Turn -Around Transition Principles

by Debra M. Townsley | May 21, 2022 | Strategic Planning

First Published on Stevens Strategy Blog

Scenario:

Assumptions and Conditions

Before we talk about the Transition Principles, I want to sketch out a small scenario about interviewing and taking a presidency at a college in need of a turn-around. The characteristics of the institution I present is not built upon any single college and, despite all the hoopla about Sweet Briar, none of the conditions are taken from that particular college. The institution in this scenario are located nearly seven hundred miles to the west of Sweet Briar.

The major premises of the scenario are: first, you would like to work at the college; second, you believe that you have the skills and experience to deliver a successful turn-around strategy; and third, you have sufficient due diligence background information to prepare for the interview.

What You Could Encounter at the Interview for a Turn-Around

If we assume that the board recognizes that a turn-around is needed, it does not necessarily mean that they are willing to do the heavy lifting required for a turn-around. Here are a few comments that have been heard over the past several years from board members:

“We (the board) believe that we can grow out of our current financial problem.”

This came from a college that needed five hundred new students in the next fiscal year to solve their problem. They would have needed to increase enrollment 50% in the next fiscal year. If they staged the turn-around over several years, they would have to had enrolled even more new students because the deficit was growing at a 20% clip annually. The belief by a board that the college can grow out of fiscal problems is a commonly held axiom. However, it assumes that they are not competing with any other colleges for more students.

“The college could do a better job of price discounting which will lead to more students enrolling.”

The problem is that the tuition discounts are simply a recognition by a college that its current price is out of equilibrium with supply (college’s need to enroll new students) and demand (student willingness to enroll). Also, these discounts are coming at a time when many colleges are finding that their potential student pool is shrinking. So simply setting higher enrollment goals and offering larger tuition discounts does not guarantee more students will enroll.

As part of the interview, you might suggest that maybe the college could combine both an enrollment increase and expense cutting as a turn-around strategy. However, you may then hear that expense cutting strategies can be stymied by the faculty because (the board) granted the faculty the authority to approve all expenditures.

In other words, an interview at a college looking for a turn-around strategy does not necessarily mean that it is ready for the angst of developing and implementing said turn-around strategy.

Presidential Candidates at Turn-Around Colleges Need This Information for the Interview:

• • Conflicts, culture, and relations within the institution, including with its alumni and with key external constituencies
  • Financial condition – audits
  • Status of accreditation
  • Law suits
  • Relationship with banks
  • Position of the local press regarding the institution

Before the Employment Contract Is Signed, the Candidate Should Have This Understanding with the Board:

• Explicit acknowledgement that the Board understands and accepts the implications of strategies posed by the president during contract negotiations.
• The contingency plans in response to any known fall-out from decisions.
• The willingness of the Board, its chair, and executive committee to publicly meet with constituencies and state their support for the President as strategies are being implemented.
• What happens if the board chooses to meet with the faculty or other critical constituencies without the president and if those meetings have the potential of undermining the president.
• An explanation of what happens if a board member expresses to key constituencies lack of support for board approved strategies and plans.
• The conditions under which the president would leave the institution beyond the normal moral turpitude, incompetence, or insubordination.

Student and Labor Markets Shortages: Conundrum for Private Colleges

by Michael K. Townsley | May 21, 2022 | Strategic Planning

First Published on Stevens Strategy Blog 

Several years ago, higher education leaders expected to see a nice bump in the size of the student pool between 2021 and 2024. However, recent data indicates that enrollments are continuing to decline following the drop in numbers during the COVID pandemic in 2020. In 2019, Nathan Grawe wrote that the financial crisis of 2008 led to fewer births in that year, which would impact the 2026 student market.^[1] (This outcome is apparent in Chart I later in the discussion.) Grawe also stated that declining enrollments in the eight years prior to 2018 was:

“… the result of a demographic plateau. Surely the current downward trend largely reflects recovery from the deepest recession in modern economic history. Even as we contemplate new demographic trends, we should not lose sight of the many ways in which economic forces drive a range of educational outcomes, including enrollment, the desire for credentialing, and trends in students’ choices of academic majors.” ^[2]

It appears that as new students consider the choice between enrolling in college or other options, fewer are choosing college at all, be it a 2- or 4-year school. The shift in the choice decision may be attributed to the cost of debt, the low-payoff for some majors, government incentives to the work force to remain unemployed, or other not yet unplumbed reasons.

