Drastic Pivots for Success

By David Tobenkin    //    Volume 30,  Number 3   //    May/June 2022
Takeaways

  • Dynamic and strong leadership by institutional executives and boards is necessary to identify, evaluate, and execute successful pivots.
  • Many perceived barriers to promising pivots should be reexamined to determine if they are actual barriers.
  • A clearer understanding of the needs of key institutional stakeholders, especially students, and how they can be more efficiently addressed can help identify and build the case for major pivots.

A challenging financial and educational landscape is forcing higher-education institutions to make tough strategic choices in order to adapt, often involving drastic pivots. These pivots typically are forced by increasing financial pressures and a need to rethink institutions’ basic educational models. This story presents three examples of successful pivots.

  • Unity College in Maine has instituted a dramatic restructuring of its educational model, including customizing how content is delivered according to the demands of different types of students and changing its governance to create different educational business units.
  • The small Nashville-based O’More College of Design agreed to be acquired by Belmont University to create a financially sound and more dynamic educational environment for its students.
  • Pennsylvania’s State System of Higher Education (PASSHE) is engaging in a system-level realignment focused on driving system-level changes and better serving its educational constituents. These pivots have required the institutions’ boards and executives to make hard choices in confronting institutional resistance to change.

These pivots have required the institutions’ boards and executives to make hard choices in confronting institutional resistance to change.

“I think institutions now are searching for models that are nimble and agile enough to be resilient and sustainable no matter what comes in 2030,” says David Rowe, AGB Practice Area Leader, Private Higher Education and Foundations at AGB. “The demographics, the technological shifts, the globalization of knowledge, and the roles that employers are playing in educating their workforces means higher-education customers are requiring education that is very, very different from what was the case when these institutions were founded. These three examples are certainly well thought-out, systemic efforts to create that sort of resilience and agility for whatever comes next.”

And at the center of such change are these institutions’ trustees, who Rowe says must first sort out the core missions of their institutions that should endure versus their modes of educational delivery, which may change, and second, must contemplate major changes more often and more rapidly than many traditional board members might be comfortable considering.

Unity College
For most of its 57-year history, Unity College, based in Unity, Maine, was a small four-year residential college with a particular focus upon environmental sciences and no more than 800 students. But beginning in 2012, it has undergone a radical transformation to a new educational model.

Under the leadership of President and Chief Executive Officer Melik Khoury and a supportive board currently led by Chair- woman Sharon Reishus, it has diversified and restructured along a business-units model that provides different types of students with different types of educational experiences. It has also grown significantly, expanding to serve more than 3,500 students.

Those steps reflected a reexamination of the college’s “value proposition.” While Unity’s focus on environmental sciences remains and, in fact, now has been infused into all of Unity’s programmatic offerings in one form or another, much else has changed.

“We went through a multi-year process to understand our mission and curriculum and realized that while our mission as America’s Environmental College and our curriculum were very relevant, access to our curriculum was restricted to traditional students looking for a residential model,” Khoury says. “So aside from mission and curriculum, it was just everything else that needed to change. Like when we teach it, how we teach it, and the affordability of it.”

Unity altered a largely residential, four-year undergraduate liberal-arts approach to create an enterprise with multiple subsidiaries, with each subsidiary focusing on a different type of student, a different type of pedagogy, and a different type of modality. Among the reforms were the following:

Unity eliminated semesters and instead instituted eight annual terms. Undergraduate students have eight five-week terms and need to earn 24 credits within that time frame to be considered fulltime and eligible for federal loan benefits. Graduate students attend five eight-week terms during which they must complete 16 credit hours to be considered fulltime.

The Sustainable Educational Business Units (SEBUs) Model
The innovations included, beginning in 2017, revamping Unity from a single institution into an enterprise model that includes a collection of “sustainable educational business units” (SEBUs), which are independent operating units charged with developing programs, services, and/or products that are tailored to audience-specific needs. The SEBUs have their own profit-and-loss and other expectations, as well as their own faculties and staffs. “We made the decision as an institution that we were going to offer all of these options and let students decide which experience, which pedagogy, and which modality, they are most comfortable with,” Khoury says.

