By Robert S. Sullivan
The recent 2014 Deans Conference in San Francisco was—by all counts—a huge success. Every session was valuable and interactive, and peer networking was electric. I personally enjoyed the three plenary sessions—all three anticipated our new exponentially disruptive business school environment. For those of you who attended the conference, recall Tim Brown and Sandy Speicher from IDEO, with their insights on creativity, breakthrough innovations, and much more. Recall Daphne Kohler from Coursera and Ben Nelson from The Minerva Project and their passionate discussion of their new disruptive models of learning and education. And finally, recall how Cameron Anderson from the UC Berkeley Haas School of Business, engaged us in a discussion of Harnessing Collective Wisdom. The common thread to all these sessions was our collective need to embrace, and in many cases, to define new tomorrows for business schools—to get ahead of the curve. One element of this, of course, is the new and compelling resource models of our business schools—yes, our financial or 'business' model must enable us to achieve our unique missions.
Let me begin with some of today's challenges—some questions. Can a dean or the chief financial officer of a business school clearly explain how their revenues and expenses flow, how they are justified in the campus context, how campus tax rates and other "costs" are defined and determined? During business school growth periods (the good 'ol days), this was not much of an issue for many. Business schools attracted large student populations and were often viewed as the campus cash cows. Large, cross-campus subsidy without much discussion or even logic was more the norm. New business school deans simply accepted their financial model as a given; the rules of the game, while opaque, were set. Amazing!
Now in 2014, business schools (in fact entire campuses) are being disrupted. We know from our Deans Conference that there is far greater competition for students and more disruptive innovation with curricula and the use of technology. Additionally, reduced research and public support, and more constraints on tuition are pressuring the financial sustainability of universities. Many now strain and challenge the resource base that historically has been stable. Consequently the old, opaque rules for business school financials will no longer work. Yet some campuses feel more compelled than ever to rely on business schools to address other financial pressure points that are exploding. What may have been tolerable, while not logical, several years ago, today can misalign campus initiatives, and in fact can disable (not quite kill) the goose that lays the golden egg.
Within the past few months, this topic of business school financial models has been an increasingly hot topic. Financial sustainability is, in fact, embedded in the new 2013 Accreditation Standards. For example, one elite private school, for years, has had a campus tax on gross revenue of 12.5 percent. This year, without discussion, the tax rate was doubled to 25 percent. Consider a public school that received a state appropriation for its public degree programs and also retained much of the revenue for non-state programs. When all the financials were evaluated, very much like what an external auditor might do, it was determined that the effective campus tax rate on public program revenues was 80 percent. Yes—80 percent. What is the logic?
All of higher education around the world is feeling new and extreme pressures. Indeed, our world is being disrupted. Underlying our ability to positively address and capitalize on this disruption is the need for clarity and transparency of finances—yes, understanding the 'business model' of the campus and of the business school. Clarity and transparency should lead to open discussion of priorities and alignment for achieving common goals. Perhaps Cameron Anderson with group think might help us out here! How many of us can say we understand and appreciate the logic of our own business school finances. Without such knowledge and understanding of the rules, how can we define our path forward in what now is an increasingly tumultuous environment.
Reflecting back on our amazing 2014 Deans Conference, I wonder how prepared we are for our new world—the disruptions, the challenges and the opportunities. I believe it is necessary and incumbent upon us to work for openness and transparency in our financials. With this, we can plan, anticipate, and be supportive. We might use benchmarks and best practices for financial models from peer institutions to help guide decisions. AACSB International has an important role to play here—the information is being collected, and should be a resource to all of us.
In mobilizing for an exciting tomorrow, we must know where we are today—all the axis points. Business schools can be great community contributors in many ways, not just resources. As we know, business schools have much to contribute to the greater good. However, without greater transparency and logic, and without trust, our road ahead will needlessly be pot holed—possibly for some, treacherous.
Robert S. Sullivan