As disruptive as dwindling student markets are toward college budget, so also is the rise in the cost of skilled and unskilled labor due to tight labor markets. As will be considered at the end of this discussion, the confluence of falling enrollments and tight labor markets could have a profoundly negative effect on the financial viability of many private colleges.

Births and Tuition Net Revenue

The Covid 19 pandemic had the potential of pushing a number of private colleges to the brink of survival. However, most were saved by large cash grants from the federal government. Yet, college leaders recognized that the pandemic would soon be followed by a demographic crash in the student market resulting from a sharp decline in births starting in 2000, tempered by a recovery in births in 2006, followed by another decline that lasted until 2010.

Chart 1

Change in the Number of Births between 2000 and 2020^[3]

If the declining births in the early part of this century are pushed forward eighteen years to the traditional college entry age, the effect of the decline on enrollments can be more readily discerned. The first big decline in 2019 would be followed by a recovery through 2021 with a further decline from 2022 and 2023, and then a strong recovery in 2024 followed by a precipitous decline lasting until 2028.

Unfortunately for colleges, the first recovery year from the increase in 2003 births expected to occur in 2021 was quashed by the pandemic. Most colleges were able to absorb the unexpected enrollment decline and concomitant loss of student revenue through large federal grants.

Table 1 indicates that although enrollment declined in 2020, it should not have been unexpected given the decline in births in 2002. If we return to Chart I, the data suggests, given the increase in births in 2003 that 2021, we should see a strong recovery in student enrollment. However, either the pandemic or other forces cut the expected recovery short at most private, not-for-profit institutions. The exception in 2021 was enrollment of female and male students at highly selective private institutions, where enrollment increased. Table I contains some very worrisome news for less selective private colleges because they generally reported further deterioration in enrollment. In addition, less selective institutions must also be concerned that the momentum provide by female enrollment to offset long-term waning of male enrollment is slipping away. If the growth in enrolling women is slacking off, then many less selective private colleges could be in deep financial trouble.

Table 1

Private Not-for-Profit Colleges; Changes in Enrollment by Selectivity and by Gender ^{[4] [5]}

Colleges must now hope that the big recovery in births in 2005 and 2006 will lead to a strong increase in enrollments in 2023 and 2024. If enrollments do surge in that period, colleges may be granted a brief two-year period to rebuild financial resources and implement new strategies. If enrollment does not improve during this period, then private (especially resource poor private) colleges, may find that their financial condition is beyond repair. Even if enrollment does expand between 2023 and 2024, the steep fall in the new student market by 2028 (see Chart I) does not bode well for resource poor, less-selective colleges. Less optimistic population data might even indicate that higher education will be struck by another collapse in the student market between 2034 and 2038. When the next major decline occurs in ten years, no one can reliably predict the impact of new technology in substituting classrooms with visual-reality or of corporations taking over large chunks of educating prospective employees because college graduates lack significant work-related skills that they had brought to the workplace in the past.

In several important ways, the decision to go to college may no longer be mainly influenced by parents. In prior decades, the decision to enroll in college was mainly influenced by the income and educational level of parents.^[6] There seems to be accumulating evidence that enrolling in college and in a particular academic program is becoming more dependent on financial outcomes. In other words, uncertainty in the predictability and scale of enrollments will not diminish in time.

As a sidenote, the effect on college enrollments from the massive influx in new immigrants in the recent past is not known and may not become evident for several years as they and their children become more fully assimilated into society and the economy.

