1. Upstate New York College Collaboration
Innovation and Collaboration
Ron Salluzzo
October 6, 2015

2. Starting at the Beginning
Why Innovation and Collaboration go together: Investment amounts, best practices, scope of activity What makes your institution different? Not historically, but now What will differentiate your institution in 10 years? Considering impact of demographics, economics, institutional financial health and market strength Once you know what to do: What is the best way to deliver

3. Level Setting: Why this time is different
External
Regional Demographics
High school graduation rates
Birth rates by broad categories
Regional economics
Program interest alignment issues
Family economics in Western New York
Market anger…. (don’t discount this as a driver)

4. Level Setting: Why this time is different
Internal
Cost of academic programs
Cost of non-academic programs
Growing demands for services

5. Small College Closures Poised to Increase (Moody’s 9/25/2015)
Closures and merger activity will increase as the sustained impact of revenue declines intensifies.
A majority of small colleges have failed to achieve sustained revenue growth and trend will continue.
The smallest colleges will continue to lose market share as the largest achieve growth.
The smallest colleges have inefficient cost structures with net tuition revenue funding only three-quarters of educational expenses.
While many small colleges are under stress, some will continue to thrive. (But this isn’t Lake Wobegon…)

6. A Key Misalignment in Many Institutions
This is the battle of aspirations fighting incrementalism.
Incrementalism is death by a thousand cuts.
Incrementalism will fragment investment resources.
Misallocation of investment resources will kill strategy and innovation.
“You've got to be very careful if you don't know where you are going, because you might not get there.” —Yogi Berra

7. Driving Forces in Organizations: How it usually works
Driver should be mission and strategy, finances reflect only affordability.

8. Driving Forces in Successful Organizations: How it should work
Multiyear planning
Winning the strategy discussion
Simplifying budget processes as strategy implementation
Everyone on the same page
Reduction in execution risk
“If you want to predict the future, create it.” —Abraham Lincoln

9. Profile of Long Term Successful Institutions
Academic profile
Undergraduate student base > 3,000
Average enrollment in programs > 100
Distribution of graduations by major
Under-enrolled majors making up less than 30% of offerings
Premier institutional programs will always represent the plurality of graduates, it is the under-enrolled programs that will diffuse investments.
Graduate programming, with margin
Retention rates stable and growing, graduation rates stable and growing.

10. Profile of Long Term Successful Institutions
Financial profile
Composite Financial Index* of at least 3.5 over a period of years
Operating margins of at least 4%.
Retained wealth, as measured by expendable resources, of at least 40% of operating size.
Debt capacity to meet strategic needs.
Age of facility that is reasonably up to date.
Operating profile
Student to Faculty ratio that is stable and larger.
Student to Administrative staff that is stable and larger.
Number of square feet per student that is rational and controlled.
Technology investments that are consistent and rational.
* From Strategic Financial Analysis for Higher Education, 7th Edition

11. Appendix – Some Statistical Data

12. Some Statistical Data as a Takeaway
Moody’s Data
In 10 years leading up to 2014, there were 80 closures and mergers. Projected to triple in the next 10.
Number of smaller institutions with less that 2% revenue growth rate rose from < 10% in 2006 to 50% in 2014.
There is a growing trend of enrollment shift toward larger institutions: Program investment, student life, capital facilities, robust online offerings.
Inefficient cost structures due to inability to leverage fixed costs over a bigger population of students. Increasing regulatory and personnel costs are drivers, pension costs as well at public institutions.
Institutions with specific niches and strong endowments will continue to thrive.

13. Some Statistical Data as a Takeaway
Academic Data*
Average enrollment per major > 100 undergraduate students
Overall enrollment > 3,000 total undergraduate students
Graduation rates need to exceed predicted rates
Offerings should correlate with national program interests
Retention rates > 80%
Graduation rates > 65%
* If targeting an operating margin of about 4% in tuition dependent institutions.

14. Some Statistical Data as a Takeaway
Demographic Data*
Northeast region high school graduations will decline 10% between 2014 and 2024.
New York State high school graduations declining 7% between and 2019.
National birth rates declined 9% from 2007 to 2013.
Enrollment shifts in four year institutions from 2000 to 2014 have emphasized for-profit and public institutions:
For profit institutions +425%
Four year public +120%
Four year private %
* Based on NCES and NYS data

15. Some Statistical Data as a Takeaway
Financial and Operating Data (for Tuition Dependent Institutions)
Direct cost per credit hour < 35% of net tuition revenue per credit hour
Student-to-faculty ratio > 15:1
Student-to-administrative personnel ratio > 9:1
Facility square footage per student, per APPA studies is 300 sq. ft.(fiscal 2013)
Overall financial health of a CFI > 3.5, operating surplus >4%, expendable wealth > 40% of total expenses
Debt Capacity > 100% of expendable wealth (measured by viability ratio) with an age of facilities of less than 14 years