A Moody Outlook

In Moody's Investors Service Outlook for 2013, the higher education sector was awarded a "negative" rating across the board. Most of higher education has been negative since 2009, but now the entire category can claim the label.

The report summary states, "The underlying value proposition of higher education persists, …  however, the sector will need to adjust to the prospect of prolonged muted revenue growth. Strong governance and management leadership will be needed by most universities as they navigate through this period of intensified change and challenge."

The question that has been bounced around for a couple years now – "Is college worth it?" – has been answered in the affirmative. The question that seems to be more to the point is, "Is your college worth it?" How will we recognize "strong governance and management leadership" when we look at an individual college? I propose that the answer is contained in the question.

For years colleges and universities have been selling the category and their role in it. Success in the future would seem to favor those that will now market themselves as distinctive and exceptional.

Hospitals and hospital systems have blazed a trail in this territory. The marketplace has demanded efficiencies; the sector has responded with acquisitions and consolidations in health systems. Hospitals are newly encouraged to fulfill specific roles in their systems – sacrifice certain specialties and commit to those services that can be provided at the highest level. Sacrifice and commit is a routine set of commercial responses to a category's challenged business model.

The hurdle in the higher education sector is to convince university leadership that their institution is a sector contributor to the challenged business model and that the time to sacrifice and commit is now.

To gauge whether a university is in need of better governance? Check out the videos on its website. If the message trumpeted is also true of its competitors, that is not "strong governance and management leadership." In most other industries this kind of homogeneity would be good rationale for a merger or partnership.

In the same gloomy report, Moody's helpfully identifies possible leadership options to consider to grow revenue and increase efficiencies:

●    Centralized or shared services
●    Consolidations or mergers
●    Faculty flexibility or fewer professors
●    Expanding the market
●    Online and technology-enabled options
●    Partnerships
●    Elimination of programs
●    Moving non-essential non-academic staff off campus
●    Weekend and evening use of campus
●    Pricing strategies

A couple of these identified tactics would seem to be at least loosely connected: a reduction in professors and programs follows from a triage of those programs to understand which of these best serve students, and which do not.  Also connected in the evaluation stage is deciding on what is and is not a necessary campus-based function or facility. In general, these tactics fall under the rallying cry: Sacrifice and Commit.

Another listed option, "Expanding the market," is a double-edged sword. The college market is zero-sum: with the total number of applicants in decline, one institution's expansion comes at another's expense. Applications by adult learners have dropped off most of all – yet this is the very audience the report suggests that colleges pursue. In any other category this would be a situation primed for consolidation: Merge or Partner.

For higher education leadership to get these important decisions right it will be essential to first gain an objective and comprehensive understanding of the essential truths and distinctive qualities of the institutions relative to peers and the category, through the clear and candid eyes of all of their constituents.

In other words, presidents, provosts and faculty will be compelled to recognize that the college brand is not something the university cabinet can just decide; it is more than the academic seal, the mark on stationery, the website or the side of the football helmets. The college's brand expresses the college's reason for being. The institution must ask itself, and ask unflinchingly: "What do we fundamentally stand for? What do we provide that our competitors don't? What do we do distinctively, and, why should anyone care?"

These questions answered courageously are your unique value proposition, and a prescription for this Moody, negative outlook.



Chris Cullen is Infinia Group's resident expert in higher education, and Managing Director of its Washington, D.C. office. He can be contacted at 240-482-4966 and ccullen@infiniagroup.com.