New Report Outlines How Colleges and Universities can Engineer the Change Necessary to Reshape and Reinvent their Industry
New York—July 23, 2012 — An increasing number of colleges and universities are now on financially unsustainable paths versus just several years ago. This situation puts the overall system of higher education in the U.S. at a “tipping point,” placing its historical global leadership role in knowledge creation and teaching at risk.
A report released today titled “The Financially Sustainable University,” (available at www.thesustainableuniversity.com) by Bain & Company, a top global business consulting firm, and Sterling Partners, a leading private equity investor in global education institutions, finds that many higher education institutions continue to operate on the ‘Law of More,” assuming that the more they build, spend, diversify and expand, the more they will persist and prosper. But the opposite has occurred. Many colleges and universities have become too complex, overleveraged and slow to address the changes required for their institutions to survive and thrive.
[Editor’s Note: For a full listing of colleges and universities most at risk, link to the report’s “Financial Fade” online interactive tool at www.thesustainableuniversity.com]
The study finds that, on average, university debt is increasing annually at 12 percent per year and nearly two and a half times the rate of instruction-related expenses at a time when demographic, economic and market forces have challenged traditional revenue sources and endowment growth. The result, the authors say, is that approximately one-third of all institutions have an unsustainable business model.
“This is a watershed moment for the industry,” said report co-author Tom Dretler, an executive in residence at Sterling Partners and board chair and co-founder of the Alliance for Business Leadership. “If current trends continue, we see a higher education system that in 20 years can no longer afford to meet the diverse needs of the U.S. student population. The social and economic implications are pretty staggering. The time for change is now.”
“Higher education in the United States is facing a liquidity crisis of disruptive proportions,” said Jeff Denneen, Bain partner and head of the firm’s higher education practice in North America and co-author of the report, “and it is imperative that universities become much more focused on creating value from their core. Who will pay $40,000 per year to go to a school that is completely undistinguished in any dimension?”
The report finds that most innovative college and university presidents are taking several steps to create a more differentiated and financially sustainable institution, including:
– Developing a clear strategy focused on the core – in the domain where the institution is most differentiated and the place where it derives its identity.
– Reducing support and administrative costs- starting furthest from the core of teaching and research, cutting from the outside-in and building from the inside out
– Freeing capital in non-core assets – many institutions can greatly strengthen their cash positions through better and more innovative management of assets, whether real estate, physical assets or intellectual property
– Strategically investing in innovative models – which go beyond “me too” strategies and offer truly differentiated value to students and grant providers
The authors note the ultimate key to restoring financial health is an institution’s ability to successfully lead change across the full spectrum of the university. Change on a large scale can be achieved only by working with the faculty to build a compelling case and a clear path forward – one that supports the mission of the institution and copes effectively with fiscal constraints.
About Bain & Company, Inc.
Bain & Company, a leading global business consulting firm, serves clients on issues of strategy, operations, technology, organization and mergers and acquisitions. The firm was founded in 1973 on the principle that Bain consultants must measure their success by their clients’ financial results. Bain clients have outperformed the stock market 4 to 1. With 48 offices in 31 countries, Bain has worked with over 4,900 major multinational, private equity and other corporations across every economic sector. For more information visit: www.bain.com. Follow us on Twitter @BainAlerts.
About Sterling Partners
Sterling Partners is a private equity firm with a distinct point of view on how to build great companies. Founded in 1983, Sterling has invested billions of dollars, guided by the company’s stated purpose: INSPIRED GROWTH™, which describes Sterling’s approach to buying differentiated businesses and growing them in inspired ways. Sterling focuses on investing growth capital in small and mid-market companies in industries with positive, long-term trends – education, healthcare, and business services. Sterling provides valuable support to the management teams of the companies in which the firm invests through a deep and dedicated team of operations and functional experts based in the firm’s offices in Chicago, Baltimore, and Miami. The people at Sterling believe in ideas and ideals, in people and partnerships that drive long-term success. For more information please visit www.sterlingpartners.com.