While many higher ed leaders are still addressing the immediate challenges of COVID-19, some are starting to think longer-term. They recognize that the threats to institutional sustainability that have been gradually transforming our industry have been exacerbated and expedited by the current crisis—a flatlining undergraduate pipeline, changing student preferences, and volatile state funding, to name a few. In turn, leaders are increasingly asking if their institution’s existing business model will be viable going forward, and considering the need to take bold strategic action to ensure longer-term financial sustainability.
In August, EAB surveyed 122 business and finance leaders across the United States and Canada to learn what changes to their business model they are considering. From the survey, four trends emerged around how business leaders are envisioning the post-pandemic higher ed business model.
Trend 1: Recalibration, not yet radical redesign
Business leaders, by and large, are looking to recalibrate their higher ed post-pandemic business models—not maintain the status quo, but not pursue radical change either. That said, the data identified some areas where leaders are planning more dramatic changes than others. Notably, survey respondents indicated that the strategic areas most ripe for radical change are directly tied to the immediate pandemic response, including remote work policies, automation, and information technology. In these spaces, COVID-19 accelerated change and allowed leaders to experiment with new technologies and business practices. On the other hand, business leaders expressed little appetite for dramatically reshaping central elements of the academy and the residential experience, like tenure policies and athletic programs.
Most and Least Likely Targets for Transformative Change, Per EAB Survey
Top 5 Strategies Cited As Ripe for Radical Transformation (Industry-wide)
- Remote work policies
- Information technology
- Space utilization practices
- Shared services
Bottom 5 Strategies Cited As Ripe for Radical Transformation (Industry-wide)
- Athletic conference affiliation
- Promotion and tenure
- Hospitals and health systems
- Doctoral programs
- Athletic programs supported
Trend 2: Expanded role of technology
Business leaders no longer view technology as incremental solutions or cost centers. Instead, they see it as a core competency that must be central to their institutional strategy. In particular, leaders anticipate that technology will play a bigger role in their revenue strategy going forward, allowing them to improve engagement in in-person courses and expand online enrollment.
That said, leaders recognize the need to balance investments in new technology with upgrading existing systems. To that end, survey respondents cited further investments in their enterprise resource planning, customer relationship management, and learning management systems as priorities in the years ahead.
Trend 3: De-prioritization of the residential model
Business and finance leaders plan to right-size their investments in physical services and infrastructure after a decade of explosive growth in facility construction and campus amenities. Following the Great Recession, many institutions expanded their facilities and student services to bolster recruitment and drive auxiliary revenue growth. Our survey data, however, suggested that this ‘amenities arms race’ may be over. Participating CBOs across segments affirmed the need to invest less in new facilities construction, athletics, and amenities—all hallmarks of the residential experience. Many realize that their institutions have sufficiently invested (or perhaps overinvested) in this space, and plan to taper off additional investment accordingly. Others are “waiting and seeing” where student demand for residential education will fall post-pandemic before making new investments.
Despite this bearish sentiment (but consistent with our first trend), most business leaders are not planning radical structural changes to their residential strategy and operations. Few institutions plan to shrink their physical plan or dramatically divest from key residential experience components (e.g., student housing, athletics).
Business Leaders De-Prioritize Residential Investments But Do Not Radically Alter Strategy
Survey Data Suggests Reduced Investment in Residential Experience
New facility construction
Campus life & student amenities
Yet Few Institutions Planning Radical Changes to Residential Strategy
Plan to shrink their campus over the next two years
Minor to moderate changes to their campus footprint
Minor to moderate changes to their real estate strategy
Trend 4: Rethinking budget and financial strategy
Some business leaders are rethinking their institution’s reliance on intricate revenue cross-subsidies in response to the current financial crisis. In past financial crises, funding diversification and higher-margin sources (e.g., international students, room & board) enabled institutions to prop up struggling business units and academic programs while continuing to support their public service and educational missions. These internal subsidies helped stabilize institutional finances in economic downturns or short-term enrollment challenges. In the past few years, however, sustained state disinvestment in higher ed, along with competitive and consolidated enrollment markets, have stressed the cross-subsidization mechanisms at some institutions to their limits. When the pandemic struck, the immediate and disruptive revenue shocks broke down this already fragile model.
Illustrative Representation of a Research University’s Cross-Subsidization Mechanism
In response, leaders are considering measures aimed at better managing—and, in some cases, lowering—their reliance on cross-subsidization. Survey respondents indicated that they may re-evaluate subsidization mechanisms and resource allocation models to increase transparency and enable more agile fiscal management. This includes boosting margins in academic programs to lower the need for internal subsidies to academic units.
COVID-19 will continue to strain higher education institutions’ budgets—and leadership capacity—in the months ahead. But institutional leaders must not let the urgency of the immediate crisis crowd out attention for critical long-term strategic planning. To that end, EAB is actively exploring what the higher ed business model of the future could look like, and what leadership teams need to know to guide their institution forward. If you would like to take part in our research and share your perspective on the future of higher ed business models, please reach out to jnell@EAB.com.