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Profit is Not a Dirty Word:What Community Colleges Must Do for a Sustainable Future

Across the United States, the community college system faces more challenge and competition than ever before. In an era of diminishing state and federal financial support, the financial survival of many colleges now depends on stagnant or unstable revenue streams, and needed revenues through bond elections must be approved by increasingly skeptical voters. As a result, community college presidents find themselves increasingly focused on financial issues, trying to balance a stressed budget against the rising cost of operation.

Profit is Not a Dirty Word

Like most post-secondary institutions, community colleges are accountable to federal, state and accrediting agencies. In state after state, local political and business leaders are demanding that their publicly-funded training and education providers take on greater responsibility for creating economic value in the communities they serve. And, as the effects of globalization have rippled through the economy, community colleges have been pressured to rethink, restructure and retool.

The dilemma of credit-driven funding models, combined with evolving institutional roles, challenges community colleges to develop and deliver programs that do not rely on antiquated funding formulae but instead completely pay for themselves. To do so, college presidents and their workforce development professionals must take a longer view, beyond budgets and costs, beyond expenditure and revenue, to a more sustainable vision—a commitment to profitability. Yet, as historically academic institutions, community colleges traditionally do not have a bottom-line focus, much less a culture geared toward managing for true bottom-line results.

A profound cultural shift is underway, challenging old assumptions, traditional operating models and long-standing relationships. Not surprisingly, community colleges are struggling with these implications as they attempt to embrace the complexities of their evolving mission. College units focused on workforce development, continuing education and customized training now operate in an environment of shifting priorities, internal competition, changing funding models and increased expectations. It is essential that college presidents recognize the potential new revenue local business and industry can offer, thus allowing them to manage for sustainability.

A Test of Leadership

In September 2006, the Commission on the Future of Higher Education released its much-anticipated report, A Test of Leadership: Charting the Future of U.S. Higher Education, which calls upon the nation's colleges and universities to be more efficient, cost effective, flexible and innovative.

Gravely concerned with the rising cost of tuition and the lack of meaningful accountability measures in higher education, the report asks educational leaders to recommit their institutions to their core public purposes and serve the changing educational needs of a knowledge economy. Among their recommendations, the Commission urged colleges and universities to propose cost cutting and productivity improvements through the development of new performance benchmarks. The report also asks higher education to heed the call of business and industry leaders to provide lifelong learning opportunities for workers at all stages of life, so they can continually update their knowledge and skills.

It is a pivotal time for America's community colleges. Some are experiencing it as a crippling identity crisis, others as an empowering transformation. The purpose of this Executive Brief is to explore the latter—how workforce development, continuing education and customized training programs are taking steps to deliver greater value to their colleges and communities to ensure effectiveness and long-term sustainability.

Moving Toward Sustainability

How does a community college meet the expanding needs of its local workforce when traditional funding is designed to reward seat time and academic credit? The answer is inescapable—in the face of fluctuating financial support, the college must find a way to fund itself. The best way to ensure fiscal health is to move beyond the cost recovery mindset and actively plan for profit. Profitability offers community colleges a way to manage programs for sustainability and measure success.

Those workforce development professionals who are moving their programs toward profitability have discovered the need to make a number of significant shifts in their thinking. The result is a combination of "aha moments," guiding principles and key concepts that provide valuable insights into how to overcome current challenges and plan for a sustainable future.

Terminology should not get in the way...

Before colleges can capitalize on the potential of revenue producing units, they must come to recognize and understand the constraints under which they operate. One problem is the terminology used to describe potentially profitable units varies from college to college. One dean's understanding of the term "continuing education" may differ from another dean's at a neighboring institution. One college may include senior citizen classes, college-for-kids and community services as continuing education; another college may limit the definition of continuing education to programs for returning college graduates seeking new skills and competencies. The term "workforce development" may be seen as the province of vocational education deans rather than non-credit, customized training programs. Amidst this confusion, the lines between credit and non-credit instruction continue to blur on campus. All stakeholders must have a clear understanding of terminology, responsibilities and turf before a serious commitment to developing new revenue streams can begin. For simplification of nomenclature in this Brief, any potentially revenue-producing unit of the college will be referred to as a Business & Industry (B & I) or Workforce Development unit.

B & I is culturally disadvantaged...

