In a book I wrote in 2006 (Internet Dough) to help small businesses understand the value of social media, I included a chapter about how the Internet was disintermediating businesses. I shared tips and ideas about how small business owners could bypass traditional advertising channels like newspapers, and create their own marketing channels by adopting, then emerging social media tools and services.
At the time, most newspapers were enjoying a huge 20 percent net profit; yet their leaders understood the Internet poised a risk to their business models.
While the brightest marketers, CEO’s, and leaders frantically threw everything including the kitchen sink at the problem, the only thing they could do to maintain profitability was to cut costs. And cut costs they did! Each year, they slashed staff and overhead and renegotiated contracts with unions. Yet, that was not enough! The disintermediating effect of the Internet forced the Tucson Citizen, Rocky Mountain News, Baltimore Examiner, Kentucky Post, Cincinnati Post, King County Journal, Union City Register-Tribune, Halifax Daily News, Albuquerque Tribune, South Idaho Press and many more to shut down!
Now, 7 years later my hometown newspaper, The Cleveland Plain Dealer, once Ohio’s largest newspaper, has introduced a once unthinkable strategy of moving to delivering the paper to consumers only 3 days a week! This is a newspaper that –less than 20 years ago– would be bought by Al Neuharth, then CEO of Gannett Company for 1/2 a billion dollars, and today would be lucky to be get $40 million dollars in a sale.
Your college president is facing the same issues!
While leaders in the newspaper industry have been preparing for this for the past decade, college presidents are only recently being tasked by their board to show they understand the risk, and are doing something about it.
Only recently the board of trustees for The University of Virginia abruptly brought this to the attention of college presidents worldwide when they fired their president, Teresa Sullivan, for not implementing changes fast enough to keep pace with the disintermediating effects of online learning, and changing consumer behaviors.
My son recently shared with me an article by Mark Cuban, owner of the Dallas Mavericks, titled, Will your College Go Out of Business Before You Graduate? In his blog post, Mark outlines why colleges and universities will face the same issues and fate the newspaper industry has painfully endured. (Mark doesn’t offer much hope for your job, but stay with me as I’m going to outline why this is the best thing that could happen to you!)
So why is Mark warning prospective students that your college could go out of business?
Your college has probably not seen fat profits like the newspaper industry has, but like the newspaper industry–more than likely– your college has racked up a lot of debt in order to staff competitively, add amenities, spruce up the campus, add new departments/majors, courses, clubs, and expand the physical campus.
This debt will require your college to continue to increase the cost of tuition, at a time that congress is making student loans harder to get and when states are drastically cutting higher education funding. A perfect storm is brewing!
These market force changes combined with the disintermediating effect of the Internet, the changing behaviors of consumers, and the acceptance of online education, will create a situation that will undoubtedly require administrators to make drastic changes in staffing, course offerings and services.
Discussions are already underway in Texas. The nine regents that oversee the university system, all appointed by Governor Rick Perry, want the universities to figure out how to offer students a four-year degree for a total of $10,000 in tuition!
You may not be facing this, but I guarantee your president will be forced to implement a strategy to slash costs, cut staff, and reduce overhead in a draconian process to protect the institution and integrity of the diploma awarded to tens of thousands of alumni!
Don’t believe your college could go out of business?
Research conducted by by Richard Kneedler, President Emeritus of Franklin & Marshall College, way back in 2007, even before the debilitating effects of the economic crash, provided a very detailed analysis of the state of higher education borrowing. His analysis showed that 207 colleges had more debt than assets – which put them at risk if their enrollment suddenly dropped or lenders got skittish. He suggested that as many as one third of all colleges could be at risk because their revenues no longer supports their debts.
An article by Nathan Harden in The American Interest paints an even worse picture for your college in the next half century!
In fifty years, if not much sooner, half of the roughly 4,500 colleges and universities now operating in the United States will have ceased to exist. The technology driving this change is already at work, and nothing can stop it. The future looks like this: Access to college-level education will be free for everyone; the residential college campus will become largely obsolete; tens of thousands of professors will lose their jobs; the bachelor’s degree will become increasingly irrelevant; and ten years from now Harvard will enroll ten million students.
And, check out what Blaire Briody has to say in an article of The Week, titled, Why Your College Could Go Bankrupt
Moody’s Investors Service recently gave a negative outlook to all U.S. universities, citing “mounting fiscal pressure on all key university revenue sources,” as a number of states continue to cut higher education budgets, endowments fall, and enrollment numbers and tuition dollars dwindle. Long-term debt at not-for-profit universities has been growing at 12 percent a year, according to consulting firm Bain & Company and private-equity firm Sterling Partners.
Keep in mind this is before taking into effect the debilitating market forces we discussed earlier and changing consumer behaviors.
Your college has to show your value proposition!
“We know the model is not sustainable,” said Lawrence T. Lesick, vice president for enrollment management at Ohio Northern University. “Schools are going to have to show the value proposition. Those that don’t aren’t going to be around.”
Lawrence T. Lesick is right!
Think about how you buy products and services.
Imagine for a moment that you are at your neighborhood Lowes and you are shopping for a washer and dryer. You have a price range in which you are looking know you want a front loader washer. The sales person shows you the models they have, and even though she is aware of the top end you are willing to spend, introduces you to a model that has higher efficiency, uses less hot water, less soap, is more environmentally friendly, and has a longer guarantee–but it’s $200 more then you are willing to spend. The manufacturer was prepared for your price resistance, and educated the sales person to show you how you will recoup the $200 investment during the first year of use in reduced electricity costs and soap costs. Plus, the sales person reminds you of the advanced features you will enjoy for the next 10 years as well as the fact that you will be a “friend to the environment”!
In order to stay competitive, your college needs to immediately evaluate how you can deliver a return on investment to your students. Management is going to need to show prospective students and their parents why they should be DELIGHTED to pay your tuition!
So how will you do that?
Simple! By proving that student who choose you have a better chance of graduating with a job.
Your administrators are going to have to pull together the entire campus community; faculty, staff, alumni and your department to create a strategy that increases:
- students taking ownership of their career and investing time in career exploration, planning and management;
- the number of students with internships; and
- the number of grads with jobs by graduation day!
It’s really that simple!
By showing your customers that your product will provide them a better return on investment then online colleges and alternative learning channels, you will be able to maintain your costs, increase enrollment, and save the jobs of colleagues in your department and every department on campus!
You will have a voice in the changes that are coming, as long as you step forward and offer solutions. I wish you luck as you help lead your college through the disintermediating forces you face today!