30 percent climb in enrollment in digital and market-oriented programs. Through its Innovations Group, an entrepreneurial unit with its own dean, it is expanding its online offerings, as well as providing comprehensive online support for the law school at the University of New Hampshire and for Cambridge College, a private institution. With this creative leveraging of assets—in this case, online expertise—Granite State is vastly expanding, if not shattering, conventional definitions of what a college does.

Boards of such transformed institutions face an exciting opportunity to genuinely innovate by enrolling and graduating large numbers of students, providing them with more than adequate education for the careers they seek, and doing all this at a competitive price. At the same time, boards of these innovative institutions face the challenge of asserting leadership when it comes to ensuring academic quality and responsible levels of student success. Such boards must insist on tough-minded discussion around questions such as:

  • What are the most effective ways to work with academic leaders to monitor and ensure academic quality in an environment that prizes growth in enrollment and income?
  • What does it mean to be an independent board representing the public interest in a college or university that operates more like a business than a traditional institution?
  • How should the board’s fiduciary responsibility be exercised where the goals of serving students and the public good are combined with generating substantial net income?
  • What is the board’s role in ensuring that a sensible form of shared governance is developed?

Final Lessons

Few institutions hold a strong enough reputation to prosper solely on the appeal of their legacy strengths. And fewer still are likely to radically transform themselves to become replicas of Southern New Hampshire. Some version of the hybrid model will define the future for most colleges and universities.

Boards and presidents whose institutions have been late in responding to the competitive threats—or who haven’t at least carefully considered their model—would do well to heed these lessons:

  • Learn from the mistakes of those who moved too quickly into the new educational space. It is far better to learn from the missteps of others—lapses in quality or failures of technology, for example—than to experience failure yourself.
  • Recognize that the market for career-oriented programs and online delivery is highly competitive. Coming late to the market means that you will need to be especially astute in choosing programs and delivery modes that offer growth potential.
  • Gauge the president and board’s capacity for leading change. Few academic leaders have been taught how to do so. The key to turning disruptive into creative innovation is for leaders to honestly evaluate their own experience with innovation and to seek help if they need it.

4 Essential Elements to Seek

By Robert A. Sevier

Earlier this summer, I presented at three board meetings in three weeks about strategic issues. At each, I heard the same phrase from the board chair or the president: “We are at a crossroad.” Nodding as one, the other board members all agreed with this observation and then moved on to the next item on the agenda. The third time I heard this pronouncement, I followed up with a question: “If you are at a crossroad and you are on one of the four roads, where do the other three roads lead?”

I could see by the looks on their faces that no one had really thought about the other three roads. In fact, my question sparked a fairly long discussion that derailed the carefully choreographed agenda.

After some time, we concluded that the other three roads lead to:

  • Prosperity;
  • Institutional failure; or
  • Increasing marginalization.

As a group, we decided that a relatively small number of institutions will find themselves on the narrow road to prosperity. Marketplace challenges, said one board member, will prohibit many colleges and universities from advancing on this road. While I don’t agree with his conclusion that the marketplace will be the culprit, as I will explain in this article, I do agree with his conclusion that this road will be narrow.

The second road, we decided, will lead to institutional failure. It will also be less-worn. Colleges and universities are surprisingly tough and resilient—they rarely go out of business. With a nod to Mark Twain, the rumors of their impending or premature demise are almost always exaggerated.

But the third road, increasing marginalization, will be wide and well-traveled. Jim Collins, in How the Mighty Fall: And Why Some Companies Never Give In (Collins Business Essentials, 2009), offers an insight: “Organizations,” he said, “are more likely to fail because of what they do to themselves rather than what the marketplace does to them.”

