Tightened government budgets are forcing public universities to confront a new economic reality as the traditional low tuition‐high subsidy model of public higher education becomes increasingly unsustainable. The shift toward reliance on tuition relative to taxpayer support reflects adjustments in consumer preferences, increased mobility, enhanced competition from non‐traditional providers, and reallocated government budgets. The outcome is clear: taxpayer support for higher education is decreasing, and is decreasing sharply and permanently when measured on a per student basis. The purpose of this paper is to develop a framework for university leaders that can provide the foundation for the transformation that needs to take place as universities face a permanent decline in public support. The primary goal is to point out differences between private business enterprises and public universities and then to suggest that many of the characteristics that define private sector excellence are applicable, often with modest modifications, to higher education.
The paper discusses and contrasts methodologies from the business and academic environments and suggest a hybrid framework for universities that captures appropriate business principles and provides beneficial outcomes while supporting and promoting academic excellence. It examines public university business schools as an example that provides initiatives that can be applied in many other areas of the university.
It is argued that many traditional practices in public higher education are incompatible with a changing environment that features permanent reductions in taxpayer support and greater reliance on tuition revenue from students who face attractive alternatives. There is also a changing demographic profile of applicants, many of whom require expensive remedial programs. The main result of the analysis is that a hybrid model of business and academic practices can provide a meaningful path for public universities to sustain excellence in a period of declining subsidy.Social implications – The framework developed in this paper includes the adoption of a distinctive, focused mission with a transparent budgetary system combined with the setting of differential tuition across areas based on willingness to pay and cost factors. Implementation of this framework can lead to an increase in social welfare by increasing efficiency, lowering costs, and effectively allocating resources across the university.
This paper's intent is to reach out to administrators and leaders in public higher education with an appeal to recognize that the new funding environment requires new ways of thinking about developing and implementing strategy. There is much to gain by becoming externally focused and accountable to those who are willing to pay for teaching and research, and also to recognize that vast differences in costs requires more attention by asking the fundamental questions: What products and services define our excellence and what should we not provide?
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