Ten Business Lessons for Higher Education

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Recent reports indicate that higher education, as an industry, is in some trouble. Assessments from Standard and Poor’s, according to The Chronicle of Higher Education, concluded that both public and private colleges and universities “continue to face financial challenges as the United States climbs out of its recessionary hole.” A negative assessment from Moody’s acknowledges that there will likely continue to be great demand for educated workers, so the long-term health of our schools is, in general, probably fine (indeed, many schools are already doing quite well), but some schools will continue to struggle in the short-term – especially tuition-dependent colleges and universities that do not have diverse revenue sources to draw from. And that means their students will struggle as well.

At around the same time that these assessments were released, The Chronicle also reported on the ACT’s annual Enrollment Planner’s Conference, where Brian Wm. Niles – founder of TargetX, a customer relationship management firm – argued that college admissions officials need to adopt a business-like, customer service-oriented approach towards their interaction with students in order to generate those tuition dollars so many schools depend on. Students are customers, Niles insisted; peer institutions, competition. Schools need to embrace words like these, as well as “sales,” “experience” and “accountability.” Niles finally asked his audience for words they would add to his list, and suggestions included “ROI,” “fire” and “closing.”

(At this point, it’s tempting to imagine that some members of the audience were people who watched Glengarry Glen Ross and whose major takeaway was, “Wow – Alec Baldwin is wearing a really nice watch.”)

For at least the past 20 years – and probably longer – those of us involved in higher education have heard of the importance of “running the university like a business.” Many schools have seen the faculty’s autonomy eroded and job security for the professoriate disappear as career administrators with strategic vision have entered the field with plans for innovation and disruption. Politicians and venture capitalists have experimented with our colleges and universities – vital institutions that reached their greatest levels of success in terms of scholarly productivity and educating the masses in the middle of the 20th century, a time of shared governance and tenure-protected academic freedom. These experiments have been permitted because, faculty were assured, they would make higher education more efficient. More accountable. In a word, better.

But what has been the result of running academia like this type of business? Downgrades from agencies like Standard and Poor’s and Moody’s, for one thing.

It seems obvious to us that the approach taken by so many schools over the past couple of decades – de-professionalize the faculty, tell students that they are customers who are by definition “always right” – hasn’t been working. If “running the university like a business” results in negative financial outlooks for so many of our institutions, then it logically follows that the approach that has been taken in recent years should be reconsidered. Of course, comparing not-for-profit enterprises designed for the common good to for-profit business ventures was always an imperfect metaphor, but it seems to be how politicians and pundits like to talk about higher education these days – and that’s not likely to change any time soon. So if we must use the language of commerce to discuss education, one could reasonably say that the problem is that many of our colleges and universities have been run like poorly-planned businesses with limited long-term vision. Perhaps, rather than sticking with a model that seems to have led us to our current troubled moment, we ought to consider learning from successful businesses, and applying some of those lessons to higher education.

Adherence to Core Mission: When institutions of higher learning hire business consultants, hoping to learn efficiency and fiscal accountability, the message quickly switches to profit, branding, and all manner of buzzwords without acknowledging that the fundamental purpose of a university is different from a business. A business exists, primarily, to make money for its owners and shareholders. Education, on the other hand, should be primarily concerned with helping students understand the world and find their place in it – not just for career preparation, but because knowledge is empowering and ennobling in and of itself. The university exists to facilitate student learning – anything else it does must be in service to this primary goal.

Buy Low: College endowments have largely returned to pre-recession levels, averaging 11.7 percent returns in the 2013 fiscal year, and donations to American colleges and universities totaled $33.8 billion in 2013, the largest ever recorded. But many institutions have continued their austerity measures, instituting hiring freezes that lock faculty out of tenure-track jobs. However, some forward-thinking schools have exploited their slow-moving peers to scoop up top-tier talent. As Augustana College president Steve Bahls noted in a 2009 President’s Message, “While many colleges have laid off faculty and staff, Augustana is strong enough that it has not had to follow suit. In fact, the college is conducting 12 faculty searches this year to replace retiring faculty and to enhance the student-faculty ratio. With little competition from other schools, this year’s group of new faculty hires promises to be outstanding.”

Competition: Despite what self-styled customer service management gurus have to say on the matter, colleges’ biggest competition isn’t their comparison schools – it’s for-profits. For-profit schools educate only 13 percent of students, yet suck up 31 percent of all student loans. For-profit colleges and universities earn an estimated $30 billion per year, 90 percent of which is taxpayer-funded. But how can American universities compete with slick television ads and telemarketer recruiting? The answer is simple- scholars and educators need to speak up at every opportunity to demonstrate the fraud of for-profit schools.

