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Hurdles, High Profile Failures, Revenue Center Management Comparison
A-HEC: What are the major hurdles that higher education
leaders experience in moving forward with forming for-profit entities?
MG: The first, surprisingly, is the lack of understanding on the for-profit side as to how colleges
and universities are organized and function. Ironically, I’ve found institutional leaders to be far more knowledgeable
of the commercial and financial sectors than the other way around. It is incomprehensible to an executive of a
corporation or the managing partner of a venture fund that the president of a university is not, in reality, the CEO.
To the contrary, the president’s authority is sharply curtailed by a very delicately balanced power sharing arrangement
with the faculty and the academic leadership, as well as the institution’s trustees who are nothing like a company’s
board of directors. President’s who “govern” best do so through persuasion, not authority.
Knowing the culture, politics and the language (for example, the term “shared governance” has very
real meaning in academia) as well as the nuances of the decision-making process is essential to successful negotiations.
The second is a lack of knowledge on the part of an institution’s leadership as to what the involvement of the
institution is worth; that is, what kind of value does a university bring to the negotiating table. The for-profit partner
wants to play for a reason: making money. The value of what the institution contributes to that process needs to be
clearly understood by the institution’s own leaders so that it can be translated into an appropriate interest in the
venture.
Third is the flip side of the first: convincing institutional stakeholders, notably the faculty and the trustees, that
partnering with a for-profit entity is not a crime against nature. The institutional leadership has to bring its faculty
and trustees into the process; if they are neglected, the project will likely stall, and may well die. I have spent
many happy hours explaining to faculty senates why a particular kind of venture is, in the end, in their best interests as
well as those of the institution.
The fourth is knowing how to deal with the several external constituencies who exercise control over institutions: these
include the state which licenses them (or, in the case of public institutions, controls them), the accrediting bodies which
validate their legitimacy, and the U.S. Department of Education, which makes available quite a few billions of dollars in
student financial aid.
A-HEC: There is some sentiment among higher education “traditionalists’
that high profile for-profit ventures, such as those launched and shutdown by Columbia and NYU, prove that it is folly to
go down this road. Do you have any thoughts on how such failures compare with the latest ideas on what has a better chance
at success? What is different?
MG: Columbia’s Fathom and NYU Online did not fold because they were for-profit. There were
many reasons why both were ultimately rolled up, but being for-profit was not one of them. In some respects organizational
structure has undermined some of these projects, but that arose from a failure to garner necessary support from the institution
at the operating level, not because they happened to be for-profit. And certainly some – Fathom, for example
– simply did not in the end have a viable business plan. Keep in mind the high rate of failure for new business
start-ups generally. Here is a real difference between for- and non-profit structures. In the for-profit world,
there is a bottom line and accountability to the shareholders. If an enterprise isn’t working, pull the plug.
In comparison, many unsuccessful non-profit services continue to exist out of sheer inertia, long after it is clear that they
cannot achieve their goals, financial or otherwise.
An advantage of a for-profit activity is that the investors will (at least after the bursting of the dot-com bubble)
demand a sound business plan, with oversight, benchmarks and accountability. Second, if the new venture is dependent
on other parts of the institution for faculty or other services, that arrangement needs to be firmly in place, preferably
with a strong contractual commitment. Lastly, institutions can’t succeed if they compete against themselves: too
often, traditional academic units have continued to offer programs and services similar to those of the for-profit spinout.
Institutions, strategic partners and investors have to understand that a for-profit venture is a financial and structural
tool, not an end itself. While the collapse of Fathom was greeted with loud “told you so’s,”
the number of internal institutional initiatives that have vanished is legion. A flawed plan will fail, regardless of
the form. The converse is not, however, necessarily true, and here is where the hybrid model can breathe life –
in the form of capital – to a good idea that only wants for financial legs.
A-HEC: Some institutions have generated growth by allowing individual schools and
units to operate as largely stand-alone units, encouraging them to think and act in a more entrepreneurial fashion.
Is that an alternative strategy for institutions that prefer not to set-up a for-profit entity?
MG: Certainly. “Each ship on its own bottom” is a time honored premise at many large institutions
(indeed, it is something of a mantra at Harvard), and anything that encourages innovation and entrepreneurship and provides
intellectual space for the entrepreneurs to flourish is a good thing. But there are some things that can be done with
a for-profit model, most notably raising capital, which simply cannot happen by reorganizing.
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"Ironically, I’ve found institutional leaders to be far more knowledgeable of the commercial
and financial sectors than the other way around."
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"The value of what the institution contributes to [the new venture] needs to be clearly understood
by the institution’s own leaders so that it can be translated into an appropriate interest in the venture."
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"The institutional leadership has to bring its faculty and trustees into the process; if they
are neglected, the project will likely stall, and may well die."
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"Columbia’s Fathom and NYU Online did not fold because they were for-profit. There
were many reasons why both were ultimately rolled up, but being for-profit was not one of them."
----------------------------------
"Institutions, strategic partners and investors have to understand that a for-profit venture
is a financial and structural tool, not an end itself."
----------------------------------
"While the collapse of Fathom was greeted with loud “told you so’s,”
the number of internal institutional initiatives that have vanished is legion. A flawed plan will fail, regardless of
the form."
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