FuturED Finance

higher ed

What Can Higher Ed Learn from a Chef? (part 3)

by

The picture shows a nearly empty restaurant to represent the value of analyzing course offerings to adapt to enrollment declines.

Understand and project demand (enrollment).

What if I have 15 entrees and customers rarely order a couple of them? Also, one of the main ingredients is not used for any another entrée. Would you discontinue the item?

Why is it that in higher education, we continue to add to our menu without retiring offerings or majors despite changes in enrollment?

This is critical because we expect a 10-20 percent drop in the number of traditional age students over the next 12 years. It is time to examine our menu while considering what our enrollment will be 4-10 years from now. After all, it is easier to scale up than scale down. 

Remember, finance is a lagging indicator. It tallies what has already happened. By using that information to show trends and predict the future, we provide real value.

In higher education, our biggest challenge is that it takes us 2-4 years to remove a menu item. When my class size goes from 22 to 18 students, I can’t just order less. I can try to create specials and promote the offering to customers. Knowing that my margin is lower on some offerings but balances out across the menu allows me the flexibility to make more informed decisions.

As our class sizes get smaller, the cost of our support structure is not declining, thus the cost per student is rising. All of this makes it more critical than ever to understand and project demand. This is a conversation that expands well beyond the realm of finance.

Many of us have increased our menu offerings over time to meet customer demand, but we have not removed items from our menu, or changed the recipe for a dish that is not as popular as it once was.

Understand the total cost of the experience and set expectations for metrics related to enrollment and each role.

Let’s move out of the kitchen, to the front of house. Have you ever been to a restaurant where the food is amazing, but the service is terrible? It takes forever for them to take your order. Your drinks arrive wrong, and it is so loud you can’t hear. The food is the draw but without a positive experience the customer will not come back.

But that experience is different for each of us. My daughter loves Chipotle, and I love seafood and waterfront dining. Each type of experience has a different cost structure. 

Customer support is less labor intensive for Chipotle because they are not going to each table multiple times and do not have dishes to wash. What if Chipotle tried to compete with fine waterfront dining and offered white linen tablecloths and custom cocktails? Would their cost structure change? Would customers be willing to pay more for this experience?

Many institutions have tried to compete by offering a competitive campus experience. The problem is pricing. Small institutions can’t take advantage of volume and offer variety, so decide what you are known for and double down on strategy. 

Restaurants generally have a higher margin on the add-ons, like wine and cocktails, like auxiliaries in higher education. We know that the food is why customers come, and while they are having dinner, they will probably order a drink.

It’s important to understand the difference in margin between the food and the bar. How many of you know the margin of each? How many of you make a profit on room & board, but lose money on the instruction? We cannot have one without the other, but how do we reconcile this?

Each part of the restaurant has its role. The chef and kitchen staff should know what is expected of them in terms of quality, and margin metrics. If we don’t tell the kitchen (chair/deans) our expectations for margin, our market research data, or our predictions, the chef will continue to provide excellent meals (classes), no matter the cost. So be sure to understand each role, how they fit together and what expectations are for each role.  

Give the customer what they want, not what we think they should have.

I’ve worked with over 40 institutions during the past 25 years and have served as an adjunct faculty member as well. It always puzzles me that we rarely talk about what the customer wants and what the data tells us about what the customer wants. Instead, we talk about what the customer should get because the chef knows best. The reality needs to be somewhere in between. The institution should understand clearly what type of experience they provide, and what their customers expect. Then, they should set expectations and metrics for the kitchen (academics) and front of house (auxiliary and student services). They should monitor metrics to see how customers are responding (enrollment) and adjust the offerings accordingly.

While on the topic of what the customer wants, some people love sports bars. I like to sit at the bar of any restaurant and have an appetizer and wine. I may go back again with friends and stay for a full dinner. Why do we not consider this option in higher education? Credentials, like certificates, with a clear path to convert to a degree are like trying an appetizer and coming back for more. Sixty percent of Americans do not attend college. Would this be a more accessible pathway?

I leave you to ponder what your customer wants. Is it a fine dining experience at a higher price tag, a sports bar with lots of action and simple food, or perhaps a highly specialized experience like an extensive raw bar selection. There is room for all. Decide which one you are and double down on that to give each customer what they want, not what you think they should have.

If you are interested in the common metrics that we use to analyze the cost and revenue drivers for educational institutions, click here to download.

Did you miss the other articles in our chef series, here are parts one and two.