For example, with a mass of tweets, blog posts, and YouTube videos about how for-profits target our nation’s veterans with deceptive marketing and in some cases, outright fraud, public opinion would quickly turn against for-profits. And this wouldn’t simply be driving a competitor out of business – it would be a public good. The average graduate at a for-profit school carried $39,950 in debt, yet 72 percent of for-profit degree programs turned out graduates that earned, on average, less than high-school dropouts. If the money currently being spent on for-profit education were redirected to nonprofit colleges and universities, it would mean an additional $10 million for each one of the 3,000 members of the Council for Higher Education Accreditation.

Customer Retention: Ninety-four percent of Americans enroll in some form of higher education within five years of graduating from high school. And yet, at four-year institutions, only 59 percent will graduate within six years. At schools offering two-year programs, only 31 percent will finish within three years. There’s no need to compete with other colleges by offering expensive amenities, such as the $22 billion colleges spent on new buildings from 2010 to 2012 – more than double what was spent just a decade earlier. Colleges need to focus on retaining the students they already have.

Several years ago, after finding out the majority of students who were dropped for non-payment of tuition owed less than $1,000, Georgia State University (GSU) started the Panther Retention Grant, making sums of less than $1,000 available to 200 students. The result? Students were able to remain in school and the university generated $660,000 in revenue that otherwise would have been lost entirely. GSU now has more than 700 students in the program, and in the past 10 years, has boosted its graduation rate by 22 points.

Similarly, the University of Texas at Austin instituted a comprehensive student retention plan (recently covered in an excellent article by education journalist Paul Tough for The New York Times Magazine), using an algorithm to predict which students were most likely to drop out and targeting them with specialized programming and support services. With 81 percent of students graduating within six years, UT-Austin not only has one of the highest graduation rates in the nation, but has achieved that outcome while spending less per student than its cohort, and is tied for second place as the most efficient public university in the nation.

Improving graduation rates is also a long-tail strategy for sustainable revenue. A quick comparison of schools with the top 10 graduation rates and the schools with the top 10 alumni-giving percentages shows that four schools – Bowdoin College, Carleton College, Williams College and College of the Holy Cross – occupy spots on both lists. Schools that invest in and retain students today can expand their revenue sources through generous alumni donations in the years to come.

(To be sure – we’re generally against the idea that students are the “customers” of the college or university. It’s true that schools serve students, but they also serve the larger culture in general, not just the people who write tuition checks. As we said before, comparing education to the world of business and finance is, at best, an imperfect metaphor).

Marketing: The Kansas Board of Regents recently adopted a policy that allows the state to discipline their employees for social media use that “is contrary to the best interests of the employer.” Not only is this nebulously defined category a clear violation of academic freedom, it’s also terrible marketing. The Board doubtlessly thought that stifling faculty’s online speech was in the school’s best public relations interests, but the effect of such silencing discourages faculty from expressing their expertise and engaging with the general public. Similarly, the University of Virginia has proposed a new plan, developed with a private consultant for a fee of $200,000, that would prevent members of the Board of Visitors from criticizing the board’s decisions in public or to the media without prior approval from the board. A smarter business plan would encourage the intelligent, educated individuals on campus to effectively act as one-person social media advertisements for their institutions.

As of September 2013, 90 percent of Americans ages 18 to 29 use social media. If a business had a platform where they could reach 90 percent of their potential market, and had employees willing to act as unpaid proselytizers for their product, it would be foolish not to seize that opportunity. Yet, by discouraging employees from using social media, schools are engaging in exactly that sort of short-sighted behavior.

Schools that want to take advantage of social media need to be incentivizing their employees to act as public intellectuals and brand representatives across social media platforms. Why not make social media engagement count toward the service requirement for tenure? Having faculty engaged as experts on social media, writing for popular online publications, answering user questions on sites like Quora, participating in Ask-Me-Anything sessions on Reddit or even simply maintaining their own blogs are all amazing brand advertisements that cost the institution nothing beyond the employee’s salary and demonstrate the value of higher education not just to potential students, but to the country as a whole.

Granted, there may be times when a faculty member uses social media to promote ideas or opinions that are incendiary, controversial or even embarrassing for the school. This has always been a risk associated with academic freedom. We believe, however, that the best choice is not to attempt to stifle the free exchange of these ideas and opinions, but instead to empower other academics to engage with and challenge them using the same technology. In this way, schools can encourage their employees to use social media to model the type of rigorous debate that is at the heart of higher education.

Response to Crisis: Business schools all over the country teach the story of James Burke, CEO of Johnson & Johnson during the 1982 Chicago Tylenol murders. After learning that customers were dying from Tylenol capsules laced with cyanide by an unknown poisoner, Burke gave his team two instructions – “How do we protect the people?” and “How do we save the product?” Burke’s decisive action, and the introduction of triple-sealed packages to protect consumers, was quickly lauded by the media and Tylenol was able to regain its full market share within a year of the crisis.

