PARTNER OR PERIL? PURGING, CONVERGING, & MERGING IN HIGHER EDUCATION D. R. Widder Vice President of Innovation Steve Blank Innovation Chair

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1 PARTNER OR PERIL? PURGING, CONVERGING, & MERGING IN HIGHER EDUCATION D. R. Widder Vice President of Innovation Steve Blank Innovation Chair

2 A STATE OF UNPRECEDENTED CHANGE TOP LINE PRESSURES + FIXED COST MODEL = PRICE WARS TECHNOLOGICALLY DRIVEN DISRUPTION For 300 years, higher education was not disruptable because there was no technological core. -Clay Christensen

3 PHILADELPHIA UNIVERSITY 1884 Students: 3,400 Faculty: 120 full-time, 40 part-time, 350 professors of the practice Academics: 41 undergraduate majors 19 graduate programs

4 HIGHER ED LANDSCAPE

5 STRATEGIC RESPONSE #1 - DISTINCTION

6 Nexus Learning

7 IMPACT Nationally ranked programs/awards Elevation of brand 95% placement rate Increased enrollment Dramatically increased retention Positive margin every year while investing

8 STRATEGY RESPONSE #2 PARTNERING Converging 1. Collaborations that drive better student experiences and outcomes 2. Collaborations that drive net new revenue 3. Collaborations that lead to cost reduction Merging + + Purging "50 percent of the 4,000 colleges and universities in the U.S. will be bankrupt in 10 to 15 years." -Clay Christensen

9 PARTNERING FOR AN EDUCATION ECOSYSTEM Governance - Control Spectrum Market Transaction Hybrid Hierarchy Market Governance >short term > discrete transactions > formal terms supercede less formal >classical contract law Organizational Dimensions Control Linked Liability Hierarchy Governance > complex relations > long term, continuous > relationship exchange > tight legal ties - linked liability Lesser Relationship Complexity/Longevity Risk Long term value Greater Consultants Articulation Agreements Joint Programs OPMs Shared Services Combinations/ Mergers Adapted from Williamson 9

10 OPPORTUNITY ANALYSIS ASSET LEVERAGE Campus Brand Market Presence Relationship Networks Human resources Institutional core competencies Buying power

11 PROCESS FOR DETERMINING CAPABILITY SHARING OPPORTUNITIES 1. Inventory business processes & assets 2. Determine measures of quality and cost effectiveness 3. Determine potential value in consolidation/outsourcing 4. Fits/Gaps with specific partners What are we most cost effective at on a relative basis? (Value=Quality/Price) Precursor to scaling across a network of partners

12 Key Process Admissions OPPORTUNITY ANALYSIS SHARED SERVICES Metrics $/student acquired Discount rate Institutional Variability Economies Relative Strength High Medium Medium Technology Tech enabled education High High Medium Marketing Brand awareness High Low Medium Faculty Development Faculty quality, change over time Medium Medium Medium Human Resources Employee quality Turnover Medium Medium Medium Grant Management Total grants won Low High Medium Strategic Leadership TBD High Medium High Technology Management $/user Response time & User satisfaction Medium High Medium Advising Retention, Average student tenure High Low Medium Programming Total programs, refresh rate, fit with market trends High High Medium Financial Aid Total aid per student, service ratings Low Medium Medium Campus Operations Cost metrics, satisfaction surveys Medium Medium Medium Student Life Retention, Student surveys High Medium Medium Business Office Transaction time, error rate Medium High Medium Human Resources Employee turnover, error rate, transaction time Medium Medium Medium Development Fundraising rate, cost per dollar raised Medium High Medium

13 OPPORTUNITY WINDOW & THE ROLE OF LEADERSHIP Institutional Health Need for significant change Leadership Gap Institutional willingness for significant change Time

14 WHAT MAKES MERGERS/COMBINATIONS SO HARD? Adversity to Change & the Leadership Gap Complex stakeholders Complex incentive systems Mismatched needs/culture Institution #1 Institution #2 Weak Strong Strong Institutional Health Weak Weak Strong Shared Opportunities Limited options joint activities, shared services Partner/Merge for Survival Partner/Merge for Growth

15 IMPACT

16 LESSONS LEARNED 1. Start with a tight group 2. Expand to engage all stakeholders 3. Focus on value creation What new value creation is unlocked by the expanded scope and scale of the combination? What shared vision that will inspire stakeholders to do the hard work and make the hard decisions? 4. Act Decisively 5. Culture will be the hardest aspect

17 A BRIGHT FUTURE Technology lowers costs and delivers more customized student experiences The ecosystem is evolving toward partnerships Innovation is everywhere The demand for education is surging