Photo by shawnanggg on Unsplash

What Can Higher Ed Learn from a Chef? (part 2)

by

Is the star of the show the main dish or side dishes?

Think back to your recent restaurant experience. Did you choose a dish based on the main course (chicken, fish) or the sides (rice, potato, salad)? I’ll bet it was the main dish. Some colleges and universities have added so many student activities, sports, and electives to their lists of ingredients that the side dishes cost as much or more than the cost of the main dish. When I examine the change in our cost structure over time, I wonder if the stars of the show on our campuses have become the side dishes. 

What do the customers want?

Think of your favorite restaurant, why do you go there? Is it proximity to home, your love of seafood, the view of the water, or the prices? Now think about your institution, why does the customer (student/parent) come to your institution? For most students, it is a particular offering, combined with an atmosphere they want (small campus, large campus), in a location they want (in a city, near mountains, far from home). More and more, pricing, and future employment are becoming factors. I have 3 college age children and I have seen a dramatic shift in the level of concern they and their friends express about the cost of education and the impact it has on their decision. I am sure we have all heard more from parents and the public about the importance of a career upon graduation.  

Understand what you are, and why your students choose your institution (and stay) and be true to that. Engage more in the consideration of what other customers (like parents and employers) want from you and consider investing in that, even if means you need to give up another item on the menu. 

Set the menu based on seating capacity.

Let’s think about physical space and its connection to the menu. Ideally, the restaurant would be busy during peak hours with full tables and quick turnover. Much like our institutions, restaurants have significant off-peak hours and days when the tables are empty. Some restaurants supplement their businesses with private events the way some institutions do. Partnering with employers or local organizations can provide additional income and local engagement. The question is can we repackage our offerings to generate interest during off-peak times, without impacting our brand?  

If the restaurant seats 40 customers and tables turn over 2.5 times at dinner, they’ll serve 500 meals a week. If the menu includes 50 entrees, I will make an average of 10 orders of each item per week. We all know some items will be more or less popular than that. This is where we run into problems. We order ingredients for entrees (courses) that are not as popular, and we then throw the ingredients away (think of low enrolled classes).    

How many entrees are generally on the menu of your favorite restaurant? Most restaurants have 15 entrees or less on their menu. The goal is to offer enough variety to attract customers but ensure items are ordered with enough frequency that ingredients do not go to waste. At 500 meals per week, across 15 entrée choices, that is an average of 33 orders of each item per week. If you take the total number of students, divide by the number of required courses, then divide by the section break-even number, you’ll know how many majors you can support.

This is not an exact science but will help to make those strategic decisions about whether to sunset degree programs.   

We may have a significant amount of physical capacity, but our customer demand may be lower than our physical capacity. Based on your demand and capacity, how many menu items are ideal?

Did you miss part one of our Chef series? Read it now.

Stay tuned for the next article in our Chef series, Understanding and Projecting Demand.

Interested in the metrics we use to analyze cost and revenue drivers for educational institutions? Click here to download.

What Can Higher Ed Learn from a Chef? (part 1)

by

The picture is of a chef preparing food. The article is about higher ed learning from a chef.

I recently had the opportunity to attend the annual JP Morgan Higher Education Summit and share insights with attendees over lunch. Over the past 18 months, our work has been shifting very heavily toward metrics. We use this data to help understand how much it costs to educate, house, and feed each student and what that looks like over time. Historically, I spent much of my time with CFOs. These days, the presidents and provosts are calling me. They understand the imperative to right size each higher ed institution to prepare for the demographic cliff, but not enough to make strategic cost-cutting choices.

I liken these issues with the challenges a chef has when creating a menu that enables the restaurant to thrive. I’ve devised several steps you can take to help you understand the challenges specific to your institution.

What if I told you that the last time you went out to eat, the restaurant was losing money?  Food and labor costs have increased dramatically, but the managers worry about raising prices for fear of losing customers. Sound familiar? I have a challenge for you. I need you to help me solve this problem for the restaurant. What would you do differently to make the restaurant profitable? If you ponder this question, you will come up with incremental changes that may or may not move the needle. When I do this exercise live, we find that even financially savvy people do not feel knowledgeable enough to solve these problems. This is exactly how our provosts, presidents, deans, and other leaders feel when we ask them to cut costs, especially across the board cuts. They know what each person in their area does, but they do not understand whether the cost of that work adds worthwhile value to students.

Our metrics help shed light on these dynamics and provide clarity for making strategic decisions. Here are some tips I learned from my days as a sous chef to help you think differently about higher ed. As you read this, I want you to draw parallels to your campus.