Similarly, higher education is undergoing a crisis of sexual assault. One in five women can now expect to be sexually assaulted during her undergraduate career. Yet a recent survey of 236 colleges found that 41 percent have not conducted a single sexual assault investigation in the past five years. More than 20 percent of those surveyed allow athletics departments to handle investigations if the case involves student athletes. The Department of Education is now investigating 64 schools for Title IX violations related to their treatment of sexual violence. Yet administrators have responded to complaints not by dealing with sexual assaults, but by hiring $500/hour fixers to stonewall victims and activists, and consultants who have clear conflicts of interest in reviewing administrative procedures.

Administrators would do well by responding to this crisis with the same two questions James Burke had for his team at Johnson & Johnson – “How do we protect the people?” and “How do we save the product?” Fully investigating claims of sexual assault is not only responsible and just – it can also be a very canny fiscal decision. By hiring expensive fixers to stymie activists and silence victims, administrators are undermining the very institutions that they purport to protect. And they could face expensive lawsuits down the line – a 1997 Journal of the American Medicine Association study (explored fully in Malcolm Gladwell’s Blink) found that the main factor in malpractice suits against primary care physicians was not physician misdeeds, but rather physician miscommunication. People simply didn’t sue doctors who had effectively communicated with their patients. But by shutting out victims and campus activists, college administrations may be opening their institutions to future litigation. Both students and institutions would be better served by forming partnerships with activist groups like End Rape on Campus and Know Your IX to find sustainable solutions to end sexual violence.

Of course, an effective response to sexual assaults and work to prevent assaults from happening at all also happen to be the right things to do, regardless of how fiscally-sound investing in such efforts might be. But protecting students also just happens to be good for business.

ROI: Even with tuition costs more than doubling in the last 30 years, going to college is still one of the best investments an American can make. While the Project on Student Debt reports that seven in 10 graduating seniors carry student loan debt, with an average of $29,400 per borrower, a February 2014 study from Pew Research found that college graduates earn an additional $17,500 per year, when compared to high school graduates. Further, in 2011, the Centers for Disease Control and Prevention reported that those with at least a bachelor’s degree live an average of 9.3 years longer than those with only a high-school diploma. These are facts that concerned students – and their parents – probably need to be reminded of.

Underleveraged Talent: As noted by the classic of business education, C.K. Prahalad and Gary Hamel’s “The Core Competence of the Corporation,” businesses must identify their core competencies, and redeploy talent from across often disparate businesses to bolster these fundamental aspects of the corporation. Yet by eschewing shared governance – the process of the faculty and administration sharing power and responsibilities for fundamental decisions – some schools are sacrificing the healthy competition of good ideas for a perceived efficiency. “The benefits of competencies, like the benefits of money supply, depend on the velocity of their circulation as well as on the size of the stock the company holds,” Prahalad and Hamel wrote.

The rise of the career administrator further complicates matters. It used to be that faculty would hold administrative positions for no more than several years and then return to teaching. However, spurred by the ever-increasing salaries of school administrators and the rapidly expanding number of administrative positions, universities have recently experienced a glut of career administrators who have no plans to ever return to teaching – that is, if they ever taught at all. But when a single individual holds power for an entire career, it necessarily concentrates that power, and excludes others. It subverts the dynamism that defines successful corporations.

In the early 1990s, Starbucks CEO Howard Schultz was set against the Frappuccino, having recently arranged a deal with Coca-Cola for a coffee-flavored soft drink that he thought would become the centerpiece of Starbucks’ cold-beverage business. However, Greg Rogers, an ambitious assistant manager in Santa Monica, secured permission to buy his store a blender and begin selling the frosty drink to his customers. Within three months, the Frappuccino accounted for 40 percent of the store’s sales, and Starbucks quickly expanded the beverage to other stores. In 2011, Frappuccino sales netted Starbucks $2 billion, 20 percent of the coffee giant’s business.

Similarly, eBay recently experienced a complete turnaround by following the same principles. After its stock had fallen from a high of $58 per share in 2004 to just over $10 in 2009, eBay CEO John Donahoe assembled the company’s brightest minds for an innovation meeting. At the meeting, a 25-year-old eBay employee named Jack Abraham pitched the idea for a real-time feed of eBay products, similar to Facebook’s news feed, that would revolutionize the company’s homepage. As he recounted to Business Insider, Donahoe told Abraham, “You guys have carte blanche to do this. Any resources you need, any money, any human capital, you’ve got it. ” Since 2009, the value of eBay’s stock has risen by more than $50 billion, to just under $65 billion.