Within the traditional structure and culture of a community college, B & I units operate under a set of expectations and requirements that put them at a distinct disadvantage, both within the college and the business community. They are charged with serving the business community and generating revenue for the college while hampered by the demands of state mandates, college policies and procedures and historical practices. These include reporting requirements, grant funding rules and administrative policies that dictate what B & I programs can and cannot charge for the services they provide. This lack of autonomy prevents many B & I units from maximizing their efforts to serve their customers, their communities and their colleges.

Culture Clash. B & I and Workforce Development leaders tell many stories about their frustrated efforts to develop innovative programs requested by community businesses. One director was approached by a local vendor about working together to create a truck driving school. This program would have served the community and generated $5,000 a month in income for the college. But it was scrapped when the director could not win approval from the college parking lot committee, despite the fact that the program would have secured the extra funds needed to repave the parking lot.

A similar situation occurred when a local hospital approached the director about working together to develop a bilingual contract training program to help ease California's nursing shortage. The plan failed when nursing faculty insisted they hire only tenured faculty, despite the fact that once the grant expired and the funding was gone, they would have no means of continuing to pay their salaries.

Clearly, trying to operate an efficient and profitable business within the confines of an academic bureaucracy can be a challenge. College politics, policies and procedures often get in the way of the efficiencies required to get a higher return on efforts and investment.

Mission and profitability are not incompatible...

While some educators are skeptical about applying business practices to academia, progressive colleges view being profitable as a way to support the college's academic mission. As funding sources are becoming increasingly static, revenue generated by B & I services becomes vitally important as a needed supplement to the annual college budget.

Serving the business community and generating profits are not incompatible with the larger mission of a community college. Many of the benchmarks currently used to measure community college success can be achieved while at the same time providing real value to business and industry, including market penetration, attention to special populations and minority participation.

Forward-thinking B & I leaders are making the case that community colleges can fulfill their educational mission without sacrificing fiscal health and may, in fact, increase their mission-driven impact by virtue of running profitable operations.

Mission Accomplished. In an example of serving local business and advancing the overall mission, the Workforce Development Department at Kansas City Kansas Community College set out to build understanding of the area's rapidly increasing Latino workforce. The goal was to bring together experts in business and industry for a series of workshops to explore the issues and to highlight resources for hiring and retaining a minority workforce.

To kick off the effort, the Department put together a diverse planning committee that included both credit and non-credit faculty and staff from all parts of the college and external entities who had worked with the Latino population. This committee created strong relationships among internal and external constituencies and provided a solid reference point for this innovative partnership.

The result was a powerful one-day conference, "Trabajando Juntos-Working Together with the Latino Workforce." Its success became a catalyst for planning similar conferences for other targeted groups, including "Women and Technology" and "Muslims in the Workforce." The experience also enabled the Workforce Development Department to secure valuable contracts with local companies for ongoing training.

Focus on the true customer...

The most important factor in providing economic value to the community is viewing employers—not students—as the B & I unit's true customers. A college can build capacity and better serve its learners if it provides them with viable programs tailored to the needs of local businesses and industries. Only then will it help create real value for area employers as well as jobs for its students.

However, within the culture of most community colleges, the needs of area employers are not the highest priority. To truly serve their communities, colleges need to do a better job of analyzing current trends in the regional and global economy and accurately assessing local business and industry needs driven by those trends.

Customers Served. When a local manufacturer complained in a letter to the editor of the local paper that Housatonic Community College wasn't listening to the business community, Robert (Rab) Thornton, Ph.D., Dean of Outreach Services, took notice. He realized the college needed to change the way it thought about its relationship with the business community. Within a decade, the college had revamped its programs to meet industry demands, reinventing itself as a visionary institution that offers lifelong learning to both skilled labor and senior executives alike.

This is where the country really needs to go. We don't train enough people to work in small business, and those are the places that can really have a local impact.

-Robert (Rab) Thornton, Ph.D., Dean of Outreach Services, Housatonic Community College

Case in Point—
Tacoma Community College Thinks Like an Enterprising Business

By thinking like an enterprising business, Tacoma Community College's Enterprise & Workforce Development Division was able to create effective and efficient market-driven programs that boosted both enrollment and revenue. In an effort to better understand and serve its market area, the college used GIS (Global Information System) software to collect demographic data on the continuing education students in its service area. The data was then used to profile past and present continuing education students and their educational interests and to identify new market segments.