Speak a common language.

We all know partnership is critical to effecting change. We also know that we in finance do not have the expertise to make these changes alone. However, we do have the ability to enable and influence the academic side, the president, and our leadership team. But it requires us to translate our message into the language others speak. Let me give you an example. If I manage a restaurant that is losing money and customers, and I share this information with my chef, what response will I get? I am likely to hear suggestions like “We need to do more marketing” or “Offer more specials and discounts”. In other words, “I’m making a great meal, and that is my role, you need to bring more customers in”. What if I analyzed the menu over the past few years? I see that on average, beef Bourguignon orders have decreased to about 6 orders a week. And yet, the dish remains on the menu.

I can even go one step further and show that the cost of producing 60% of our entrees is more than we charge for them. At this point I can ask the chef to examine the ingredients and look for opportunities to save money.

 What if I supply the cost for producing each item on the menu, broken out by the underlying ingredients? I’d then ask them to make each dish based on a $10 gross margin.

The point is the chef can speak the language of food and ingredients. By converting total dollars into units they understand, like the cost of a menu item, an ingredient, and number of weekly sales, I bring them into the profit conversation.

I hope you are drawing parallels to higher ed and your campus. The menu items are the degree, and the underlying sections are the ingredients. When I’ve shared the average cost per section and the break-even number of students, I have heard faculty, deans, and provosts express gratitude for “finally helping them understand the cost structure of their programs”. So, find a common language and speak it.

Understand the cost of each menu item.

Each menu item should generate a profit but not necessarily the same profit. Remember, expenditures encompass not only the cost of ingredients, but also the cost of restaurant utilities, table linens, staff salaries, etc. Each menu item will have a different margin and the menu needs to reflect the chef’s talent and specialties. When the food arrives at the table will the customer think the experience was worth the price?          

Do you understand the margin of each program?

In restaurants, we change the menu each season to take advantage of fresh, seasonal ingredients and to keep our customers coming back for more. That doesn’t mean we have to spend frivolously. The chef I worked under explained the trick to delivering meals quickly and profitably was using the smallest number of ingredients. He mixed and matched those ingredients in different menu items to create delicious and varied meals. Fewer ingredients meant lower inventory cost, less food waste, and shorter wait times.

The entire menu had to be priced out in advance. Each menu item needed to generate a target profit. Of course, the food had to be appealing and show off the talent of the chef. As you can imagine, the cost of ingredients can vary. When developing the menu, we consider the cost of each ingredient and choose brand name, vendor, and portion size. We bought whole chickens, rather than parts, and used legs, thighs, and breasts differently. We also used the remaining parts to make broth for soups and glazes. Many ingredients did double duty. Can you see how this relates to higher ed?

What’s the break-even point?

Our analysis often shows that we have some menu items that are not ordered enough to support their cost. We also find that too many outliers result in waste. Think about the number of students per class. How many sections run with numbers way below the break-even point? Is that because we offer too wide a variety of courses? Do we keep adding them without removing any? Are we carrying ingredients not required for any item on the menu or are these classes required for a major? Should we continue to offer this major if so few seek it out?

While we in higher ed can’t exactly change the menu each season, we can examine our menu each year and determine whether we need to change the menu or the underlying ingredients. 

Stay tuned for the next article in our Chef series, Is the Star of the Show the Main Dish or the Side Dishes?

If you are interested in the common metrics we use to analyze the cost and revenue drivers for educational institutions, click here to download.

Photo by Pylyp Sukhenko on Unsplash

“a day in the life of…”

by

The picture shows someone solving a Rubik's cube to represent the desire to understand the problem and solve it.

I love to make things better. When I walk into a store and get stuck in line for a long time, I think about ways to reduce the wait. The self-checkout, express lines for 15 items or less, and the customer service desk for returns are concepts retail experts devised to reduce time in lines. They came about because someone tried to understand the problem. They examined the specific activity and identified ways of moving certain anomalies through the line differently.  

When the problem is visible, it is easier to see the problem, determine the underlying cause, and formulate a solution. But how do we do this in higher education where the issues are not so visible? 

I am listening to MasterClass sessions on business motivation with Rosalind Brewer. She was the CEO of several Fortune 500 companies like Starbucks, Walmart, Walgreens. In this series, she presents the methods she used to innovate. She tells a story about showing up at a Wal Mart store and seeing them struggle to unload boxes. As she began helping unload the boxes, she listened, watched, and asked questions. Brewer wanted to understand the problem first before attempting to fix it.