Khoury’s plan to adapt to the changing higher-education landscape resonated with the board’s desire to sustain the college’s mission, notes Sharon Reishus, the board chair. “Five years ago or more, it was becoming apparent that an enrollment cliff was coming that was driven by the demographics of declining numbers of young students in the United States,” Reishus says. “And so this idea of starting to diversify our offerings made sense from the financial side, because we were very concerned about what the future of the small, private residential college was going to look like in a few years. It was pretty apparent that we needed to do something different, and we needed to think with our long-term outlook as fiduciaries about how to make sure that the mission of Unity College survives. And it didn’t look like placing all bets on the residential college was going to make the most sense.”

A Wider Range of Educational Offerings
Unity offers three academic SEBUs and one business ventures SEBU. One unit is Hybrid Learning, launched in 2020, which is aligned with Unity’s traditional residential operations as a small private liberal-arts college that features students studying on campus, supplemented by online teaching. Hybrid Learning students represent a much younger demographic than other Unity SEBUs, with students who typically are looking for four-year bachelor’s degrees while learning through a mix of modalities, including online and in-person, notes Khoury. That combination allows many of them to hold full-time jobs that they would otherwise have had to pass on to finish their degrees.

At the other end is Unity College’s rapidly growing Distance Education SEBU, launched in 2016 to serve a completely different audience, focused primarily on adult students pursuing studies in an asynchronous, online mode leading to master’s degrees, bachelor’s degrees, and certifications. Distance Education is one of Unity’s leading areas of growth, bringing in hundreds of new students each term from across the country.

New Unity SEBU rollouts continue. For Unity, green is not just the color of the environment. A new SEBU, the School of Environmental Business and Sustainable Ventures (SEBSV), is targeting environmental business ventures that it can partner with, run, or build into small, environmentally focused businesses while offering programs that support working in the green economy. Target industries include sustainable tour- ism, agribusiness, and green-energy sectors. The school’s programs and curriculum will be announced in spring 2022 and are set to begin in the fall of 2022, Khoury says.

Another new SEBU, the Technical Institute for Environmental Professions (TIEP), will launch in fall 2022 and will serve students seeking associate degrees, certificates, and new skills.

Under the SEBU model, part of a new matrix model Khoury implemented at Unity, determining which units should be retained by the central institution is a critical decision, he says. In the Unity enterprise model, core functions such as academic administration, information technology, human resources, finances, physical assets, and other services are coordinated and standardized across the college and the SEBUs.

Khoury says that financial characteristics, such as distribution of costs and expenses, vary widely across the SEBUs. “You have to treat each one as a unique subsidiary,” Khoury says. “For example, Hybrid Learning has a faculty cost that is significantly higher because the faculty-student ratio of full-time faculty on campus, is very, very different than the community-college model, and most of those folks are subject-matter experts. The residential program is still one of the most lucrative, especially for an institution that is highly leveraged. In contrast, the online asynchronous model for Distance Education provides ultimate flexibility for resource reallocation.”

Thus far, aided by the pandemic’s challenges, distance education has become the most popular mode of instruction. Whether, and at what pace, that shift will continue post-pandemic is an open question, Khoury says.

While future shifts may occur, there are bottom-line signs that Unity’s new educational model is performing, Khoury adds. In 2012, Unity’s institutional endowment was about $13 million, while in early 2022, it was $18.5 million. The operating budget increased from $14 million to $40 million from 2012 to 2021, while assets grew from $18 million to $52 million over the same period.

The Board’s Role
It took plenty of board work to implement this vision, Reishus says. “I think the struggle for the board was to make sure that our bylaws and governance practices matched and supported this new business mode,” she says. “There was a significant commitment on the part of the previous chairman Bruce Nickerson and other officers on the board, and then the governance committee, and then the full board to really take on and determine what does it mean to be more nimble and able to support an institution that takes more risks than a traditional small liberal-arts college.”

Unity retained AGB to work with the board on the different policies and documents and assessments. It then retained Grant Thornton to help it with the business modeling to test whether Khoury’s intended approach was viable.