Interestingly, the most successful colleges in the country often face the same challenges as the less successful ones. What makes them successful is not their circumstances, but how they choose to respond to their circumstances. Drake University is no less expensive than many private institutions that are struggling, yet it has been very effective in improving quality, heightening diversity, diversifying its revenue streams, and increasing access. The University of Southern California, also a private institution and arguably one of the best colleges in the nation, often goes head-to-head with regional and national publics and, in most instances, wins. Southern New Hampshire University’s “no frills” approach is proving to be an extraordinary business and academic success.

Richard H. Dorman, president of Westminster College in Pennsylvania and co-author of Academic Leadership and Governance of Higher Education (Stylus Publishing, 2012), agrees. Says Dorman, “Successful adaptation to environmental changes will require bold creativity in aligning those changes with the mission and core values of the institution.” He continues, “Motivating strategic change while preserving institutional traditions is a challenging undertaking, with success coming to only the most adept leaders.”

George Fox University in Oregon just enrolled a record class of first-year students, an increase of 34 percent. Robin Baker, president of George Fox, pins this success on an important observation: “I’m not sure that the market became more attractive so much as we became more attractive to the market,” he says. “At George Fox, our graduate programs have thrived by being entrepreneurial and agile. They are like start-ups. It’s a mindset we’d like our undergraduate programs to emulate.”

The Three Keys to Institutional Prosperity

If it is about how an institution chooses to respond to the marketplace that matters most, what are the characteristics of those that are most likely to respond correctly?

A Great Leader. The single biggest determinant of institutional success is the quality of the leadership that the president provides. And almost all the literature on presidential leadership agrees on one key point: It is less about what the leader knows and more about how the leader acts. For example, on my desk are a dozen or so books and articles on presidential leadership. One lists eight essential qualities for the successful leader. Another lists 12. Another has 15.

What is revealing, however, is that each list includes only one item that relates to technical competence—typically the ability to understand complex financial matters. Instead, the lists highlight that strong presidents:

  • Exemplify integrity;
  • Listen well;
  • Create coalitions;
  • Communicate early and often;
  • Challenge conventional wisdom;
  • Win people to a point of view;
  • Build trust; and
  • Act decisively.

Great leadership, it appears, is first and foremost a people thing. It is about winning others over and leading them, in many cases to places they could not and perhaps would not go on their own.

“At Westminster College,” Dorman says, “our initial response has been to first achieve universal embracement by all constituencies that meaningful change must occur. We need to make a clear case on what will happen to us if change does not occur. Then we involve those same constituencies collectively in brainstorming appropriate solutions that will ensure our future viability and growth.”

A Compelling Vision. The pragmatist in me resists the temptation to have an overly philosophical discussion of vision. From my perspective, a vision needs to do two basic things: 1) pull people out of their comfortable orbits, and 2) attract resources.

Many of the colleges on the wide road to marginalization are on that road because, at one level, they cannot imagine themselves on any other road. They are reluctant to identify and agree upon the challenges they face and even more hesitant to commit to a course of action. They have, at the outset, a vision failure.

Coincidentally, this past year our nation celebrated the 50th anniversary of one of the most compelling visions ever articulated. Some 50 years ago, on a hot August afternoon, Dr. Martin Luther King Jr. stood before a crowd of 250,000 people at the Lincoln Memorial. As he looked out over the National Mall, he uttered words that still inspire hearts: “I have a dream,” he said. And with those words, a nation was galvanized.

King’s vision was so compelling that it pulled people out of their comfortable orbit—their own visions of what they wanted to do and who they wanted to be—and conveyed a greater possibility than they had ever imagined. Your college vision must do the same. It must galvanize. Or as one board member once told me, “It must light up the room.”

Robert Smith, who recently retired as president of Slippery Rock University, says, “It may seem old-fashioned, but stakeholders, even and especially faculty members, will respond to being emotionally moved to action. Vision is the fuel that ignites the engine of urgency. Vision gives direction and, most important, hope. And these are times when people really want to feel there is hope for their institution.”