Ask questions and listen

Brewer, and other CEOs noted for turning struggling companies around, value the importance of understanding the problem and the business. They learn the challenges of each company by asking questions and listening to those closest to the products and customers. That way, they continuously improve the company and the consumer experience.

Higher education is different. We don’t always have the chance to be customers at our own institutions. How can we make the changes vital to turn struggling institutions around?

The exercise

Let’s do an exercise I use in my business and innovation capstone called “a day in the life of… “.

The goal of this exercise is to empathize or truly understand the problem. Consider the issue of recycling and waste reduction on campus. First, we need to understand the entire timeline after a package arrives at the campus mailroom. A student picks up the package, brings it back to the dorm, and opens it. Then, the student discards the packaging, the cleaning service picks up the trash, and brings it to the recycling center or landfill. Now, we can look at each decision point and decide how best to provide easy ways to reduce, reuse, or recycle.

What if institutional leaders could be students for a month? What would we see that would help us provide a better experience and even save money? Taking a month out of our normal jobs is not an option, but what if we brought the students into our day? We could meet with graduating seniors, freshmen living away from home for the first time, or parents to learn what a day in their lives looks like.

Understand the problem and empathize

There are a few ground rules to this exercise. We must truly listen, ask questions, and most importantly, never defend our current methods. The reason you do something a certain way is not important. What is important is learning from the students’ perspective and being open and intentional about wanting to understand and address their needs.

Once you truly understand “a day in the life of…” you are in a much better position to solve not only the students’ needs, but the institution’s needs as well. What if we took this one step further and brought faculty and administration together in this exercise?      

Who do you want to spend “a day in the life of… “?

Photo by Olav Ahrens Røtne on Unsplash

Predictions for Higher Ed in 2023

by

The picture shows a crystal ball to represent predictions for 2023 in higher ed.

Like many of you, I spend time every January planning for the year, thinking about my goals for my business, my personal life, and how I spend my time. Part of this process includes identifying what the top priorities will be for colleges and universities for the year. 

Last year, the top priorities involved information — accessing it quickly, precisely, and consistently. This included important initiatives around automating reports and developing automated budget and scenario tools. 

I assumed we would spend more time on implementation of automation tools than we did, but just as we started to receive the necessary information, we experienced the predicted drop in enrollment, forcing us to turn our attention elsewhere. To understand better about how colleges are dealing with enrollment issues, read this wonderful article by Goldie Blumenstyk in her newsletter from the Chronicle of Higher Education.

  1. Cost restructuring & analysis

Jumping from #2 in 2022, cost restructuring will be big in 2023. Over the past few years, colleges and universities have cut everything they could while preserving the student experience. It’s apparent we need to dig more deeply into our programs and their delivery to improve the student experience and overcome our financial challenges.

What did we do to attract students and enhance the value of education over the past 10 years?

  • Added new programs, both in-person and online
  • Created more options for double majors, minors, and concentrations 
  • Moved forward with construction projects to renovate or even expand classrooms and dorms 

What do we need to know now to plan for the next 10 years?

  • How will our students’ needs change now and over the next 10 years? 
  • Will off-campus housing continue to rise in popularity? Will students return to campus? What will they expect from that experience?
  • How will we respond to the continued decrease in enrollments and class sizes based on population decline?        
  • What will we do to make up for smaller class sizes and a more expensive delivery model?

2. Upskilling and succession planning

This topic didn’t even make the list last year. The number of retirements of baby boomers, the shortage of qualified finance professionals, and the increases in salary newer professionals demand combined to rocket it to number two. This is really putting a squeeze on our ability to get our work done. Recently, I wrote about succession planning with intentionality.

3. Automation

Dropping from the top spot last year, automation is still a priority, but enrollment decline and restructuring have taken precedence. As long-term plans solidify, automation will rise in urgency. In fact, I believe it is an important part of our succession and staffing plans and the key to making real time data driven decisions.   I like to stay positive. What are my predictions? Not all schools will survive these trends. However, I believe higher education will emerge stronger, not just financially but also in our ability to give students, parents, and employers the value they expect from higher education. 

What will the FuturED team do to be part of the solution?

We will focus on presenting articles that contain actionable examples you can take back to your institution to create a stronger financial and educational future. 

Do you agree with my predictions? Reach out to me on LinkedIn and let’s talk.

Photo by Nicole Avagliano on Unsplash