Labor and Cost in Higher Education

Labor and the cost of labor has always been a major issue in college operations. The problem of labor cost is not new, as we can recall that cost-of-living adjustments (COLA) were a common aspect of salaries and payrates during the high inflationary period that ran from the early 1970s to the early 1980s. This period of inflation was called stagflation because inflation was high and economic growth was low. Chart II has two inflections in 2006 and 2020, the first inflection represents the high point in real estate construction leading to a debt crisis and economic crash. The second inflection is a small decline that preceded a massive decline in the labor force and the labor participation rate. Hiring has become problematic because the labor force and the participation rate fell dramatically and do not show the resilience to support the economic recovery after the worst of the COVID pandemic.

Chart II

Percentage Change in the Size of the Labor Force and the Labor Participation Rate

There is a question in today’s labor market as to why immigration has not stimulated a larger labor force and larger participation rates. This puzzle may be due to how the government defines and counts labor and labor participants. For a higher regulated organization like a college, they may not be able to satisfy immigrations regulations and to use the massive influx of new immigrants for their data.

The New York Post included an explanation of the decline in the labor force and participation rate for the last year based on data that was available in December of 2021. The main points of this article are:

1. “There are some 3.6 million fewer workers than there were in February 2020. By some measures, the number is much higher and could be 6 million, according to Moody’s Analytics chief economist Mark Zandy.”^[7]
2. “The majority of the missing workforce are people 55 and older – some 2.4 million people – who either retired early by choice because they could financially or low-income retirement-age workers who were axed at the start of the outbreak. COVID-19 nearly doubled the retirement rate for 2020, fueling the largest exit of older workers from the workforce in at least 50 years.”^[8]
3. “There’s also the simple, tragic fact that the pandemic has claimed 800,000 lives — and about half a million of those victims were working-age adults.”^[9]
4. “The rest of the missing workforce is a combination of people in two-salary families who decided to make due with one income; those who’ve decided to start their own business or take “gig” employment; and discouraged workers with low incomes.^[10]
5. “The US Census Bureau’s Household Pulse Survey also noted on Wednesday that about 4.9 million said they were not working because they were taking care of children who were not in school or day care (Some of these people show up on the unemployment numbers because they are still looking for work.)”

These are massive losses to the labor market that will not be easily made-up by immigrants, especially during a period when the effects of falling birth rates are hitting the labor market.

What Does Student and Labor Market Shortages Mean to Higher Education?

The confluence of student and labor market shortages will bring considerable pain to many private colleges and universities. First, price competition will accelerate as colleges try to attract students from a small market. Typically, price competition in higher education takes the form of tuition discounts. According to the annual tuition discount report by the National Association of College and University Business Officials, the average tuition discount for new students in 2020/21was 53.9%.^[11] A tuition discount of 53.9% means that a college only receives about forty-six cents in cash on the dollar. There is even evidence that some private colleges are discounting tuition for middle-income students between 62% and79%.^[12] Those colleges are only receiving from their middle-income students between thirty-eight cents and twenty-one cents on the dollar. It is hard to fathom how these colleges will be able to fund operations at these high discount rates. If more colleges move to these out-sized tuition discounts, many private colleges are going to be pressed to the wall. Speaking to this last point about ever higher tuition discounts, NACUBO, in a 2020 survey of business officers, found that 80% believed that COVID would have a continuing effect on tuition discounting.^[13] Given the steep drop in the size of the student market, the combination of COVID and shrinking student markets will drive out the cash needed to support operational expenses.

In the case of labor rates, as labor markets shrink and organizations seek to hire more employees, the common economic response will be to either raise pay rates or replace employees with capital equipment. Higher education does not have the technology to replace employees. Also, accreditation rules usually limit reductions-in-force in professional positions. Plus, the administrative information technology systems are expensive and are not designed to replace staff. However, data is not currently available for private colleges to determine if a shrinking labor market is leading to higher labor rates. Nonetheless, it would not be surprising that colleges are going to have to increase their payroll if they want to keep their employees or hire new employees.

Summary: the Confluence Crunch

Chart III

Confluence of Changes in Births, Labor Force and Labor Participation Rate from 2000 to 2020 in Five-Year Increments^[14], ^[15]

Chart III illustrates how birth rates, the labor force, and labor force participation rates have moved in lockstep between 2015 and 2020. Even though the chart does not include 2021 data, it is hard to imagine that the picture improved in the middle of the COVID pandemic.

