Diversify Revenue Streams
Canadian public academic institutions have a very complicated financial environment. When a traditional mindset predominates upper management, there is an over reliance on government funding to maintain fiscal sustainability and growth. Applications for government funding for capital expansions and infrastructure renewal, and monies for special programming that the government deems relevant to market needs and political interests, tends to occupy the strategies of the ‘old-school’ approach. Excuse the pun.
With strict government limits and rules on student tuition fees for government funded programs, that source of revenue for the public post-secondary institution is also at the discretion of the government in power at the time.
There have been many models presented by governments for funding public colleges and universities. Corridor funding for example, that has a cap and bottom for enrolments and the money you can expect for a pre-determine enrolment level, which come with penalties for going outside of your corridor. Growth funding models reward growth with funding drawn from a defined pool of available funding, and to the victor go the spoils. Unfortunately, that particular model promotes fierce competition between those vying for the funds from the limited government resource pool and undermines academic cooperation and potential educational system synergies.
During economic downturns, governments have historically looked to reduce funding and make cuts to specific educational funding programs due to their own available funds being low. Ironically, it is during these times when demand for post-secondary education actually increases with out-of-work individuals looking to retrain or gain an academic credential to assist in securing a job when the economy turns around. In more recent times, governments have started to realize that providing more stimulus to education during downturns actually prepares a skilled workforce to be a key factor of an economic recovery.
That being said, the rollercoaster of government funding decisions is a difficult situation to manage for public post-secondary schools who have placed an over-dependence on government for their financial well-being. Strict separation between operational and capital funding is maintained, without any mixing of purpose for government funds received by the institution. When extra money is needed for capital projects, usually the school will need to go to the government, hat in hand, and make their case… “Please sir, I want some more”.
So, what is a publicly funded school to do? Well, any business will tell you that relying on only one focused revenue source for your financial health is a precarious position to be in.
Innovative business strategies look to develop revenue sources that complement one another as well as provide mutual support when one sector experiences a downturn. Some practical business examples include:
Starting out as a hardware alternative to the PC, and potentially facing bankruptcy in the mid 1990’s, Apple implemented innovative diversification strategies and strengthened their brand moving into iPods, iPads, iPhones, music, watches, software and apps, and even electric vehicles.
An online shopping focus has seen Amazon diversify into music, online entertainment, software, electronics, digital storage, and web services.
Of course, there are also business diversification strategies that did not go so well. One of the most famous is Harley-Davidson’s venture into the fragrance industry. Selecting a diversification strategy that was not consistent with their brand, turned out to be a misguided attempt to create an additional revenue stream for the company.
In an effort to seek out non-government revenue sources, many educational institutions in Canada have embraced the development of their international student population, given the increased competition for the shrinking domestic market. While this has benefitted many with an enrolment windfall with higher tuitions and increased program viability, here again, many have built a reliance on one specific country of source for international students... that being India. While there is huge demand from India for Canadian programs leading to work visas and eventual citizenship, any political or environmental disasters that could suddenly disrupt that market could place some institutions in serious jeopardy. Building a capital and operational cost infrastructure to support the student demand from India could result in a serious financial situation if the demand from that area should suddenly stop. Here again, a diversified international strategy with building enrolment for various target countries can minimize risk.
Whether academic institutions like it or not, there is a need to adopt strategic business approaches to remain relevant and financially sustainable. At the end of the day, people need to be paid, buildings need to be maintained, and equipment and facilities need to be kept up-to-date for quality academic programs to be delivered… and that costs money. Many academic institutions fear losing part of their academic purpose if they adopt a purely business approach to their operations.
Here are some examples of strategies that some of the more progressive public colleges and universities are exploring.
The pandemic of 2020-2021 has forced many educational institutions to further develop distance learning systems and invest in remote learning technologies and creative academic deliveries. Adopting a distance strategy as a key aspect of program development and delivery will allow the institution to access not only a wider potential student pool, but also afford access to global expertise in the development and delivery of academic courses and content. Remote applications will expand key networks and expertise that can be aligned with programming and specific institutional reputation.
In Ontario, many colleges have initiate partnerships with private schools operating in Ontario through the government’s PPP allowances. The public college gains access to a larger student base and new geographic markets, with more flexible tuitions, and the benefits of a business approach by the private institution. The private institution is motivated by their access to an officially recognized Ontario credential, and access to the Post Graduate Work Permit for students, providing a significant marketing recruitment advantage. The caution for this strategy is to ensure that both partners recognize the importance of their brand, reputation, maintenance of academic quality, shared responsibilities, and potential liabilities.
While there are many examples here, the Niagara College – Saudi Arabia initiative provides insights to the financial potential and inherent risks in doing business in another country for colleges and universities. Off-shore campuses provide opportunities for remote academic delivery applications and the sharing of existing resources, while at the same time create a distributed workforce with different rules and regulations that may not exist at the home institution. There is significant upfront investment required for this strategy, as well as in-depth research required into cultural and political factors that will directly impact successful operations.
Creating corporate structures within colleges and universities for the purpose of developing a separate operational business entity may allow creative applications not allowed within the publicly funded institution. Everything from spa services, greenhouse operations, restaurants and catering, consulting services, and wineries have been pursued within college and university settings. Some successful, and some not so much. Where a publicly minded approach to managing business corporations predominate, results tend to be less than successful. More positive results are typically realized when operational distance is maintained from the public institution, allowing educationally-based corporations to have their own board of directors supporting approved business decisions and strategies. An opportunity for enhanced practical learning for students also presents itself here... but beware of entangling academic operations and financial accountability between the academic and business entities and blurring of the lines. Keep them separate, as labour agreements, required returns-on-investment, legal applications, among a variety of other factors, can be vastly different.
This is an area where universities have excelled over time. Cultivating their alumni through support for their athletics programs and developing alumni expertise within development of academic programming. Creating a sense of being a stakeholder in the university or college’s operations can hold prestige for the donors, as well as obvious tax advantages. Building the required relationships, keeping track of, and staying in touch with graduates is a daunting task, but can provide significant dividends down the road when engaged alumni have progressed into positions of influence and financial success.
A successful revenue diversification strategy must be an appropriate fit with the organization’s academic and business mindset, access to business expertise, financial capabilities, tolerance for risk, as well as clear governance and administrative support. And of course, appropriate research and business analysis into consumer demand and product development must be undertaken to decide on which strategy to pursue.
Colleges and universities pride themselves on providing graduates with the skills and knowledge to excel in business and industry through their academic programs, led by experts in concentrated disciplines across a number of faculties. With those resources and insights in their own backyard, doesn’t it seem reasonable that public post-secondary institutions could develop strategic plans that integrate diversified investments and operational approaches supporting financial sustainability that would get an A+ in their own School of Business? The issue is often that of the academic operations and the faculty’s sense of purpose being distinct from the institution’s administrative fiscal accountability and overall financial health.
Alas, an integration of purpose bringing together the academic business expertise and the actual administrative planning and decision-making does seem challenging. But, at the end of the day, there is still a budget to be met, and people continue to expect to be paid. I would venture to say that every business professor would agree that putting all of your financial eggs in one basket is never a good long-term business strategy.