As originally published in Inside Higher Ed on June 14, 2017
In April Purdue University announced its acquisition of the for-profit Kaplan University—a bold move, made bolder still by the partnership’s “Morrill Project” moniker. However, the frenzy over what’s most remarkable about the deal—how much of Purdue will now be “online,” the fate of one of proprietary education’s biggest players, the odd coupling—has distracted many people in higher education from the more important lessons embedded in the Purdue/Kaplan story. Even those colleges and universities without massive online ambitions should pay heed to five larger higher education trends represented by the Purdue/Kaplan acquisition, trends that are relevant to all institutions.
Trend No. 1: Traditional colleges and universities are renewing their interest in the bachelor’s degree completion market, but the market is not as large as many estimates indicate. The majority of Kaplan’s (now Purdue’s) students are bachelor’s degree completion students, a technical term that refers to adult students who have attained some college but not earned a bachelor’s degree. Unlike direct community college transfers, these students may have been away from higher education for years, earning a potpourri of credits on and off over many years and from a number of disparate institutions. Earlier this year, 80% of the continuing, professional and online education members of EAB, where I serve as an executive director, noted a high desire to learn new strategies for success in the degree completion market.
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EAB, which works with more than 1,200 college and university members, has some words of caution for any institutions that believe the size of the market is such that degree completion will be the panacea to their revenue woes. Yes, there are 31 million people in America who have some college and no degree -- a number often cited to reflect the impressive size of the market. But the National Student Clearinghouse report (where the number comes from) actually sizes the population of “potential completers”—or those who have at least two years’ worth of progress toward a degree—as four million people, a far cry from 31 million.
To be sure, bachelor’s degree completion programs will be vital for achieving state and national access goals, and many institutions will see the financial benefit of increased enrollments. But colleges and universities will need to examine their regional markets and competitive environments, as well as whether they have or can build the recruiting and student success infrastructures needed—and all those elements will differ from those for traditional students.
Trend No. 2: Different capabilities are increasingly needed to recruit and serve all alternative student segments. Those segments include degree completion students, international, fully online and working adults pursuing professional master’s and postbaccalaureate certificates.
For instance, a desire to meet the needs of adult degree completion students, and a realization that they could not easily build the infrastructure themselves, drove Purdue’s decision to acquire Kaplan. While not every college or university wants to expand in the bachelor’s degree completion market, almost all of them are turning to some alternative segment—in other words, not first-time, full-time freshmen—to boost enrollments.
Most prominent is the intensified focus EAB sees across our membership to double down on master’s and postbaccalaureate programs (i.e., certificates) to target working professionals looking to advance or change their careers. Yet many institutions have learned the hard way—as their programs have missed enrollments or profitability targets—that their undergraduate enrollment processes simply don’t work for a completely different audience. Since such markets require capabilities that are expensive and time-consuming to build, institutions often turn to external partners.
Purdue’s acquisition of Kaplan may have been headline grabbing, but the financial elements of the deal are similar to what many universities have found in working with online program management (OPM) vendors, such as 2U, that receive a revenue share for helping colleges and universities migrate traditional programs (typically master’s degrees) online. Under the conditions of Purdue’s deal, the Graham Holdings Company, parent of Kaplan Inc. and Kaplan University, will yield 12.5% of the new venture’s revenue, but only after the university has covered its operating costs and received $10 million in each of the first five years. It is a more favorable deal for Purdue certainly than many OPMs have historically offered their traditional higher education partners (up to 60% to 70%). But most OPM deals don’t include 32,000+ students from the start, so the reduced percentage share doesn’t seem surprising.
The OPM market is predicted to become a $1.4 billion industry by 2020, and new players are emerging every day. Historically, OPMs have provided full turnkey service to traditional colleges and universities, including everything from up-front capital to marketing/recruiting to instructional design to student services. That is starting to change, as institutions demand unbundled services. For example, our recent national survey of deans of continuing, professional and online education found that institutions are much more interested in outsourcing marketing and market research than instructional design or academic advising.
What will be interesting to watch at Purdue is how the Kaplan capabilities end up being used not only for the traditional adult degree completion programs but also to support other programs at Purdue (such as their existing online master’s programs) that are outside the scope of the Kaplan deal but could probably benefit from certain unbundled elements of Kaplan’s infrastructure.