Contracting student and labor markets could well produce a crunch as cash lost from higher tuition discounts will not be able to cover the demand for rising labor pay rates. If private colleges cannot resolve this conundrum, many of them will fall by the wayside and be forced to close, leaving only memories to alumnae/alumni and former employees.

References

1. Grawe, Nathan D. (November 1, 2019); “The Enrollment Crash Goes Deeper Than Demographics” The Chronicle of Higher Education; The Enrollment Crash Goes Deeper Than Demographics (chronicle.com). ↑

2. Grawe, Nathan D. (November 1, 2019); “The Enrollment Crash Goes Deeper Than Demographics” The Chronicle of Higher Education; The Enrollment Crash Goes Deeper Than Demographics (chronicle.com). ↑

3. “United Nations – World Population Prospects” (Retrieved December 23, 2021); United Nations – World Population Prospects; Births – USA Facts; www.macrotrends.net. ↑

4. Definitions of Selectivity:

   Highly Selective: Admit 30% to 35% of academic pool; top 10% to 20% of their high school class; high school grades A to B-; SAT or ACT scores top 80th percentile

   Very Competitive: Admit 50% to 75% of academic pool; top 35% to 50% of their high school class; high school grades B- or better; SAT or ACT scores 67th percentile or higher

   Competitive: Admit 75% to 85% of academic pool; top 50% to 65% of their high school class; high school grades B- or better; SAT or ACT scores 60th percentile or higher

   Less Selective: Admit 85% of academic pool; top 65% of their high school class; high school grades C or better; SAT or ACT scores 60th percentile or higher

   ↑

5. “National Student Clearinghouse Research Center’s Regular Updates on Higher Education Enrollment 18-Nov-21” (Retrieved December 21, 2021); COVID-19: Stay Informed – National Student Clearinghouse Research Center (nscresearchcenter.org). ↑

6. Zemsky, Robert and Penney Oedel (1983); The Structure of College Choice; College Entrance Examination Board; New York. ↑

7.  Fickenscher, Lisa (December 17, 2021); “COVID’S Labor Market Shakeup: this is where the missing 3.6 missing workers went”; New York Post; How COVID shook up the labor market (nypost.com). ↑

8. Fickenscher, Lisa (December 17, 2021); “COVID’S Labor Market Shakeup: this is where the missing 3.6 missing workers went”; New York Post; How COVID shook up the labor market (nypost.com). ↑

9. Fickenscher, Lisa (December 17, 2021); “COVID’S Labor Market Shakeup: this is where the missing 3.6 missing workers went”; New York Post; How COVID shook up the labor market (nypost.com). ↑

10. Fickenscher, Lisa (December 17, 2021); “COVID’S Labor Market Shakeup: this is where the missing 3.6 missing workers went”; New York Post; How COVID shook up the labor market (nypost.com). ↑

11. Whitford, Emma (May 20, 2021); “Tuition Discount Rates Reach New High”; Inside Higher Education; Tuition discount rates continue to rise while enrollment stagnates, report shows (insidehighered.com). ↑

12. “Which Private Colleges Offer the Largest Tuition Discounts to Middle-Income Families?”; (Retrieved: December 27, 2021); Edmit; ttps://www.edmit.me/blog/which-private-colleges-offer-the-largest-tuition-discounts-to-middle-income-families. ↑

13. McCreary, Katy (May 19, 2021); “Private College Tuition Discounting Continued Upward Trend During COVID-19 Pandemic” National Association of College and University Business Officials; Washington, DC; Private College Tuition Discounting Continued Upward Trend During COVID-19 Pandemic (nacubo.org). ↑

14. “United Nations – World Population Prospects” (Retrieved December 23, 2021); United Nations – World Population Prospects; Births – USA Facts; www.macrotrends.net. ↑

15. “Labor Force Statistics from the Current Population Survey: Years 1999 to 2021” (Retrieved December 20, 2021); Employment Projections program, U.S. Bureau of Labor Statistics; Table 3.1. Civilian labor force, by age, sex, race, and ethnicity, 2000, 2010, 2020, and projected 2030. ↑

Brinkmanship, Planning, Smoke, and Mirrors

by Michael K. Townsley | May 21, 2022 | Strategic Planning

Small independent colleges may require planning of a different kind.

