Why collaboration is key to the future of higher education

Adecades-long expansion of higher education institutions — a golden era when many of today’s campus leaders came of age — is over. According to our analysis, some 800 institutions face critical strategic challenges because of their inefficiencies or their small size.

Although institutions find themselves in a wide range of financial conditions today, their reactions to the changing market need not be independent and isolated from one another. In a few cases, this period offers tremendous opportunities for universities to partner and merge with institutions that would be a strategic fit for the future.

This new era of cooperation goes well beyond simple agreements between colleges to share back-office operations or cross-list academic courses that often result in good publicity and not much else. Collaboration in this new era involves colleges and universities coming together as seemingly one institution to change their future direction.

The institutions at the most risk of failure must collaborate out of necessity; those in a position of strength should work with other colleges and universities for the opportunities they present. This much is for sure: the time has come for institutions to join together because the market cannot support the number of institutions that we have today.

Why collaboration now?

Across higher education, revenue is squeezed while costs are rising. The fundamental problem is that there are too many institutions chasing too few students. The biggest decline in enrollment has been among small colleges, those with fewer than 1,000 students, which account for some 40% of degree-granting institutions in the United States. Since 2010, their enrollment has fallen by more than 5%.

Falling enrollment has forced many institutions to push up their discount rate to attract students. In 2014–15, the average freshman discount rate was close to 50% among the colleges and universities surveyed by the National Association of College and University Business Officers.

The current cost structure of colleges and universities cannot support an era of declining numbers of students because too many institutions are more dependent than ever on enrollment for a bulk of their revenue. Tuition dollars make up 56% of the revenue pie at private not-for-profit colleges with enrollments under 5,000 students, compared to 42% at larger universities. A small decline in enrollments at these institutions has a significant impact on their financial sustainability.

To counter these trends, tuition-dependent universities are faced with either increasing their value proposition to students to raise revenue or cutting costs. Collaborating with other institutions can help on both fronts. It should not be seen as just a strategy for weaker players to survive.

In this new era of higher education, the scale and scope of an institution matters to a college’s ultimate success. Size alone, however, is not the sole insurance policy against the forces bearing down on higher education. Even large colleges and universities need to collaborate in this new era because the strategies often employed to boost their revenue are inherently unsustainable: they either rely on a constant supply of students (e.g., out-of-staters) or are fundamentally short-term cost savings (e.g., procurement).

This is an opportune time for universities with few risk factors to build models for collaboration and cement their position as a leader in this new era of higher education.

What to do: Determining how to collaborate and when to partner

There is no one ideal approach for institutions to collaborate. A range of options exist and which one your institution chooses largely depends on where it falls on our risk scale. Our analysis divided colleges and universities into four categories based on their size and vulnerability.

Although the individual colleges and universities in each of these four categories might seem remarkably different in their selectivity and financial resources, the approach to collaboration within each group should follow a similar playbook. Institutions will take one of two pathways depending on their situation: they are either pursuing collaboration out of survival or taking advantage of an opportunity.

1. Opportunity

Institutions that have found efficiencies operating at a large scale, Think enhancement, or are small but with few risk factors, Think differentiation, have a unique moment in this new era to strengthen their existing offerings through collaboration.

Take, for example, the integrated Keck Science Department shared among three colleges in California — Claremont McKenna, Pitzer and Scripps. The department is housed in a state-of-the-art building that is physically located at the intersection of the three institutions and allows them to offer an array of majors with top-notch faculty that none of them could have provided individually to their students.

The same is true of a collaboration among Babson College, Wellesley College and the Franklin W. Olin College of Engineering, three very different institutions in terms of their missions — entrepreneurship, liberal arts and engineering, respectively — that saw those differences as complementary and a consortium as practical given their geographic proximity. “Important goals of the collaboration include improving opportunities for students and faculty and positioning these places to be more attractive in the future,” said Theodore Ducas, Professor of Physics at Wellesley.

Collaborations are no longer limited to colleges in close proximity. Advances in technology can now link together institutions that are separated by hundreds or thousands of miles. In Pennsylvania, 10 liberal arts colleges, including Haverford, Gettysburg, Franklin & Marshall, and Swarthmore, have moved a step beyond the normal course sharing that has usually marked collaborative agreements and are partnering on faculty development, study abroad, and compliance and risk management.

Of course, neighboring colleges have long teamed up on nonacademic operations, sharing police forces or purchasing offices. We have athletic conferences, but there has been little cooperation, if any, on the academic side when it comes to degree programs or entire departments, like Keck.