“What I think was really helpful was spending six months on governance issues with AGB to really work on the alignment of role, scope, and authority between the president and the board,” says Khoury. “We moved away from the concept of single-issue trustees. We worked very hard to ensure we did not have trustees with a singular pet project, and instead were focused on the overall mission and viability of the college. I think that was worth every investment that we made.”

The new model also required a new, smaller board. In 2020, Unity purposely shrank its board from a maximum of 21 and minimum of 11 members to maximum of 13 and minimum of 9 members and raised expectations for those who remained. “Under the new model, movements in our budget happen much more quickly now,” says Reishus. “You used to be able to look at a three-year budget as a trustee and say, ‘Yes, we can see it and we’ll build a new dorm in two years.’ None of that applies anymore. It’s very fast moving. We actually ask our administrators for updates much more frequently than once a year because we need to understand almost term by term now where the numbers are and how we support that. Decision-making has to happen a lot faster than with a traditional board and we can’t do that with a 20- to 30-person board. We also don’t have as many standing committees because the board functions as a whole as a strategic board, not an operational board. The board is there as the strategic advisors, the responsible fiduciaries, to make sure that all proceeds in the direction we’re going to support our mission.”

The board has also been more thoughtful about the type of individuals it recruits as new members, Reishus says. “We really need people who are used to thinking strategically, who feel comfortable taking risks, who understand the dynamic nature of both higher ed and what it means to appeal to consumers,” Reishus says.

She adds that this takes thorough board understanding of the market institutions are operating in, one that is driven by real information, not assumptions, and by models that accurately reflect what the future is likely to look like. She questions whether some of her board counterparts at other institutions are engaging in that analysis successfully.

“I’ve talked to other trustees at AGB meetings who … I just don’t understand what they’re thinking because they don’t believe the demographic shift that’s coming, and I’m like, ‘Well, good luck with that. I don’t know what you’re going to do in 2026 when you start to see the high-school students that you’re counting on really start to drop off,’” Reishus says. “It takes a certain amount of commitment and strength to see these pivots through because there are there are low moments, there are scary moments. But I think as long as we are clear-eyed about what we’re trying to do, and we base that on facts and on our best understanding of where the future students are and what they need from us, then I think we can be comfortable that overall we’re doing the right thing.”

Pennsylvania’s State System of Higher Education (PASSHE)
Pennsylvania’s State System of Higher Education (PASSHE) is con- fronted with challenges that are pervasive across higher education but that are particularly acute in the Keystone State. Over the decade ending in 2020, PASSHE’s 14 universities lost 21 percent of their enrollments and—because they are still working to adjust cost structures, and because the state ranks 48th in the nation in terms of public expenditure on higher education—the entire PASSHE system has been severely challenged financially. While many of its institutions were already adjusting to such headwinds, the system’s board, led by Chairwoman Cynthia Shapira, realized that much more needed to be done at the system level and embarked upon a significant reform of the system.

In late 2016, the Board of Governors and then Chancellor Frank Brogan launched a fundamental reexamination of the PASSHE system. The board began by commissioning an intensive, top-to- bottom review of the system and its universities’ operations and governance, gathering input from students, faculty, staff, community leaders, elected leaders, and others.

The findings suggested that indeed a major overhaul was needed. “The system had been built on the idea that the enrollment would be fairly steady, and that the state appropriation would be fairly steady and it would cover about 60 to 70 percent or so of annual operating costs,” Shapira says. “And so there wasn’t much effort to diversify the revenue stream, there was debt from prior building, and the Great Recession had led to drastic budget cuts.”

These new realities, including continuing enrollment declines, were “simply not being dealt with,” Shapira says. “The board retained an outside consultant to do a top-to-bottom review so that we could say, for any reform, that this is what we’re basing it on, this is the information, and here is why this business model must be changed.”

A Mandate for Change
The results of the review, a 2017 report by the National Center for Higher Education Management Systems (NCHEMS), were candid and less than flattering on many levels. One of the fundamental findings was that the politically appointed nature of the board tended to limit the likelihood of strong and consensus-driven decisions to make fundamental change.

The report eschewed attempts to rapidly slash costs by simply closing institutions, finding that would be expensive and would not yield sufficient savings, would not result in sufficient efficiencies, would end up damaging the economies of communities where some of the universities are located, and would not be politically feasible.