The data helped the college make an important shift in its thinking about programming strategies. Instead of concentrating on what programs it should offer, it now focuses on the needs and desires of its target audiences. This "validated interest" approach has increased Tacoma Community College's marketing capabilities while allowing it to track the effectiveness of these strategies in a cost-effective manner.


Profitability is a process...

As B & I divisions evolve away from thinking of themselves as expense centers and move toward becoming profit centers, the first stage is cost recovery. This is a break-even approach, not just for the cost of programs, but for all the expenses associated with serving clients and customers (e.g., vendor fees, instructor costs, participant materials and equipment rental). However, this does not include items such as cost of facilities or compensation for program directors, administrators, assistants or other salaried personnel. Cost Recovery Plus includes direct costs and overhead but still does not generate real profit. To measure success in real terms and provide revenue for their colleges, B & I divisions have to think beyond cost recovery and set their sights on true profitability.

Evolution of Profitablility

Adopting a Business Mindset

The world in which workforce development departments and B & I divisions operate cannot be changed overnight. In order to stay the course of profitability, progressive organizations must strike and maintain an appropriate balance between autonomy and collaboration with the larger institutions of which they are part.

Structuring for Profitability

A best practice among successful B & I units is maintaining their autonomy while taking advantage of appropriate opportunities to collaborate with other parts of the college. Fully autonomous B & I units typically develop their own programs separate from academic offerings and without participation of academic faculty. Staff includes organizational development specialists or performance consultants, and the sale of training services is more often than not handled separately from training delivery. Some B & I divisions use a hybrid approach. They may be partially funded by the college, but they establish separate enterprise accounts for major initiatives, such as apprenticeship programs. Others are completely self-supporting.

There is incredible growth opportunity when you leverage resources and market to specific audiences together. Whether an organization wants credit or not isn't the issue, it's about rallying together to meet their needs.

-Dr. Andrew L. Meyer, Vice President for Learning, Anne Arundel Community College

In either case, successful collaboration with academic departments offers the unique benefits that come from merging theory and practice. For example, B & I staff could collaborate with nursing faculty to publish articles about current needs and trends in the healthcare industry that provide value to both employers and new graduates alike. Another example might be an online business newsletter that highlights both customized contract training opportunities and college courses that might appeal to a specific industry. Positive crossovers with workforce development and other entities of the college might include adult basic skills programs, worker retraining for displaced workers, personal enrichment and other programs that are grant funded or require dual delivery arms.

The Need for Leadership

The essential key to successful B & I units is having the full support of the president combined with the ability to make decisions outside the normal procedures of the academic side of the college. Without this measure of autonomy, the long-term success of B & I efforts are at risk every time there is a new college president. More important, the college's reputation for reliability within the business community is at risk because of internal college change.

B & I success absolutely starts at president level. We are the classic example of being driven from the
top. Our president has a vision. He's articulate. He's persuasive. He has convinced our board that this
can be done. He's made an investment without reservation. You absolutely must start at the top.

-Paul McNamara, Valencia Enterprises

Planning for Profitability

While many colleges have strategic plans in place, the most successful B & I units also have business plans that include specific goals that are regularly discussed, measured and acted upon. A business plan allows B & I units to think more like a small business and move toward profitability. However, developing a business plan that delivers value requires defining measurable goals aligned with business and industry needs.

The most important step in developing a business plan that will guide the B & I unit towards profitability is to clearly define its mission and develop a set of strategic objectives and measurable outcomes. This requires that the unit first determine how their customers define value. What do they want or need from B & I program offerings? They must then assess the offerings and effectiveness of the local competition, including independent consultants and larger training companies. Finally, they must determine what matters most and identify critical success factors for both the college and its customers.

Once a B & I unit has identified and defined its mission, it must conduct a thorough assessment of its core business processes (i.e., the essential functions related to customers and markets, processes, tools and organizational environments). Doing so often reveals missing pieces and gaps in processes that inhibit the ability to deliver. The business plan addresses filling the holes, aligning decision processes, adding support tools and developing staff all toward the goals of increasing organizational capacity and delivering greater business value.