“Competence carriers should be regularly brought together from across the corporation to trade notes and ideas. The goal is to build a strong feeling of community among these people. To a great extent, their loyalty should be to the integrity of the core competence area they represent and not just to particular businesses,” advise Prahalad and Hamel. People who work in higher education are a self-selecting group and already possess this loyalty. Their highest fidelity is to the education. But by relying on career administrators and not actively promoting shared governance, colleges and universities are losing the ideas and innovations that come from listening to their employees. Schools could be losing their Frappuccinos or eBay feed that cause a $50 billion turnaround, by not encouraging their employees to make their voices heard.

Core Product: This is the base of the business, the “thing” that the business creates. McDonald’s creates hamburgers. Starbucks creates coffee. Tesla Motors creates vehicles that run on electricity. If the university is like a business, what does it create? The cynical among us might argue that it doesn’t create anything – it just confers a degree that provides access to middle-class jobs. But we are not so cynical – in fact, much of our motivation in writing this article is to combat that type of cynicism. We believe that colleges and universities are charged with imparting knowledge and skills to students in the classroom in order to empower them to become thoughtful people in their private lives, in their communities, and yes, in their careers. So when education is successful, the result is the creation of a more intelligent populace.

Successful businesses build on their core products and marshal their resources to bolster these proven successes. Yet, when colleges pay part-time adjunct faculty poverty wages, forcing them to teach double loads to make ends meet with no promise of job security, they’re undermining their core product.

A 2001 study found that exposure to full-time faculty significantly increases student retention. Students who took more classes with part-time faculty were more likely to drop out. Despite the low cost of adjunct labor, does it really save money if colleges are losing customers? Similarly, a 2004 study found that as institutions relied more heavily on part-time faculty, graduation rates declined. The American Association of University Professors’ Ernst Benjamin drew a useful distinction in 2002: “Cost-saving is a reasonable objective but is not the same as cost-effectiveness – especially if, as is the case, it substantially detracts from educational quality. This is not because contingent faculty lack native ability or classroom skills. The quality cost of contingent faculty derives from their lack of support, professional development opportunities, evaluation, and above all, involvement in student learning.” Schools may save money by hiring faculty on a contingent basis, but with massive fixed costs like building upkeep, administration, and support staff, is it really a good business decision to cut the product that most directly affects the person paying tuition?

What’s more, providing financial stability and job security to those teaching the students encourages the faculty to feel more invested in the school’s long-term vitality. Teachers are, by and large, an altruistic group of people. Nobody goes into teaching for the money or the prestige – especially not in the United States in the 21st century. Pay these people a liveable wage, let them know that they won’t lose their jobs arbitrarily, and you will find them to be hard-working, loyal and even more devoted to their students than they were able to be when they were trying to hustle down the freeway in order to pick up teaching assignments at several different schools. And this leads us to our final lesson.

Caring: Admittedly, this value isn’t really endemic to the business world. Most of us probably roll our eyes any time a corporation or business claims to care about us or our families. Such claims strike us as manipulative, as advertising copy, as insultingly rank bullshit.

Nevertheless, we feel that it is vital that everyone associated with higher education care deeply about the enterprise. From the most powerful member of the Board of Trustees to the staff member working in the admissions office, from the president of the university to the first-year assistant professor in the biology department, everyone employed at the school needs to feel invested in the students’ education. This type of caring doesn’t allow us to take short-cuts as we seek to create a meaningful educational experience – asking students to watch a video posted to YouTube and then take an online multiple choice test isn’t going to cut it in most cases. And this type of caring also requires college and university officials to make sure that their faculty are paid a livable wage with benefits and are not overworked, so that they may provide their students with an appropriately generous amount of attention.

The authors of this article work at a university – William as a faculty member, Christian as a staff member – that treats us quite well. The pay is good, the workload is manageable and the job itself is always inspiring. We have been able to work closely with students, both in and outside of the classroom. We have been able to help students find resources to help them share their creative and scholarly work with larger audiences. We have cultivated professional associations that have allowed us to help our students apply for internships, graduate school and jobs pertinent to their degrees. We have been able to take an active interest in our students’ scholarly and creative pursuits, and we feel that they have benefited from the attention we are able to give them.

No doubt, we are fortunate. Our students are fortunate too, to be able to work so closely with the faculty and staff on our campus – our school’s freshmen retention rate and six-year graduation rate are both much higher than average. But we both have experiences with other schools that do not serve their students nearly as well, where caring about their success does not seem to be much of a motivation. Instead, these places seem driven to get the students’ tuition money while paying the least amount possible for education and student services. We find such a business model unethical to say the least, and – though we both have very limited personal experience in the business world – we don’t imagine it is particularly sustainable either.