The report said, and I agreed, that the real problem, the foundational problem, is with the governance structure and its ramifications: that with a politically appointed board there’s no real power or authority to do much of anything, and there is little focus on strategic or generative decision-making,” Shapira says. “That centered governance and system-level work on administration and control rather than strategy and student outcomes.” PASSHE’s chancellor left soon thereafter.

Shapira expanded and increased the diversity of the search committee that looked for a new chancellor who could lead the needed change by adding a faculty representative, a student representative, and a university administrator. Eventually, Shapira and the board chose as the new chancellor Dan Greenstein, who was previously director of postsecondary success strategy at the Bill & Melinda Gates Foundation and earlier was vice provost for academic planning and programs for the University of California system.

“First of all, Dan clearly had the thought and executive leadership chops and experience working with a large higher-education system,” Shapira says. “Also, I’ll tell you the thing that really did it for me was that when Dan came in for his interview, he didn’t talk about himself in the first five or 10 minutes that we gave to all candidates to introduce themselves. While most of them talked about their careers or whatever, Dan instead talked about public higher education, equity issues, and the need for higher education to fulfill its mission, particularly public higher education. And he said he thought that we really understood that there was a need to change, and really change the business model and the template in order to accomplish those goals. And he said he wanted to be with people who were willing to do that.”

Reorienting and Revamping the Board
Shapira also reoriented the board to be more focused on governance and outcomes. First, the board eliminated all the administrative standing committees and created three mega committees dealing with student success, university success, and governance and leadership. “That gave the message to the board that your work needs to be aligned with what we actually want to accomplish,” Shapira says. “Your work is not about administration, it’s not about control. It’s not about reviewing the university’s new program in English. It is about student outcomes and about these universities being sustainable and fulfilling their mission, and for us to do the best job that we can in governing.”

In recent years, the board has started to use consent agendas for any administrative issues that could be handled offline, saving time at committee meetings and workshops for strategic and substantive discussions.

That has freed up time for board discussion of important issues. “At our most recent quarterly meeting in February 2022, over a two-day period we only had two or three action items on that agenda that needed votes to be taken,” Shapira says. “Those two days predominantly were spent on these big issues related to enrollment.”

Driving Cost Savings
The most substantive board action taken with respect to the sys- tem has been to reduce costs to enable the system to live within its means, Shapira and Greenstein say. By June 2022, PASSHE will have eliminated $173 million in costs in two years and is on target to deliver $200 million to $250 million in reductions promised over the 2020-25 period, according to a November 15, 2021, funding request to Pennsylvania’s governor and General Assembly. That includes a 30-percent reduction in expenditures within the Office of the Chancellor since 2018.

The board now requires PASSHE universities to operate in a financially sustainable manner, including passing balanced budgets that do not rely on reserves. That has allowed the system to yield a modest positive annual operating margin and to maintain primary reserve ratios and net reserves at minimum industry-standard threshold levels, according to the funding request.

Greenstein and Shapira instituted a nearly 15-percent reduction in the level of faculty and staff. “There was a lot of nuance to that and we worked very closely with the unions, with the governor, and with other stakeholders to figure out how to do it in a way that was the most humane and would result in the least devastation,” Shapira says.

The system also required universities to make tough choices to cut back previous programmatic expansions that had driven past employment growth. “The reason we had too many faculty was because we had allowed our program array to just become too big,” Greenstein says. “You can only sustain as many programs as you can enroll students. Not every program has to make money. But the portfolio can’t lose money. And several of our schools were underwater. And so it was a matter of just insisting as a policy matter, that you need to live within your means. And to live within your means you need to ensure that your program array is sustain- able on the number of enrollments. And that caused a number of things happen. One of them was universities began to compress their programs, and the universities now begin to look to each other and say, ‘Oh, my goodness, I’m going to lose Celtic poetry. How do we work together, so my students can still have access to it?’ Related to that, we invested a significant amount of money in the technology infrastructure that will enable sharing remotely and so we’re seeing more and more universities beginning to share programming. We think it shows that you can have the best of both worlds for your students; you can have breadth and depth.”