If you think about it, the literature of educational planning is in some ways bizarre.

Much of the literature assumes that colleges and universities are rea­sonably well financed, that the adminis­trators are interested in high-quality learning and better management, and that decision making is fairly rational. Planning models as­sume replicable behavior and offer strategic planning processes that urge leisurely, logi­cal sequences.

Sometimes educational planning actually occurs as scholars suggest. But many col­leges live by their wits, battling bankruptcy, improvising, and groping in the darkness. Most persons in a college are only remotely aware of their institution’s true financial state and are oblivious of the financial conse­quences of many of their initiatives.

The behavior of college and faculty lead­ers is occasionally farsighted, astute, and wise. But more often it resembles the be-

Michael Townsley is vice president for finance at Delaware’s Wilmington College. A graduate of Purdue University, he has served as a business manager in Indiana and holds a master’s degree from the University of Delaware.

havior of Tolstoy’s officers in War and Peace, grappling in the confusion and blood of battle, or the ideological, posturing behavior that Si­mon Schama brilliantly depicts as the reality of the French Revolution in his recent book, Citizens.

These behaviors are especially true of the 500 to 600 smaller private colleges in the United States that live precariously on the brink of bankruptcy. This fact was first no­ticed by William Jeilema1 in 1971, and it seems just as true today. It is not sufficiently realized that approximately one-sixth of America’s 3,400 institutions of higher education live in constant financial trouble. According to the U.S. Department of Education records, nearly 43 percent of all private colleges de­pend on students for more than 75 percent of their revenue.² For nearly all these institu­tions, orderly higher education planning is a distant yearning. For them, planning, such as it is, is usually geared to short-term financial crises and enrollment shortfalls.

To illustrate, here is the true story of one such college, which I will call Camus College. It is an effort to describe college management and planning as they actually take place at many institutions in the less affluent sixth of U.S. higher education.

Camus College was founded in 1968. In its first fifteen years the college reported deficits in all but five years. In three of the five years in the black, emergency gifts from benefactors kept the college from closing its doors.

Planning the origin of the college

Camus College began as a spark in the mind of a brash, highly ambitious, young student-affairs dean at a college in New York State. In the mid-1960s he had conceived the idea of a new college to serve late bloomers, un­derachievers, and students in need of a sec­ond chance. The early success of Iowa’s Par­sons College was probably a strong influence. His keen desire to be a college president was also a driving factor. A cagey visionary, he also noticed that the Vietnam War had prompted young men to attend col­lege in great numbers and that federal aid to students had begun shooting upward in

1964—65.

He looked for a campus for his college in several eastern states. Then,. near a me­dium-sized city, he discovered an abandoned motel, comprising a once-handsome lodge and four derelict but large, separate housing units. The motel once had a busy road run­ning in front, but the road was now relatively quiet because a new expressway had been constructed a few miles away. This dean of students took his savings account, borrowed

Most persons are only remotely aware of their institution’s true financial state.

from several relatives, and offered $10,000 for the deserted motel. The bid was ac­cepted, and Camus College was born.

The youthful president then recruited several hundred students from surrounding states and provided a residential, student-oriented experience, taught in the old lodge by underpaid instructors within a limited cur-

riculum, which focused on the liberal arts. Since the college was without endowment, the president tried to run it as a business. Unfortunately, he never made ends meet. When enrollments declined in the mid­1970s, after the Vietnam War ended, Camus College seemed ready to close its doors, es­pecially since the former motel buildings needed substantial capital repairs and reno­vations. The enterpreneur-president then moved to another college.