2. Survival

Institutions with many risk factors, Think new strategy, or that are large and inefficient, Think efficiency, need partners to quickly cut their costs. Our analysis found more than 800 institutions in those two categories. They include both small colleges that rely heavily on tuition for the bulk of their revenue and large universities that are running budget deficits.

Finding savings in the proverbial low-hanging fruit through traditional cost cutting in peripheral budget areas is no longer an option for most of these campuses if they have any chance of surviving into the next decade. The small colleges in survival mode are unable to draw additional students even as they come to depend more on them to provide needed revenue.

The large universities in survival mode have consistently raised their tuition rates above the national averages in recent years but still find themselves in a hole financially. The time has come for both sets of institutions to find partners. Neither group can move forward alone.

Proposals to merge public colleges have become more common in recent years but have often run into strong opposition from lawmakers and higher education officials. In Georgia, where universities were suffering from years of budget cuts, higher education leaders attempted to head off controversy by making their consolidation process as transparent as possible and following a set of six principles that guided their work.

The consolidation was also framed as a way to free up funds for student success initiatives, not simply to cut spending. As a result, over the course of three years beginning in 2011, leaders of the University System of Georgia approved six campus mergers.1

Not all institutions that need to pursue a survival strategy are struggling. Sometimes this approach is appropriate for universities that are inefficient as stand-alone entities. In 2013, the Texas A&M Health Science Center merged with the much larger Texas A&M University to better leverage the university’s research prowess.

Before the merger, the Health Science faculty conducted about $80 million in research annually, while the main university had $700 million in research grants. The hope was that if researchers worked more closely together under the umbrella of one university, the institution as a whole could bring in more money overall.2

If survival is your strategy, surprisingly, finding a suitable partner is not the biggest obstacle to collaboration, according to a survey EY-Parthenon conducted of 38 institutional leaders. The toughest barrier to overcome? Pushback from internal stakeholders in the process. So as you begin to lay the groundwork for collaboration, be sure your internal priorities realigned and your various constituencies (trustees, faculty, alumni) understand the need to collaborate before you offer up potential models and partners.

What’s next? The three-step plan: identify, structure and sustain

Step 1: Identify areas for collaboration

Collaboration can take many different forms and doesn’t always need to be seen as resulting in a merger or acquisition. Based on our survey of campus leaders, the most common type of alliance is around academics. Collaboration on administrative and services functions is also common. In both cases, leaders said they chose partners based on complementary strengths. As you begin to identify areas where partnerships might be possible, here are some key questions to consider:

• What type of collaboration is most useful for your institution?
• To what extent is collaboration necessary to stay financially viable? Is there an opportunity to improve value to students or cut costs?
• What administrative, service and academic departments would benefit most from collaboration, and how deep should those collaborations go?

Step 2: Structure potential partnership opportunities

Institutions choose collaborating partners based less on proximity and more on the importance of shared vision. In our survey, college leaders who engaged in academic collaborations said the largest challenge was internal resistance as they attempted to structure the partnership.

When colleges partnered on administrative functions and services, the biggest hurdles were around implementing the agreement, specifically on determining matters of control. As you begin to prepare to structure a deal with a partner, here are some key questions to consider:

• What factors should be used to evaluate the feasibility and attractiveness of a potential partner (e.g., geography, shared vision)?
• Which institution is the best strategic, operational and financial fit for the type of collaboration being sought? What additional collaboration opportunities could we pursue with existing partners?
• How will the collaboration work? Who has to sign off on decisions? How can the two institutions work together operationally?

Step 3: Sustain the benefits of a partnership

Forging a partnership might be the easy task; sustaining the benefits of a partnership over the long term could prove more difficult. In our survey, campus leaders said students were the biggest beneficiaries of partnerships because they improve the value of an education.

While cost savings were less commonly cited as an important concern for academic collaboration, such partnerships are often an opportunity to “save costs” that would otherwise have been required to build out those capabilities. As you search for strategies to sustain the benefits of a partnership, here are some key questions to consider:

• How do we realize the full potential benefits of all cost-cutting opportunities identified in the first two phases (e.g., systems integration, real estate optimization)?
  
• How do we leverage collaboration to enhance value to students through expansion of services and academic offerings?

Conclusion

In this new era of higher education, collaboration is a strategy that many institutions will need to follow simply to survive. But partnerships are also a winning approach for colleges operating from a position of relative strength right now.

Collaboration can provide a much-needed boost — and quickly — in academic and co-curricular offerings for institutions without strengths in certain areas. By emphasizing collaboration, we can define this new era of higher education as one of growth through cooperation rather than retrenchment.