Benefits of a large-scale private college alliance (2nd in a series)

Benefits of a large-scale private college alliance (2nd in a series)

(1st in the Series:  Framework for a multi-college alliance, merger, joint venture, or operating agreement)

2nd in the Series: Benefits of a Multi-College Alliance

In our first article, we proposed a 7-point framework to bring 10 or more private colleges into an alliance.  This alliance could take the form of an operating agreement, joint venture, merger, or other mechanism.  Ten or more private colleges and universities would initially consolidate support operations to be followed by academics.

The work to bring 10 or more private colleges into some form of alliance will be stunningly difficult.  The reaction from stakeholders will be mostly negative and the protests will be loud and the reaction rapid.  However, our work shows the economies of scale cannot be successfully achieved with consolidation of a smaller number of organizations.  

With all of the projected trials and tribulations, a large-scale alliance is still the right thing to do for small to medium-sized private colleges. Maintaining a parochial model substantially increases the risk of closure and/or forced liquidation of assets.  Our College Viability App reports provide higher education leaders with customized finance, enrollment, and outcome data for the last six years with data from the National Center for Education Statistics.

Here are some benefits of our proposed model.

Expenses can be scaled to provide better cost management than stand-alone entities.  This one has been shared often, but its economic truth remains.  The duplication of leadership and administrative functions are not economically viable for small to medium-sized private colleges.  Consolidation of these positions and functions will allow for increased resource for academic quality and delivery.

Academic sections can be combined with online and other technologies.  As a rapid reaction to the pandemic's impact on academic enrollment, colleges should start this right away.  Colleges can work with potential alliance partners to share low-enrollment online or remote sections of courses.  Instead of having one section with low enrollment, combine online sections across multiple campuses.   The net revenue will go up and the labor costs will not.  An operating agreement based on a colleges percentage of enrollment in a section can be used to determine net revenue sharing.  Labor costs would be allocated in the same manner.

'Piece of the Pie' revenue model.   In the current recruiting model, colleges engage in an 'all or nothing' battle for a each student's full tuition revenue.  A college either gets all of a student's tuition revenue or none of it.  In an alliance model, if a student chooses any of the participating colleges, some portion of that tuition revenue would be applied to the operations infrastructure of all. So, if 10 colleges participated in an alliance, some part of each and every student's tuition and fees would go to support all of those colleges.

The costs of marketing and recruiting student would be reduced considerably.  Consider the case of college fairs at high schools.  Currently, each college sends one representative to each high school.  In an alliance model, the 10 colleges in our example would be able to provide support for 10 times the marketing and recruiting as the parochial, stand-alone model.

1. An alliance recruiter would present each college in the alliance as a potential match for a high school student.
2. A student's interests could be matched to more than one college in the alliance to give more flexibility to their college decision.
3. The reps would also share the cost, cultural, and academic benefits of a student choosing an alliance member.

Pressure on tuition discounts would ease.  Tuition pricing across the alliance/merger/joint venture would be standardized to allow for student choices to be based on academic and career opportunities -not just cost.  Financial aid packaging would be centralized in order to present true academic and career options for students. 

It is probably too late for many small to medium-sized private colleges to take advantages of this consolidation model.  Their demise will be quick or delayed by the charity of alumni.  For those private college leaders willing to move beyond a parochial focus, this model is one that has worked across many other industries. It is one that will work in higher education also.

Next in the series:  Downsides of an Alliance of 10 or More Private Colleges