Planning for survival

To keep the colleges classrooms open, the next president scrambled to find additional students—fast. To do so, the college rapidly turned away from being a small, caring, resi­dential college for underprepared students from surrounding states to becoming a com­muter college for older, employed, minority, and part-time students who lived nearby. The college also sought and obtained a U.S. Department of Defense contract to teach military personnel at a nearby military base. This “strategy,” hastily devised to meet ur­gent necessities, radically transformed the institution.

To further boost enrollments, the col­lege’s leaders designed a totally different kind of college. Instead of a liberal arts cur­riculum, the college mainly taught practical, career-oriented, and even a few vocational courses, concentrating on business, commu­nications, and behavioral studies. Camus also arranged to teach the second two years of college at a community college in the area and aggressively sought other two-year col­lege graduates.

Instead of the protracted semester cal­endar, Camus College switched to eight-week semesters and offered intensive one-month courses that met on four consecutive weekends. To help attract students, the col­lege adopted a strategy of maintaining the lowest private college tuition in the state, advertising this advantage. And to head off financial collapse, Camus College cut its ad­ministrative staff to the bone and moved away from mostly full-time faculty-the high­est cost item at any college — to a largely

part-time, adjunct faculty. The use of adjunct faculty reduced the expenses of teaching a course by 40 to 50 percent.

Last, Camus College officials solicited private gifts, especially from its board of trustees. For the early 1980s, the college needed at least $250,000 a year in benefac­tor gifts to balance the books.

The new “plan” worked well, ostensibly. Head count enrollment in the early 1980s increased at an annual rate of 13 percent. Camus College enrollment shot up from a few hundred students in the mid-1970s to roughly 1,000 students in the early 1980s. Then in 1981, Camus received a $450,000 gift for a renovation. The new strategy for Camus seemed to be working.

Planning for recovery

In 1981, however, Camus College ran out of money. There was a cash flow crisis. The auditors hinted that the college was broke. But how could this be? It turned out that while the college’s aademic leaders were constructing their concrete new strategy, the financial structure supporting the con­crete was made of wood saplings.

The crisis was the culmination of a failed effort during the previous spring to reduce the substantial deficit to a manage­able size. When the audit arrived that fall, it showed a small deficit of $21,000 and emergency gifts of only $42,000. What was not readily apparent was that, to keep the deficit in control, operating expenses were being met by transferring funds from the renovation project. These transfers absorbed nearly 50 percent of the renova­tion gift. However, the project still had $450,000 in bills to be paid. There were no other cash reserves in the college. Much of the balance of the gift quickly disap­peared that fall. Like the previous spring, it was used to cover payroll and other bills. Nothing was available to pay for the reno­vations when those bills arrived in late October.

These problems were compounded by a personnel problem in the business office, typical at small, poor colleges, which often

do not realize that institutions at the finan­cial brink need additional expertise in the business office. At poorer institutions, fi­nancial planning is at least as important as

At poorer institutions, financial planning is at least as important as

educational planning.

educational planning. Instead, these colleges frequently hire bookkeepers, unsuccessful-in-business accountants, or someone who is said to be “good with money.”

For several years the college’s auditors had urged the president to improve opera­tions and personnel in the business office. She knew she should do so. Two years be-fore the 1981 cash crisis, the president had asked the business manager for a precise statement of the college’s cash needs so that she could ask one benefactor for a gift large enough to put Camus on a solid financial foundation. The business manager came to the president’s home with boxes of check stubs, cancelled checks, and cash records, saying he had given up trying to reconcile the checking accounts and confessing he had no way of coming up with an estimate of the cash requirements of Camus College.

She decided to ask for a gift of $400,000 and received a very large contribution. But within ten months the college reported an-other deficit. Finally, she asked the business manager to leave and hired an experienced business officer, who, after several days on the job, was aghast.

He had learned that the office did not post its ledgers, so there were no regular financial statements, no budget reports. Stu­dents were not billed for tuition and ex­penses systematically, sometimes not at all. Purchases were rarely authorized by a pur­chase order. Bills were stuffed in drawers until money was available. NDSL accounts were not billed. Contracts for the adjunct faculty, which represented 80 percent of the

classes offered at the college, were inaccu­rate or unavailable; and the costs of paying adjunct teachers had been underestimated by one-third for several previous years.

