Higher Education Strategy: What Limitations on Future Choices Will We Accept?

Posted by Bob Atkins on Feb 20, 2015 3:00:00 PM

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Most strategic choices restrict the options available to the company in the future. Investing in a new campus may reduce the funds available for enhancing on-line education systems. Choosing to enter Nursing in a given state implies acceptance of the national exam (NCLEX-RN) requirements and the limitations imposed by the local Board of Nursing.Strategy-550052-edited

Let’s explore two of the many choices that may both enable and limit future strategic options: financing and regulatory jurisdiction. Educational institutions must meet the criteria of their “investors” or lose access to the capital required for maintenance and growth, especially of campuses, facilities, and technology. Non-profit schools tend to source their capital from donors, endowment, and state and federal government. Each of these sources may dictate what the money is used for, how it is spent, and when it is spent. Privately-held for-profits tend to be heavy users of private equity funding, which, in turn, tends to make heavy use of debt financing. Debt financing is relatively inexpensive and works well when schools are growing (which usually reduces debt payments as a percentage of cash flow). The recent downturn in demand for for-profit schools has reduced cash flow and left many schools perilously close to debt covenants. As a result, they cannot make the investments that may be required to improve academics, enhance facilities, and attract students. In effect, each form of financing imposes constraints on the long-term choices the school will have. Choosing the financial constraints that best fit your mission is critical.

Similarly, rules and constraints may be imposed by institutional accreditors, programmatic accreditors, the Department of Education, State Boards of Education, state laws, litigation, and who knows who else. As a school chooses its customers and value proposition, it must also consider the regulators who will govern these markets and be willing to accept the constraints they impose. Importantly, these constraints may also create barriers to entry that protect successful schools from unbridled competition.

We have a successful client that is not subject to oversight by the DoE, institutional accreditors, or most of the other educational rule-makers. How? They are private and do not accept financial aid. Instead, they offer short courses that are largely paid for by students or employers. This seriously limits their addressable market, but it avoids the costs and risks of regulation. In another accreditation strategy, nationally-accredited institutions may seek regional accreditation to enhance their prestige.

Almost all for-profit schools carefully pick the states they enter, usually trying to avoid harsh regulatory environments in states like Massachusetts and New York. Of course, this creates an interesting strategic opportunity for others. There is less competition in these states, which make them attractive markets for schools that have the patience and skills to enter and operate in strict regulatory environments.

Programmatic accreditation is required in some fields (e.g., nursing) but is an important choice in others. For example, there are several programmatic accreditors to choose from and several certification tests graduates may take in Medical Assisting. Some schools choose to accept the additional oversight that comes with programmatic accreditation for their Medical Assisting programs. They may believe that the accreditation enhances their credibility with students and enhances their graduates’ ability to get jobs. Other schools choose not to be programmatically accredited but do prepare their students to take certification exams. They believe the examsgive their students an edge in thwe job market and give the school valuable feedback on course content and student learning. Still other schools choose not to have programmatic accreditation and do not specifically prepare their students for a certification test.

In our view, picking your constraints—whether financial or regulatory is one of the most fundamental and enduring strategic choices a school can make. 

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Topics: Higher Education