For the past six months, we have witnessed an upheaval in the economics of higher education unlike anything we have ever seen. Endowment levels are 20% to 35% lower than a year ago. Colleges and universities that rely on endowments for large parts of their operating support have budgets that are unsustainable. Major layoffs, firings, hiring freezes, reductions in student services, and huge reductions in capital projects have become the norm.
It is a stark contrast to the arms race of investments and enhancements among colleges and universities in recent years. The "raise as much as you can and spend as much as you raise" model of higher education finance has meant top salaries to attract academic superstars, expanded student services, and amenities that sometimes rival those of first class hotels.
This "more and better" attitude toward managing the college or university may appear to be gone in this environment, but it hasn't disappeared. A prevailing view among college leaders is to batten down the hatches and cut costs on multiple fronts for the short term, assuming a return to the "old" normal. But there is ample evidence the old normal may never return. Thus cost-cutting is an incomplete solution. We must recognize the ground is shifting in fundamental ways for higher education. We must reframe our approach to managing colleges and universities in the face of a new normal.
Jack Welch—who capitalized on the shifting terrain in his portfolio of companies across many industries during his 20-year reign at General Electric (GE)—observed that "we play the cards we've been dealt instead of hoping for a new hand." Having been dealt different hands, each institution has to play with the cards it holds. But with this recession, we simply must recognize that the game has changed—leaving college and university leaders to develop new strategies for success.
Entrepreneurial individuals and institutions have demonstrated that times of crisis and disruption are often the best times to take opportunistic strategic actions. Every school can use the hand it is dealt both to make and find new opportunities today while preparing for better days ahead. Here are just a few of the ways:
First, focus on your institution's strengths. Clearly, no school has a resource base at this time that supports a strategy of general excellence—which is why it's important to avoid the temptation to spread limited resources across multiple programs in the hope of increasing chances for success. This can only lead to the kind of failure that investment guru Peter Lynch called "diworseification." Colleges need to move away from the more and better approach and position themselves for the new economic reality by focusing on what they can do best.
Second, develop deeper roots in your community. Once an institution is more focused on its strengths, it can assess how it can best use these strengths to help its community, broadly defined. For Babson, our community is global as well as local. We are creating a global entrepreneurship education network to extend entrepreneurial thought and action as a teaching method to the world.
Third, think new and think big. We are not going to work our way out of our current problems with a mindset of business as usual or a logic of incremental change. Bold new visions and initiatives are required to lead us toward new solutions for our economic, social, and environmental problems. Last year, Babson received a $10.8 million gift from Alan and Harriet Lewis—who have no family or alumni connection to the college—to create the Lewis Initiative, a center that applies methods of entrepreneurial thought and action to have an impact on society in a significant way. Other colleges certainly have their own ways of meeting society's urgent needs through their activities.
Fourth, redefine your relationship with alumni. Now is the time to show alumni their relationship with their school does not end at commencement but instead is a lifelong partnership that has value for both parties. The headlines tell us which industries and companies are making job cuts, and schools should aggressively reach out to alumni who are unemployed or at risk. Alumni donations will flow—if not now, then in the future—if people feel they are still getting something in return from their college or university.
The late Peter Drucker, one of the most influential thought leaders on management, said that every single social and economic issue of our day is an opportunity in disguise. These tough economic times will hold a silver lining for schools that pursue winning strategies by finding and making their own opportunities.
Schlesinger is president of Babson College and the former vice-chairman at Limited Brands.