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Changing business models: Overcome obstacles via financial stewardship, innovation, and differentiation

August 31, 2015 Article 8 min read

Today’s market forces are demanding that colleges and universities explore new business models and devise new strategies in order to remain competitive and sustainable.

It feels like hardly a day goes by without a media report about the threats facing higher education. Admittedly, there are many. Declining numbers of high school graduates in many parts of the country, including areas of the Midwest, are squeezing enrollment.

A middle class that still hasn’t fully recovered from the recession is concerned about affordability and debt, leading to questions about the value of a traditional four-year college education. Decreased public funding and downward pressures on tuition coupled with increasing costs and competition are affecting colleges and universities nationwide to varying degrees. Small colleges are being hit especially hard, as indicated by recent closures and merger discussions.

But it’s not all doom and gloom. For many institutions, these trends and challenges are sparking new and sometimes uncomfortable conversations about how to become more efficient, how to best use technology, how to engage prospective students to meet enrollment goals, and how to provide, and successfully market, a truly differentiated student experience.

If your institution isn’t already having these discussions, it should be. As Standard & Poor’s wrote in its report, Upping The Ante: Costs Of Luring Top Students Keeps The Outlook Negative On U.S. Not-For-Profit Higher Education Sector, “It is our belief that colleges or universities that are unable to distinguish themselves in the market through their reputation or offerings will have to compete for students purely on price, which will weaken demand and possibly cut into their enrollment over time.”

Similarly, the American Council on Education’s Beyond the Inflection Point: Re-imagining Business Models for Higher Education report asks, “In a marketplace where many institutions look alike to students and parents, how can your institution stand apart? As it redesigns business practices, can it make strategic decisions that will help it define and hone its unique characteristics?”

Change can be difficult. Change within large, complex institutions can be like trying put a satellite into orbit. But it’s a requirement to stay competitive in today’s environment and to ensure a successful future.

Insights from Hope College

Plante Moran: In his January 2015 Presidential Perspectives letter to alumni, parents, and friends, President John Knapp shared that Hope College has received a record number of applications, and enrollment is at an all-time high. Hope is earning national recognition and high rankings, all at a time when many institutions are struggling. What challenges have you faced, and how have you gotten to this point?

Tom Bylsma: When I joined the team at Hope 10 years ago, the college was doing relatively well by most measures. The challenges facing Hope were no different from most other private liberal arts colleges: rising costs, affordability of tuition, room and board for families, increasing demands and expectations from students, declining federal and state funding levels, and aging facilities. Still, we were in a pretty good place.

But we had some trustees who were expressing concerns about the economy and what was happening in other industries in terms of having to work smarter and become more efficient. Their cautioning words were like the canary in the coal mine. They prompted us to very proactively go through an evaluation of many areas of the college and, without hurting what we were doing from an academic standpoint, find ways to become more efficient and improve our financial position.

Over a several-year period, by focusing on operational efficiencies, debt reduction, and increasing expendable resources, we were able to make significant progress. When the recession hit, we were well positioned financially and operationally to absorb the impact. By most measures, we’re in an improved position today.

Plante Moran: Can you talk about the process of change — who did you bring together, and how did you work together?

Tom Bylsma: There was a sense of unity among our board and president and our administrative council, a very cooperative spirit. There was a clarity in thinking about what we wanted to accomplish and a high level of cooperation among the entire campus community to do it.

Bill Vanderbilt: Regardless of what type of organization you’re in, we all have a protectionist side that wants to hold our cards close to our chest. But there’s a level of trust and transparency that’s felt campuswide that allowed us to address some of these issues and get done what we needed to do.

Plante Moran: What strategies and initiatives for recruitment and enrollment did you focus on?

Tom Bylsma: For one, we expanded our geographic territory. The declining number of graduating high school seniors, especially in the Midwest, is a concern of ours; it’s a concern of many. So we had to expand our boundaries, and that’s not inexpensive to do. The further out you go with marketing, the more expensive it is. We’re more of a regional institution, but we’re increasing the footprint of our reach.

Bill Vanderbilt: We’ve become more intentional around where we go to recruit, and how. We have regional representatives outside of Michigan. That certainly isn’t unusual in higher ed, but we didn’t do it as much in the past; today we have reps who travel internationally to continue to diversify the student profile at Hope.

Plante Moran: How did you make the hard decisions that invariably arise when institutions work toward improving efficiencies?

Tom Bylsma: Our 2006 strategic plan was our guiding vision. There was one summarizing comment in that plan, that the focus of the plan was all about strengthening the things we already did pretty well, and that gets back to our mission and core values. Those were the guiding principles of all the KPIs (key performance indicators) and objectives we developed.

The results included substantial improvement in our financial strength during the recessionary period — we improved our operating margin by $6 million and reduced debt by $30 million, with no additional long-term debt plans. Through the generosity of our donors, we were able to make improvements in physical plant development and take advantage of certain property acquisitions. As an institution, we increased the use of technology, strengthened processes for efficiencies, and increased the use of data for decision-making.

Plante Moran: Can you talk about the role of technology?

Tom Bylsma: We recognize technology is a tool and invest in it as a means to support our overall strategy and mission. We also recognize that, like any tool, technology must support effective processes, procedures, and decision-making, not drive them. Our IT team spends a lot of time evaluating processes around campus and improving them; only then does the team identify the best technologies to support those processes.

Plante Moran: How do you use data?

Tom Bylsma: Each academic area has a dashboard that shows trends in areas like student credit hours taught and the number of students majoring, and that informs decisions about resource needs. We’ve also analyzed data about utility usage and made adjustments. Our utility costs have actually gone down or remained the same even as our campus footprint, enrollment, and utility rates have all increased.

Plante Moran: We’ve talked about recruitment and enrollment, but how do you ensure students’ success — academic, social, spiritual, and otherwise — once they arrive on campus?

Tom Bylsma: We do a number of things. The most critical time for students is that first semester to get connected and get the support they need. We offer coaching services for students through the Academic Success Center and supplemental peer instruction and tutoring. We have an early warning team that offers assertive, “intrusive” advising for students who show signs of struggling, be it academically, financially, or socially. We have an orientation program that receives high marks from students and families, and our learning environment is intimate. Almost all liberal arts colleges have an intimate learning environment, but we’ve been very successful in recruiting faculty with a strong student orientation. There are faculty who love to teach and faculty who love to teach and also enjoy engaging with students. The latter has certainly been a focus of ours.

Bill Vanderbilt: We constantly look at student success from the overall standpoint of our mission. In our view, every student we admit and who comes to Hope can succeed, and it’s our responsibility to determine what we need to do to support him or her. If a student fails, we’ve failed.

Plante Moran: Differentiation is increasingly important today, and institutions need to be able to articulate to students (and their parents) how they’re unique. How is Hope doing that?

Tom Bylsma: Identifying the differentiators is so important. Why should students spend more on a private liberal arts education at Hope vs. a public institution? You have to be able to articulate that value. Financial indicators are easy to measure, but how do you measure the growth of someone spiritually? How do you measure the growth of a person socially? We’re always trying to develop ways to measure the intangibles.

When we think about differentiation, we come back to our mission. It informs how we deploy resources, how we spend our time, and how we talk to people about Hope. We’re big on the mind-body-spirit combination — the entire package — and we spend a lot of time talking about how each should complement the others and how to integrate them. We’re not trying to be the best college in the country in just the intellectual growth of students; there are so many strong schools that can brag about that. But when you consider the entire package — the growth of students intellectually, spiritually, physically, and socially — that’s where we bring value. That’s where we shine.

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