Aided by a new accountant and the au­ditors, who were called in to set up the books, the new business officer speedily set up a new financial system. Suddenly payday arrived. The payroll was $45,000, but the college had only $15,000 in its checking accounts. Frantic, the new busi­ness manager called the old business man­ager, who advised his replacement, lust take the money from the remainder of the $450,000 gift the college received in 1981 for renovations.” He said that’s what he had done several times in the past.

Was the short-term cash shortage in fact a long-term cash shortage? The busi­ness officer decided to work up a forecast. To his horror, he found that Camus College would need $600,000 within four months to keep its payables current, pay back the money taken from the renovation project, and have a two-payroll cash cushion.

He took the forecast to the president, who was shocked. Screwing up her cour­age, she asked the chief benefactor to do­nate $600,000. He did, reluctantly, but in two payments. The second payment was conditional upon the college having in place a full financial-reporting system in six months. Through a fierce effort by the busi­ness staff, Camus College was soon able to provide the president, chief benefactor, and board of trustees with frequent and regular computerized reports on the financial condi­tion of the college for the first time in its history. The chief benefactor was so im­pressed that a year later he gave the college $3.5 million to begin an endowment fund.

Planning for continued solvency

The mess in the business office allowed many in the college, especially the faculty, to think that the college’s financial problems were only a matter of the disheveled busi­ness office. They continued to overlook the precarious financial condition of the college. Even with the business office’s new-found

competence, Camus continues to have seri­ous financial problems.

The switch to a commuter college meant nearly empty residence halls and a bookstore that loses money. More than 88 percent of the latest budgets are based on student revenues, and the local market is no longer growing. Faculty continue to push for the college to replace its adjunct faculty with more full-time teachers. (The cost of hiring one full-time faculty person is almost two and one-hall times that of hiring adjunct instructors to teach the same courses.) The faculty make these demands partially because of the criticism from the regional accrediting group and from others who prefer full-time faculty.

A number of the full-time faculty at Ca­mus sincerely believe that a return to a tra­ditional liberal arts program would secure the school’s reputation. This demand is made despite the evidence that the college does not have the resources to support a traditional program, nor does it have access to that portion of the student market.

Other factors at Camus contribute to its financial condition. Every year Camus makes such a large draw from its small en­dowment that the fund is unable to keep pace with inflation. And until his resignation a few years ago, the college had a vice pres­ident for academic affairs who refused to give up his prerogative for spending funds without regard for budget limits or normal financial and accounting procedures.

The college appears to have an urgent need for a new academic strategy and finan­cial plan. But none is forthcoming. Camus views itself as moderately healthy. Some contend it is growing stronger because head-count enrollments since 1981 have been increasing. An unexpected gift in 1983 provided endowment income that along with large tuition increases has adequately covered the gap between revenue and ex­penses. As a result, the college has not re­ported a deficit in seven years. In fact, its finances are strong enough to support major renovations to a section of the old motel, while the rest of the motel has been re­placed with a new building.

Living day-to-day

The college continues to practice brinkman­ship. Strategic planning is outside its pur­view. As it has done since its inception, Ca­mus operates largely by the seat of its pants. The radical shift in the 1970s to serve older, nontraditional students was a desperate, for­tuitous shift in the face of possible closure. To call this shift a strategy is to give it a meaning that is undeserved.

Camus’ real strategy is to respond to what the market gives the college. Strategy implies that forethought is given to conse­quences of a decision; yet consequences at Camus are often not contemplated until after the fact. So if a new curriculum was installed,

The college’s real strategy is to respond to what the market gives.

it was put in place after the market de­manded it. Consideration of its impact was largely ignored.

If strategic planning is at the minimum a marshalling of resources to prepare an insti­tution for the future, then Camus is not a stellar example. Data on its student body, its student market, or its competitors are not applied to the analysis. Planning is based solely on an intuitive sense of the forces af­fecting the college. Since the college re­sponds to change intuitively, it is unable to respond beforehand to the need to make a strategic change. Camus acts only when evi­dence indicates that there is no alternative but change. This situation is well understood by the president, who has tried to make it evident to others in the college.