One to Watch—
Valencia Community College

With the blessings of the college president, Valencia Community College phased out its "Valencia Institute" brand and replaced it with "Valencia Enterprises" for a more entrepreneurial focus in 2004. Valencia Enterprises comprises several entrepreneurial arms including a business solutions group that offers training, professional level programs such as SHRM and Human Performance Improvement, business consulting and performance consulting. Although still part of Valencia Community College, Valencia Enterprises has its own corporate business center.

To gain this autonomy, the president of the college put himself on the line with the board of directors and gained their approval of Valencia Enterprises' five-year business plan. Within five years, the division goals are to cover all costs, break even and produce a net return.

The COO of Valencia Enterprises has a financial background with extensive experience in startups. He also reports directly to the president. Given the knowledge and experience of the Valencia Enterprises' leadership, all indicators point to success.

Benchmarking for Profitability...

Many states continue to fund community colleges using outdated funding models that essentially measure attendance rather than accomplishment. It is therefore not surprising that the emphasis is on marketing to and recruiting new students, rather than on retention and customer satisfaction. Too many colleges mistake seat-time funding as being revenue when it is more like subsidy. At the same time, many B & I leaders must deal with state funding formulas for non-credit workforce development that are either nonexistent or so convoluted that they are difficult to understand, much less address effectively. The solution is to install clear measures and benchmarks appropriate to B & I divisions.

We practice what we preach in the marketplace. We all have performance score cards directly linked to organizational goals. We do it for businesses, so we thought it would be smart to do it ourselves.

-Paul McNamara, Valencia Enterprises

Reflecting the predominant concerns for enrollment and retention at most colleges, traditional benchmarks for B & I have focused on measuring productivity by the number of companies served and by net revenue generated for the college. Yet even these metrics, with their focus on quantity over quality, can hamper efforts to develop and deliver programs that provide real value to area employers and employees in an efficient, cost-effective way.

The measure of success, therefore, should not be the traditional full-time equivalent headcount or number of seats filled, but the true value of the programs offered. For real successes measured by profitability, benchmarks for sustainable B & I units should include:

Ten Key Factors for Running a Profitable B & I Division

While it may be obvious that B & I units should make more money than they spend, there's more to making a profit than simply managing expenses and recovering costs. The issues involved in running a profitable B & I division within an educational institution are anything but intuitive. But there are some key factors to consider when making daily decisions that will help focus B & I units on the bottom line and turn them into a self-sustaining profit centers. Representatives from NCCET colleges across the United States have benefited from VisionPoint's workshop, Solving the Profitability Puzzle: Ten Key Factors for Running a Profitable Business. These key factors are:

  1. Have a profit goal

    Your profit goal should drive the decisions you make every day.

    Most B & I directors are responsible for managing a budget, which most people typically think of as managing expenses. However, managing a budget successfully does not add to the bottom line. The successful manager knows how the budget fits into the overall mission, understanding the true costs of running a business and paying very close attention to revenue. To become true profit centers, B & I units must calculate and set goals for costs, revenues and profits.

  2. Develop survival metrics

    Create rigorous standards for measuring important markers for survival.

    Knowing what it takes to cover the cost of operation and tracking the numbers that matter most allows B & I directors to make better decisions about when and where to spend money. Typically, business organizations rely on critical data such as gross margin, sales per employee, cash and receivables, operating coverage and other financial information. For B & I directors who do not have direct access to their accounting systems, it may be necessary to extrapolate these types of data by analyzing budgets, tracking costs versus revenue for programs and gaining other insights into how much it takes to keep the doors open and the lights on each month.

  3. Plan for growth

    Consider common growing pains when developing strategic growth plans.

    Managing Consequences

    The better an organization is at prevention, the less time it will spend in response and recovery.

    To successfully plan for growth, B & I units must recognize that every business has its ups and downs and deliberately build upon their successes. They should anticipate normal growing pains and plan how best to handle these challenges, including cycles of expansion and contraction common in any business. It is not uncommon for an abundance of opportunities to threaten to defocus an organization. Periods of expansion can also cause confusion about focus and roles, as well as conflicts between head and heart.

  4. Manage consequences

    Manage the consequences of not hitting revenue or profit targets immediately and deliberately.