When it comes to attracting resources, a vision must help the institution secure public and news-media attention, full-pay students, unrestricted dollars, talented faculty and staff, and great boards. No matter what else they might do, visions that fail at these essentials will, ultimately, fail the institution.

An Extraordinary Senior Team. “My job,” said one president, “is not to run the institution. It is simply too complex and the time demands are too great. Instead, my job is to build the senior team. It is their job to run the institution.”

Nothing is more important to a great vision than a team that is committed to carrying it out—a team that, as John R. Katzenbach and Douglas K. Smith write in The Wisdom of Teams: Creating the High-Performance Organization (Harvard Business Essentials, 2006), is made up of “a small number of people with complementary skills who are committed to a common purpose, performance goals, and approach for which they hold themselves mutually accountable.”

Sadly, the senior teams at many institutions are out of sync with that definition. In too many cases, the team is actually a collection of competitors vying for scarce resources. To win, team members believe, someone else on the team must lose. In addition, the senior team seldom orbits the larger vision. Rather, they orbit their individual visions and build coalitions and fiefdoms that seldom share goals and resources. Finally, they do not consistently support the decisions that are made. If they agree with the decision, they may support it. If they do not, they may be passive resistors or, in extreme cases, saboteurs.

Says Smith of Slippery Rock, “Great teams are not always shaped around titles, but instead the person’s impact on the results that are needed. Sometimes that means violating hierarchy and boundaries to create a leadership team focused on achieving our goals and sustaining the vision. Who has the best commitment to action on the ground? Who can make a difference in achieving our mutual goals and vision? That person is on the team.”

While the literature on successful senior teams is replete with dozens of “must have” characteristics, each team member, in addition to having specific expertise, must:

  • Orbit the vision;
  • Be more committed to the other members of the team than the groups they lead or manage;
  • Be highly collaborative;
  • Not shy away from conflict;
  • Decide and then commit as a team;
  • Hold one another accountable; and
  • Celebrate each other’s success.

And What About the Board? Of course, the board often plays a vital role in this overall process. First, the board must insist on a robust presidential hiring process. This includes working with the campus community on the position description, insisting that the pool of potential candidates includes both traditional and nontraditional candidates, and then requiring that the actual selection process to become a prospective candidate includes an assessment of their demonstrated ability to innovate, motivate, and build coalitions. (For more, see “Needed: A New Style of Leader for the New Era.")

In addition, the board must insist on a vision that is, as noted earlier, compelling. Too many visions are happy talk. They tend to be more of a balm than a catalyst. Perhaps more than any other entity, often drawing on their private-sector experience, board members understand the value of vision.

Third, the board must support, and respect, the senior team. In addition, that means giving them the tools and resources they need. In many cases, particularly when resources are tight, it can cause political turmoil. But such support is vital.

Boards, and their presidents, must stand firm.

A Fourth Element

Beyond the three things that will set your institution on the narrow path to prosperity, there is a fourth: a sense of urgency. Certainly, the board must respect shared governance and not act too precipitously. We have seen high-visibility examples where a board pushed ahead in ways that caused damage and did not allow for important voices to be heard. At the same time, too lengthy deliberation is often an unwillingness to make unpopular decisions in disguise.

Let me briefly tell you about two conversations with two different presidents that might help illuminate the points I am trying to make. Both are from relatively rural areas, and their institutions are similarly sized in terms of number of students, faculty members, and endowments.

One president said he was not contemplating any new initiatives for at least a year. “Budget issues,” he said, “I’m sure you understand.”

The other said he was holding a retreat that weekend with handpicked senior staff and faculty members, board leaders, and a few key donors. The goal of the meeting, he said, was twofold. The first was to identify a handful of non-core activities that could be eliminated and thereby free up cash and staff time. The second, he said, was to identify and operationalize five initiatives that would have immediate, positive impact.

Similar institutions. Similar circumstances. Two very different responses.

Guess which institution is more likely to be on the road to prosperity?

Image Credit

STEVE McCRACKEN
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