PASSHE now requires its university heads to closely scrutinize low-enrollment programs and program alignment with workforce imperatives, Greenstein says.

Part of the problem was that the board earlier was under the impression it could not take those difficult steps. “The board didn’t know it had the agency to insist on accountability and insist on aligning costs with expenses,” Shapira says. “Dan helped us figure out what we could do. And this is the lesson learned: Boards think they can’t do things or chancellors think they can’t do things. And generally, that’s just because that’s the lore. It’s not because it’s true.”

Cost-cutting has enabled the system to curtail tuition increases. From 2011 to 2018, the average annual increase in the net price of attendance systemwide was 5.5 percent. Those increases were eliminated starting in 2019, with the board holding tuition flat for three straight years, according to its recent funding request. PASSHE universities are also controlling the cost of room and board and are increasing the number of operating dollars spent on student aid to $100 million annually.

Other positive outcomes include a systemwide four-year graduation rate that has increased 10 percent over the past six years. “We’ve seen consistent improvement in four-year graduation rates, we’ve seen shrinkage of attainment gaps at several of our universities, and we’ve seen improved enrollment in students from new and adjacent markets in non-degree credentials, online, adult,” Shapira says.

University Integrations
In the summer of 2020, the board embarked on a next step in addressing enrollment and financial challenges through an initiative to integrate six of its 14 universities into two larger regional universities. In October 2020, the board authorized Greenstein to develop a proposed implementation plan for this integration. It was hoped that the integration of three universities in the western part of the state (California, Clarion, and Edinboro) and three universities in the northeast (Bloomsburg, Lock Haven, and Mansfield) would provide students with more academic program options while providing for greater operational stability for the institutions.

The six institutions involved will maintain their historical names and identities while expanding academic program opportunities, enhancing support that improves outcomes for all students, and reaching communities that are currently underserved.

The first cohort of students will begin at each integrated university in August 2022, with the integrated curriculum being finalized by August of 2024. Key to supporting this effort is a recent state commitment of $200 million over four years that will be used to invest in student-success initiatives, reduce current debt loads, and support faculty and staff training and transition.

The integration initiative proved contentious, with at least one state assemblyman writing an op-ed article requesting Greenstein’s ouster. That forced the board to navigate the complexities of a broad range of political pressures, Shapira says. In the end, Shapira marshalled an 18-0 board vote in favor of the integration and it moved forward with the state legislature’s passage of Act 50 of 2020, which received near-unanimous support in the state legislature and the governor’s office.

Shapira says that the next area of emphasis for the system is growing enrollment. She says the system aims to produce 2,000 more bachelor’s degrees per year, 1,200 more master’s per year, and about 2,500 more non-degree credentials annually through at least 2030. “That requires us to grow to about 100,000 to 110,000 students, and all of that is tracked directly to the state’s workforce development,” Shapira says.

O’More College of Design
When Shari Fox was promoted to president of O’More College of Design in June 2017, the writing was on the wall for the nearly 50-year-old institution: Major changes would be needed to ensure its survival.

O’More was a single-discipline institution, including a school of design with three majors, a beautiful but small campus, no housing, a location in a historic residential area that did not allow for expansion, and fewer than 150 students. “We had a legacy, a reputation, and some good programs, but we were too small, had too many costs, and were barely solvent. We were not going to make it through summer,” Fox says. “When you’re running an institution, you have all these administrative offices providing support services to do a good job for your students and maintain your accreditation,” she notes, yet within the first month of her presidency, she was forced to eliminate 40 percent of the institution’s staff.

The crown jewel of the institution was its campus in Franklin, a suburb of Nashville. One pivot considered, a sale-leaseback of the Franklin campus, could have yielded a hefty infusion of capital—but at an enormous risk. “If that didn’t work, we would not have much to offer a school with which we merged afterwards and we might have to close,” Fox says. “So a merger quickly became the aspiration.”

In October 2017, Fox approached Robert Fisher, then president of Belmont University, a much larger, growing, and financially robust institution located nearby in Nashville. Fisher was immediately interested. It helped that the two institutions already had a history of working together. O’More founder Eloise Pitts O’More had actually attended Belmont and there had been academic and library exchanges between the two institutions, with students at each institution minoring in programs offered by the other.

