Colleges and universities have had the same business model for centuries and it is no longer sustainable.

In the prevailing business model, revenue is derived primarily from student tuition. The model is highly labor and human capital intensive while the degrees and services rendered are much the same as they were a century ago.

Costs are rising and funding sources are eroding. The sector can no longer justify to students or their parents increases in tuition at rates that far outstrip inflation. In addition, job prospects for new graduates, many of whom leave their alma mater with crushing student loan debt, are no longer bright and the value of education is increasingly called into question.

Many factors drive the spiraling costs of higher education:

• Institutions have large amounts of investment and physical infrastructure: Colleges and universities have to continue to sustain a large investment in physical infrastructure, which means numerous capital campaigns to develop alternative revenue streams through philanthropy. Unfortunately, much of this infrastructure offers no value for the increasing numbers of non-traditional students for whom facilities such as expensive sports complexes are not important.

• Many institutions have deferred maintenance issues: These large brick-and-mortar structures often entail a backlog of repairs, renovations and upgrades to facilities that institutions cannot afford to make. The costs of deferred maintenance have soared and even long-established institutions like Yale have huge deferred maintenance backlogs.

• Colleges and universities carry a highly labor-intensive cost structure: For example, the cost of health care and health care benefits for all university employees have risen as they have for every other sector. Many institutions have neither monitored nor managed those health care benefits effectively. They now find that they must go back to the faculty and staff, some of whom are over-collecting, and renegotiate benefits that were offered years ago when such costs were a smaller percentage of overall expenditures.

• Colleges and universities also operate in a very complex regulatory environment. For accreditation purposes institutions must respond to the regulatory environment through the Department of Education and with regional accrediting bodies. For those institutions that have specialized accreditation, the cost of responding to a host of rules and regulations has also increased. Tenured and full-time faculty numbers have not increased drastically over the last two decades, but the number of adjunct/part-time faculty and administrators and middle managers, and the costs of compensating them, consume a larger share of budgets. 
  

While virtually every other institution in our society has embraced change, higher education has been reluctant to examine and refresh its business model. While some institutions have started to shift at the margins, the sector as a whole has been reluctant to create real change, geared to the needs of a new millennium. If higher education is to survive it must fundamentally reconsider its business model and begin to make necessary changes. This begins with changes in leadership.

Leaders, including presidents and boards, must be willing to:

• Know and embrace the truth of the current trajectory of higher education.
  
• Explore bold, alternative business model innovations that open new revenue streams and offer new products.
  
• Establish metrics that really matter.
  
• Get help from outside when needed.