THE BLOG
08/21/2013 10:21 am ET Updated Oct 21, 2013

Consolidation in Higher Education: Thoughts From the Trenches

Earlier this year, Moody's Investors Service released its annual assessment of higher education in the United States, a report that viewed the sector's short-term outlook as largely negative amid growing economic pressures. The analysts, however, applauded the efforts of a few states that were trying to merge or consolidate campuses because such efforts "foster operating efficiences and reduce costs amid declining state support."

Consolidation in higher education is representative of a broader trend across many industries: consolidating two or more entities into one or merging one into another, to increase operational efficiencies and reduce costs amid shrinking budgets in a weakened economy. Size matters, even in academia. While some students prefer smaller colleges, it is much more costly to ensure quality administrative capital infrastructure at smaller colleges than at a larger university.

In response, Georgia is in the midst of one of the broadest efforts to consolidate institutions of higher learning in the nation, with eight institutions within the University System of Georgia (USG) combining to become four -- an initiative undertaken on the heels of the state's consolidating 13 institutions of the Technical College System of Georgia into seven in 2009. And Georgia Regents University (GRU) is the product of one of these consolidations. Arguably one of the more complex within the system, GRU resulted from consolidating two institutions of public higher education located in the same city: Georgia Health Sciences University, the public academic health center and health sciences university for the state of Georgia; and Augusta State University, a regional, primarily commuter, liberal arts university.

While the primary driver of this trend is financial pressure, the benefits of consolidation in higher education do not end solely with an improved bottom line. Consolidations or mergers of academic institutions, while fraught with significant challenge, can result in a great variety of benefits for students and faculty.

Why Consolidate?

Increased efficiency: Consolidation allows universities with separate administrative budgets and structures to pool their resources, streamline functions, and become more efficient. The shared common infrastructure, e.g., human resources, purchasing and contracting, facilities, finance and accounting, is expected to achieve economies of scale while serving the larger entity. In fact, at GRU, we decreased the cost of administration from a combined total of $33.4-million to $32.4-million, a nearly 3-percent reduction in just the first weeks of our existence.

More significant is what happened to administrative costs as a percentage of overall budget: Pre-consolidation, administrative costs of our smaller consolidating university accounted for 9.3 percent of its $81-million budget, and of our larger university 3.9% of it $643-million budget. For the newly formed GRU, overall administrative costs were 4.5 percent of total budget -- even before significant administrative reductions began.

Greater academic value: The new institution can offer broader and more diverse programs of study and greater faculty development opportunities. Added value comes both through cross-college access to the full range of academic offerings and from the creation of new interdisciplinary and transdisciplinary research and instructional programs. And a greater diversity of students and faculty members, both in expertise and in demographic make-up, while potentially disruptive, also holds great promise to enrich the campus experience.

Enhanced Reach: Consolidation can broaden the outreach and image of the new university, drawing top students and faculty to the institution. Consolidation also allows these individuals to take better advantage of what the two formerly distinct universities had to offer. For example, our health sciences university had more than 700 training sites throughout the state with four regional campuses for the medical school and two for the nursing school. That broad statewide presence and infrastructure can now be used by GRU for the expansion of non-health-science programs and for undergraduate-student recruitment in general.

Stronger competitiveness: Greater efficiencies, lower costs, new and expanded programs, top students and faculty, and a growing national and international footprint can strengthen market competitiveness. In addition, competitiveness will be enhanced through a larger student body, which allows for more stability in fee revenues used to support existing or future fee-based projects, including intercollegiate and intramural athletics. And the larger student body allows for greater economic stability, as any tuition increases necessary to offset declining state or other support can be distributed across more students.

What are the Challenges?

There is no blueprint for consolidation, requiring each institution to largely chart a new course. In general the more dissimilar the institutions being consolidated, the more challenging the immediate job at hand, but the richer the institution when the process has been successful.

Considerations include how to:
• Mesh two apparently divergent institutional missions and cultures without alienating constituents in both university communities;
• Keep clear the lines of authority while navigating enterprise-wide realignment;
• Define a new consolidated brand that respects institutional history while creating a unique position in the marketplace;
• Keep tuition affordable while meeting the needs of the university;
• Build and grow in a recessive and challenging economic environment;
• Leverage opportunities to expand both a national and international footprint in an increasingly global economy;
• Manage communications, both internal and external, across a large complex heterogeneous enterprise.

Conclusions

This grand experiment has just begun for GRU. Yet even at this early juncture, I feel confident that combining institutional resources through merger or consolidation, while not a panacea for all, is an option that should be seriously considered for a greater number of schools than is currently recognized.

Circumstance vary and it is important that institutions or systems considering mergers vs. consolidations understand the differences:

• Merging may ease issues around lines of authority and branding, but can marginalize the absorbed entity and reduce incentive for the dominant partner to embrace transformative change.
• Consolidation can create something new and better, but risks alienating constituents from both university communities and introduces added complexities in management, branding, and identity.
• Unions of similar institutions can be smoother, but joining dissimilar institutions, while a more complex process, has the greater potential for creating a different and perhaps better whole, with a greater variety of programs and offerings.

Consolidations and mergers are not easy. The structure and culture of higher education is resistant to change, and the academic community is skeptical by nature. Only time will allow us to fully demonstrate the benefits of our own consolidation, but I believe the evidence will be convincing: that when approached with selectivity, aspirational vision, strategic planning, cultural awareness, collaborative thinking, and a pioneering spirit, consolidations or mergers will not only lower costs but also deliver dramatic benefits to students and faculty with impacts felt across the state, nation, and world.