For Belmont, the O’More acquisition could accelerate existing programmatic growth plans, including establishing a school of architecture, says Belmont Provost Thomas Burns. “What was so appealing to us at the time is that we had been having conversations about increasing our investment in design, and we had begun thinking about an architecture program. So when Shari approached us and said, ‘Well, gosh, this is the kind of thing that we’re thinking about,’ we thought to ourselves, ‘Their reputation is strong. And they already have knowledge in these areas, so wouldn’t it be better if, rather than just starting from scratch, we can bring in folks who are practiced and skilled at this?’” Burns says. “So it was convenient, but also fortuitous.”

In particular, seizing the opportunity to establish a school of architecture in Nashville before another institution scooped up O’More and competed with Belmont in its own territory was appealing, Burns says.

Despite the seeming inevitability of the decision, it still was not an easy decision for the O’More board to make, Fox says. “It wasn’t that anybody was opposed to Belmont,” Fox says. “But there was a contingent of board members who noted that we did have fiduciary responsibilities as a nonprofit institution and who, I think, had become uncomfortable with any high-risk decision. Some of them said, ‘Listen, let’s close the doors and we all walk away.’ But we had a great executive committee, led by Chair Ginny Caldwell and Ashlyn Meneguzzi, and when the vote came, it was a unanimous vote in favor of the merger.”

O’More became Belmont’s 11th college, the O’More College of Architecture, Art and Design, and Fox became a Belmont associate dean. The acquisition benefited the O’More students by offering them more services, including career placement, student housing, study abroad opportunities, and the ability to take advantage of many other artistic opportunities at Belmont, along with business opportunities, such as minoring in entrepreneurship or business, Fox says. “Also, as a larger institution, you get diversity of ideas, which is very important for a design education,” she adds. “The merger has also allowed us to hire great faculty.”

The merger is also providing the resources to rapidly expand the college, which now has more than 250 students, with an additional 112 students expected to enroll in the fall. “I would not be surprised If within five years we are above 500 students,” Fox says.

Helping to ease O’More stakeholder concerns about the merger was meticulous attention to outlining the value of the merger to existing O’More students, who were guaranteed to be able to continue their current academic track, with all credits transferred, with access to any classes they needed for completion, and to graduate with an O’More degree at the same tuition, Fox says.

“Belmont staff took the time to listen,” Fox says. “If we had a student who was upset or angry or confused, the registrar himself, the university registrar, would stop and talk to him or her, and help them figure that out. It’s a hard thing for students; they signed up for a small, single-discipline institution, and they ended up at a mid-sized one, but a fabulous one. Belmont honored their promises at every step.”

That even extended to allowing faculty to have input on the physical structure they would occupy. “For a design school, the physical structure in which you operate is important,” Fox says. “They let us design our facility, so we redesigned this facility that had been there for some time. And with our design, they built it out. And it’s beautiful. And we’re proud of it.”

Also key was that Belmont used proceeds from the eventual sale of the Franklin property, for $6 million to the Heritage Foundation, to provide scholarships for future design students.

“Our commitment from the beginning was that we would use the profits from the sale of the property for scholarships to maintain the opportunity to grow the O’More programs,” Burns says. “We knew that if we could grow the enrollment, there would be more than enough tuition to cover the cost that we needed to run the program since we didn’t have to also create and pay for all the support services that Franklin had, because we already had them.”

Notes Fox, “O’More now has a multimillion-dollar endowment that it has never in its history had and we just awarded the first eight scholarships from this fund last January.”

Burns says with time and effort, many skeptics of a merger can be won over.

“I think in the case of O’More, the way that we knew we had succeeded is that we said to the O’More students, ‘We will let you complete your program and when you graduate, you’ll graduate with an O’More degree.’ So in the first class that graduated, they all got O’More degrees because that’s what we agreed to,” Burns says. “But over the course of the next week, they all came back independently and said to us, ‘Actually, can I have a Belmont degree?’ That was a sign we had done something right—they cared enough to want a degree from their new school.”

David Tobenkin is a freelance writer based in the greater Washington, D.C. area.