Camus’ lack of interest in strategic plan­ning may be caused by its own limitations. The college has very little in the way of re­sources to devote to planning. All of its ex­penses go toward its mission, providing working adults and minorities with a college education. Except for the president, the vice president for academic affairs, and the busi­ness manager, everyone else is a technical administrator. There is little time available for planning. One consequence is that finan­cial planning is not coupled with academic planning. The likely financial consequences of innovations —new academic programs, faculty promotions, or new kinds of stu­dents—are seldom costed out in advance. And often, close tracking of the revenues and costs of novel changes is not done.

Camus survives at the whim of its mar­ket. The college can prosper as long as the market is stable and tolerates low-cost, non­traditional higher education. However, if the market moves in a direction that forces Ca­mus to make a major investment in financial or human capital, then the college could be in crisis again.

Nonetheless, Camus has artfully fol­lowed the twists and turns of its market. The college survives because the president, in consort with the faculty, has quickly and ag­gressively responded to the demands of its students. The president, in particular, is sin­gularly responsible for the college’s modest but growing reputation. She is indefatigable in seeking out new market niches, in con­vincing benefactors to support the college, and in buttressing the quality of the curriculum.

Small colleges like Camus often persist because they are skilled at living on the knife edge of survival. In fact, their existence de­pends on a faculty and administration that are quick to sense and respond to changes in its marketplace. Yet these colleges usually find that constantly keeping an eye on their mar­ket inhibits their planning for the long term.

All this does not mean that Camus oper­ates without an implicit strategy. On the con­trary, Camus seems to operate on four stra­tegic principles. Though these principles are not formally stated, they are evident in its everyday work.

The main principle is that operational plans, while based on experience, are con­stantly tested against reality. This leads to the next principle: that the college closely monitors its performance. It must know if students are satisfied, programs are in de­mand, tuition is competitive, and revenue

Small, undeffinanced colleges can rarely practice textbook strategic planning.

sustains expenses. Third, the college tries to insure that its decisions and information are not independent of each other but are mutually supportive.

These first three principles are essential to a college that is market driven. It must have the internal mechanisms to anticipate the twists and turns of the market. But, even a market-sensitive college may find that it is unable to predict every change in the market. For example, in 1985 Camus saw its enrollment suddenly and unexpect­edly drop by 10 percent. If the college’s fi­nancial condition in 1985 had been as weak as it was in 1981, the loss of these students could have easily precipitated another finan­cial crisis.

But 1985 did not cause a crisis because the college took several steps in the inter­vening years to minimize financial risk. First, it reduced debt from 88 percent of its cur­rent assets to zero. Secondly, cash reserves were increased from 16 percent of current assets to 65 percent. Although 1985 saw cutbacks in the staff of the college, it did not face foreclosure. A tuition-driven college

that devotes a substantial portion of its in-come to debt payments places its very exis­tence at risk when enrollment falls off precip­itously. So, the fourth strategic principle at Camus is to limit financial risk by maintaining strong cash reserves and keeping debt to a minimum.

While strategic planning for campuses like Camus is rare and difficult, a kind of collegiate planning that emphasizes market niches, rapid academic adaptation, conserva­tive finances, and monitored performance can be installed. Camus practices brinkman­ship, but thoughtful, resourceful brinkman­ship.

Enlightened brinkmanship requires ex­ceptional intuitive and market-oriented skills among the campus leaders and full-time fac­ulty. It also requires a well-oiled organization that tests the validity of its intuitive decisions systematically while keeping financial risk as small as possible. Small, underfinanced, tui­tion driven independent colleges like Camus can rarely practice textbook strategic plan­ning. But neither can they survive on luck alone.

ENDNOTES

^{1 W.} Jellema, “The Red and the Black,” Liberal Edu. cation, 57 (May 1971), 147—59.

^{2 National} Data Service for Higher Education. Current Fund Revenues and Expenditures, All Institutions, FY 1985-86. ASCII, Disc 1/1. John Minter & As­sociates, 1989.