Throughout the past year, members of the AGB Council of Finance Committee Chairs have debated the merits of a multiyear financial model for colleges and universities that is aligned with an institution’s multiyear strategic plan/vision. The council’s discussions have taken on a greater sense of urgency given the changing higher education political and economic landscape and a growing realization that the internal and external headwinds institutions are facing in a “post-COVID” environment hold the potential to negatively impact the institution’s business model. Specifically, council members questioned whether the “post-COVID” environment complicates the historical financial and strategic planning discussions that have traditionally taken place on campus and holds the potential for requiring a “revisioning” as to how best to carry out core mission—a reimagining that represents real implications for institutional business models and the possibility for requiring organizational and/or programmatic transformation.
Consideration 1: Discuss the requisites for successful business model transformation
Considering this reality, the Council of Finance Committee Chairs identified three separate conversations that board members should undertake in consultation with institutional leaders. The first conversation, building on Melody Rose’s and Larry Large’s AGB publication Higher Education Business Modes Under Stress, highlighted five critical steps required to assess the need for and the requisite actions necessary to achieve successful business model transformation: financial health, potential options, governance, strategic focus and mission, and resource utilization.
Steps from AGB’s Higher Education Business Models Under Stress:
- Step #1: Track closely the aforementioned indicators of institutional financial health. An early monitoring of the metrics can signal disturbing trends, allowing time to plan. A transition requires a period of evaluating, exploring, and initiating options.
- Step #2: Consult among board members on all of the potential options for transforming the business model.
- Step #3: Examine the shared governance process to ensure it is capable of handling a business model transition going forward.
- Step #4: Developing response strategies that will do all that is feasible within the present stressful circumstances to respond to student needs and their future success.
- Step #5: Manage institutional assets in ways that address the needs of students, faculty, and staff through the transition. This is necessary in all cases, whether the institution is making reductions in force as a cost-saving strategy, pursuing a partnership or merger, or in the most difficult circumstances, closing its doors.
Consideration 2: Assess the current business model(s)
The second conversation, building on Eric Denna’s EDUCAUSE review article The Business Model of Higher Education, is an introspective assessment of the institutional business model’s current characteristics and what changes may be required to address existing market conditions—that is, where the institution is today, but more importantly where it is headed. This conversation is important in the view of council members as it can affirm the characteristics of an institution’s business model and provides an opportunity to chart a path forward by offering questions that boards and presidents should ask themselves, in consultation with other administrative leadership, when staying the course may not necessarily be the best path forward. Understanding who their students are, where they are from, their educational goals, how they learn, and how the answers to these questions affect an institution’s value proposition and revenue base, are all essential to protecting an institution’s long-term sustainability.
Consideration 3: Govern and seek financial resiliency
The final conversation, and a by-product in some respects of the first two, focuses on whether the institution’s governance structure has the resiliency to respond to the challenges the institution is facing. A fundamental question for board members must be the capacity of the institution’s governance structure to respond in a meaningful and effective manner to the forces of change. To determine this Rose and Large in Higher Education Business Models Under Stress posit leadership must assess (and affirm) the state of their institutional governance structure—that is, is it aligned with mission, structured to meet the decision-making requirements of the institution, and reflective of all aspects of the institution’s business model (curriculum, finances, academic policies, discipline, etc.). Leaders must also assess if the institution’s governance structure, policies, and practices, are flexible enough to change as campus needs and circumstances change. Tangential to these questions, council members concluded that board members must also assess their own fortitude in the face of opposition to stay the course and support institutional leadership when change is required. Without their unwavering commitment to business model transformation, there is a high probability that change could stall on the vagaries of indecision.
The AGB Council of Finance Chairs’ discussions this past year have underscored that for a multiyear financial plan to have utility, it must have the capacity to respond to the external market forces that have the potential to impact the institution’s cashflow and balance sheet in real time. The plan must be aligned with the mission of the institution and offer clear direction about where the institution is headed. The development of a multiyear financial plan may necessitate changes to the institution’s current business model, which could trigger governance questions that must be addressed if the plan is ultimately to achieve the desired outcomes or institutional objectives. To gain institutional acceptance that the challenges facing the institution are real, board leadership must determine how best to engage with faculty, staff, and students, and to establish an institution’s political will and resiliency for change. By engaging in these types of dialogues, governing boards are focusing on their fiduciary responsibilities and the long-term sustainability of their institution—ensuring that it remains relevant to the needs of their students in the 21st century.
Multiyear financial models for colleges and universities in a post-COVID environment have become increasingly complex. To ensure an institution’s business model is sustainable, boards should make time to discuss, build, and assess the viability of their business model to meet the needs of future generations of students. AGB supports these practices, along with scenario planning and other efforts that prepare boards to stay ahead of financial trends and evolving economic and political conditions.
- We close with some consequential questions from Top Strategic Issues for Boards 2022–2023:
- What are the key strategic business issues confronting our institution in the wake of the pandemic, and what is the board’s capacity to address those issues?
- Do recent fiscal results and future financial and demographic trends point to a need to rethink or reform our institution’s current business model?
- What changes would lead to greater financial success and long-term stability?
- What milestones, timelines, and other factors should we consider to ensure our institution’s sustainability as we look toward the future?
- Does our institution have a well-thought-out financial plan, including cash on hand or reserves, to deal with unexpected losses?
- How much is our institution working to increase efficiencies through cost cutting, new technology, and other means?
Steve Golding is an AGB senior consultant, and the ambassador to AGB’s Council of Finance Committee Chairs.
AGB thanks our partner Huron Consulting Group for its support of the Council of Finance Committee Chairs.
Opinions expressed in AGB blogs are those of the authors and not necessarily those of the institutions that employ them or of AGB.