A Lesson for Higher Ed from Industry—Smaller is Better, and More Sustainable

As educators, we often think of the flow of learning as from us outwards—to our students, to practitioners, etc. While this is no doubt often the case, it is not always so. Sometimes there are important lessons for us that emanate from our students and the world of practice. Two articles illustrating this point jumped out at us in last week’s business news.

The first was about the auto industry—“American Automakers Are Learning A Bleak Lesson About Selling Cheap Cars.” Historically, auto companies have offered a wide range of vehicles, from low-price, low-margin entry-level vehicles marketed to young buyers, to high-price, high-margin vehicles that these young buyers would “graduate” to once they were older and wealthier. The assumption has been that these young buyers would become brand loyal. The current chip shortage, however, has turned this strategy upside down. With the shortage of computer chips constraining the number of cars that automakers can produce, they are questioning the value of producing low-margin cars. General Motors’ CEO Mary Barra has indicated that GM will shift production to high-margin, high-demand vehicles and reduce production of low-margin vehicles, thereby increasing profitability.

The second article was about restaurants—“Applebee’s shorter menu is here to stay.” The pandemic forced Applebee’s to reduce the size of its menu to accommodate lower sales volume and a shift from dining in to take out and delivery. They shrunk the menu from 160 to 100 items, eliminating items that were difficult to prepare or that did not sell well. As restaurants return to more normal operations, Applebee’s does not plan to return to its old menus. Rather it will retain a smaller, more profitable menu and will begin to make regular menu changes eliminating less popular items and offering new options more quickly. They are looking for a simpler, nimbler, and more profitable menu.

The key point in both articles is that product lines grow over time. In good times, businesses of all types tend to add items to the product line without necessarily removing any items. As a result, the product line becomes an accumulation of successful and less successful items. It often takes an unusual event—like the COVID-19 pandemic—to force a careful look at the product line and ask if some changes would be in order.

Colleges and universities can learn from GM and Applebee’s experience. Universities regularly add new programs but seldom eliminate any. There are always newly developing areas in which to offer programs and potential new audiences to serve, so we develop and offer new programs. When we offer a new program, we believe the audience it will attract is large enough to justify the investment necessary to launch the program and the continued cost of its operation. And sometimes this is the case! Seldom, however, do universities look back in a few years to assess those new programs, their profitability, or their return on the financial and human capital investments. Even less frequently, do we look at our older programs and ask if they are still viable? Are they still drawing a significant student audience? Are they worth the continued investment (in both financial and human resources) required to maintain them?

We were talking to a college president last year whose university boasts 160 undergraduate majors and 60 graduate programs. This institution enrolls only 4,500 undergraduates and about 1,500 graduate students. Thus, they average fewer than 30 students per undergraduate major (fewer than 8 students in each cohort!) and only 25 students on average per graduate program. It gets worse, however, since two of the graduate programs account for 700 of the total graduate enrollment. The remaining 58 programs average fewer than 15 students each. Clearly, this is not financially sustainable. When we asked the president why he was not eliminating some of the very low enrollment programs, his response was that each program was some faculty member’s “baby,” and they did not want to consider eliminating a program while that professor was still a member of the faculty. This is a pathway to ruin. An institution of this size with over 200 academic programs has neither academic focus nor financial viability. Keeping small, often shrinking, programs alive just drains the resources that could be used to support and grow more profitable programs in the current portfolio or that could be added. While this university may be an extreme example, our experience is that many colleges and universities have similar problems.

There are many challenges facing higher education institutions today. Individuals from across the political spectrum are questioning the value of a college degree, and the increasing cost of degrees is leading many to question whether a college degree is affordable or worthwhile. At the same time, declining demographics, particularly in New England and the Upper Mid-West, are threatening enrollment at many institutions. If universities are to weather this crisis, it is critical that they become much more strategically focused and purposeful. Take a lesson from General Motors and Applebee’s. Examine seriously the institution’s program portfolio to assess which programs are key to the brand, to the institution’s value proposition, and which programs are financially sustainable. Trimming the menu is likely to be in order, both to enhance the institution’s value proposition and its financial viability.