In December 2004, I wrote an article, “Lean in Higher Education,” about the future of higher education in the United States. I made the case that due to declining enrollments and other factors, “…some schools will go out of business, some will merge with other schools, and others will exist for a period of time as zombie (half-dead, half-alive) schools.” A recent article, “Mergers on the Rise?” (Inside Higher Ed, 7 July 2015), discusses how such changes are now under way. Unfortunately, I called it.
The troubling aspect is how the article cites mergers as a “method of survival.” My article promoted Lean management as a method for survival. But alas, higher education leaders remained committed to business-as-usual. Instead of understanding their problems, they rapidly capitulate and pursue “mergers, absorptions, affiliations and partnerships.”
Faculty are quick to criticize management practices used by for-profit businesses to solve basic problems such as declining sales (because they usually result in zero-sum, win-lose, outcomes), and hope that their leaders will not use such practices. They will, because they do not know what else to do and so they simply follow the herd. They are now in a pinch and are forced to pursue the same avenues for survival as those used by most other leaders.
Another troubling aspect is how the article says “scale is strength,” that “scale gives you an advantage,” and mergers can deliver “economies of scale.” Leaders would make better management decisions if they understood that economies of scale apply only under very narrow circumstances, and diseconomies of scale exist and must not be ignored. Nothing is all upside.
The economies of scale effect occurs when information is processed using the batch-and-queue method. This is indeed the information processing method used by colleges and universities. So, they may indeed see a favorable scale effect (after adjustment for diseconomies of scale). But, an organization should not process information using the batch-and-queue method. Why? Because it is high cost, low quality, results in long lead-times, and dissatisfies students, payers, and other higher education stakeholders.
The conventional wisdom articulated in the article “Mergers on the Rise?” will provide only short-term relief to what ails these schools. They face peril in the long-term because they still process information using the batch-and-queue method. If instead of pursuing scale through mergers, processes were improved by (correctly) applying Lean principles and practices, the result would be information flow, along with growth and prosperity. College and university leaders should be pursuing flow instead of scale. This would allow them to control their own destiny. View my 2010 presentation titled “How Flow Destroys Economies of Scale.”
This article, “Closure Concerns and Financial Strategies: A Survey of College Business Officers” (Inside Higher Ed, 17 July 2015), clearly illustrates the lack of creative and innovative thinking that exists among business officers. Their uninspired strategies will buy some time, but that’s about all. Higher education faces greater cost challenges than healthcare, where the leaders of some hospitals such as Virginia Mason Medical Center and ThedaCare have adopted Lean management as the strategy for improving healthcare delivery and ensuring a more prosperous future.
The future of higher education lies in the hands visionary leaders. Those who who pursue mergers and scale are not visionary; they are bland conformists. Visionary leaders are those who pursue flow.