Trend No. 3: Colleges and universities are turning to creative models outside traditional governance structures in order to meet market needs more nimbly. Currently, higher ed institutions are often hampered in reaching new markets due to not only organizational and operational challenges but also the slow process of shared governance. Besides acquiring a new online and adult-serving infrastructure in Kaplan, Purdue also has created a separate governance structure in the “New U” represented by the partnership, with the New U’s chancellor reporting directly to Purdue’s president, Mitch Daniels. The time span between the initial conceptualization of this idea and trustee approval was five and a half months.
By contrast, under traditional university governance, single-degree programs can take years to gain approval. Given that many new professional master’s and certificate programs are designed to meet fast-changing work force needs, that long time frame can lead to severe competitive disadvantages.
Many colleges and universities have found ways of creating nimbler governance structures without an acquisition. That can include creating a separate for-profit subsidiary or 501(c)(3) to meet corporate education needs, as Cornell University and the University of Maryland Baltimore County did, respectively. Or they can spin off a separately accredited institution to meet military and adult learners, as Chapman University did with the creation of Brandman University.
Most commonly, institutions develop more agile approval, planning and pricing processes for market-oriented programs, often housed within a dedicated continuing, professional, online or extended education unit. These new types of organizational models and processes can be crucial for stimulating and supporting innovation.
Trend No. 4: Colleges and universities need to be ready as new competitors enter their markets—whether through mergers and acquisitions, online ventures, or other methods of expansion. The number of college and university mergers and acquisitions in the United States that occurred from 2010 to 2015 was more than double those that took place during the prior five years—jumping from around 15 to 20 deals to between 40 and 50, according to our preliminary research. Many of those deals represented rescues of institutions that could no longer survive on their own.
The number may seem relatively small, but institutions should pay heed even if they’re not buying, selling or being merged. For research universities, a competitor’s strategic acquisition of a graduate or professional school can boost its prestige and ranking. When Rutgers University acquired the University of Medicine and Dentistry of New Jersey in 2012, for example, it increased its total research spending to surpass Harvard, Northwestern and Yale Universities. And in states with performance-based funding, the best-positioned institutions might acquire the students they need to satisfy requirements for the largest possible appropriations.
Purdue’s acquisition of Kaplan includes 15 campuses and learning centers. How Purdue chooses to use them may have competitive implications for nearby colleges and universities, even those that may never have considered Purdue a direct competitor.
The larger takeaway for all institutions is that what defines each college or university’s “competitive set” has been expanding over time, as more institutions grow their offerings and brand presence in secondary or tertiary locations. Other colleges and universities need to respond by firming up their ties to local employers and organizations in their region, carefully considering whether secondary locations make sense for them, and adapting marketing and recruiting techniques to reach a savvier student customer with more options.
Trend No. 5: Many of the lessons learned from failed mergers and acquisitions are relevant as colleges and universities expand intra- and inter-institutional partnerships more broadly. The conventional wisdom is that at least 50% of M&A partnerships across industries fail. Deals that appear to be no-brainers on paper flounder due to poor integration processes.
One example in higher education is DePaul University’s acquisition of Barat College for $6 million in 2001, with additional investments of about $18 million in upgrades. Enrollments never met their intended targets, ultimately leading to Barat’s closure. Marie Cini at University of Maryland University College has written a smart analysis of the different questions Purdue will need to consider in the integration process.
Most higher education institutions will never live through an M&A deal, but all are looking for more partnerships: state system collaboration and consolidation; self-organized consortia; multi-institutional combined bachelor’s and master’s programs (for example, 3+2s or 4+1s) and the like; and better articulation more broadly. Perhaps such agreements won’t require the kind of dramatic change in management as an acquisition. But, in all cases, the vision and strategy on paper often don’t take into account the complexities that come when trying to integrate different day-to-day systems, competing policies and conflicting cultures. Even with interdisciplinary degree programs within a university, students complain about the multiple processes, systems and policies crossing departments, schools or colleges on a single campus.
In short, partnerships—within campuses, across campuses—will be increasingly common. For all the time spent designing a strategy and forging the initial relationship, even more time (and probably dollars) will need to be invested in getting the integration right.
It goes without saying that few colleges and universities will pursue partnerships as large scale as Purdue and Kaplan’s. But as traditional demographics shift, financial pressures mount and funding needs for strategic ambitions continue to rise, few institutions will be able to afford not to pursue a new-to-them market in some way. In this increasingly competitive environment, they must take seriously Purdue’s lesson to determine the new—and often less familiar—capabilities, organizational structures and strategic partners required to succeed.
How do these five trends relate to the future of enrollment?
To say the enrollment landscape has seen unprecedented change in recent years is an understatement.
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