    Consequence management has three components: (1) prevention, a fundamental commitment to planning and training; (2) response, swift action with mindful intent; and (3) recovery, an opportunity to rally everyone around the necessary changes. Prevention involves ongoing goal setting, skills practice, mentoring programs, coaching and other performance enhancing activities. An effective response plan involves both offensive and defensive actions, incorporating an assessment of controllable/non-controllable items and the ability to make tough business decisions. These can include limiting cash disbursement, managing expenses aggressively and making revenue goals a top priority. Effective recovery requires a leader to rally the organization by being honest and open in clearly communicating necessary changes and clarifying expectations as the organization moves forward. Naturally, the better an organization is at prevention, the less time it will spend in response and recovery.

  5. Get creative about selling

    Utilize creative selling techniques to increase revenue.

    Sales leadership is vitally important to the success of any business. B & I units that hope to become profitable must become innovative about selling. There are many inventive ways to increase sales, including harnessing talent in sales teams and shared accounts, creating a compensation plan that encourages profitable behavior and using a dynamic mix of incentives and rewards. B & I units should also sell their services horizontally across the market and vertically to customers.

  6. Utilize benchmarks

    Keep abreast of pertinent benchmarks and compare your practices against them in an effort to improve.

    Thriving B & I units assess performance relative to other training businesses, not just by comparing college to college. Successful B & I programs use the following benchmarks for sales success:

    Can your college
    measure up to these
    expectations?

    • Sales people should sell a minimum of four times what it costs to keep them
    • Sales per employee should be no less than $150K
    • Tele-sales professionals should yield $300K annually
    • Field sales reps generate a minimum $600K
    • Forecasts should be 90%+ accurate
    • Average size contracts should be greater than $5K
  7. Manage expenses

    Manage expenses at or below budget based on forecast, not goals.

    It's essential to budget for expenses based on forecasted revenue, not "hoped for" sales goals. In order to do so successfully, it is important to differentiate between imposed expenses and variable costs. Successful B & I divisions manage incidentals and charge for shipping, overhead, travel time and consultation. And, when tracking expenses, they keep policies and procedures simple and allow for some slack. Most important, successful B & I divisions do not allow sunk costs to become an excuse to maintain status quo.

  8. Pay attention

    Remember, "facts are friends."

    Successful B & I units stay on top of every aspect of their business. They make sure they thoroughly understand their markets by constantly analyzing the "who, what, when, where and why" of their customers. They are well informed as to emerging trends that may impact local employers, know what their customers are reading and stay current with the literature.

  9. Avoid profit traps

    Know the most common profit pitfalls and how to avoid them.

    Many things can get in the way of operating a profitable B & I unit, including chasing every new idea, planning insufficiently and losing sight of sales pipeline and close ratios. Inadequate planning and insufficient capital expansion are other common profit pitfalls. Successful B & I units guard against getting sidetracked or losing spirit during tough times. They also prevent consequence management from turning into organizational crises.

  10. Choose who plays in your sandbox

    Know when to say "no" to a customer and when to clean house.

    Although one of the benchmarks for B & I success is the number of companies served and their overall satisfaction, it is important to know what a good customer is and how to avoid the bad ones in order to operate a profitable division. Successful B & I units choose vendors and contract staff wisely and make the difficult decisions to sever relationships that are not working when necessary. They also avoid politics and install a "kitchen cabinet" of trusted advisors and peers to help provide fresh ideas and insights.

Committing to the Journey

In no uncertain terms, America's institutions of higher education have been given a mandate: take more responsibility for the economic development of their communities. With decades of experience training and retraining local workers and executives, the nation's community colleges are arguably better positioned than most four-year colleges and universities to bring significant and lasting economic value to the places they call home.

While profitability may seem an unrealistic goal to some at this juncture, it is the only way to ensure that the future will be a strong one. Shaping that future will require a great deal of individual and institutional courage to confront the risk-averse culture of higher education. On the other side of the challenges, opportunity awaits. Innovation and leadership are the catalysts needed to begin an empowering transformation. In the future, community college leaders will not see a conflict between honoring the mission of their institutions and managing them for a sustainable, profitable future.

It is the promise of a future in which "profit" is not a dirty word.

Acknowledgments & References

NCCET and VisionPoint wish to thank the following for their generous contributions of knowledge, insight and experience to the development of this document:

Darcy McGrath, Director of Workforce Development, Kansas City Kansas Community College (Kansas)

Teri Safranek, Director of Workforce and Community Development, Palomar College (California)

Dr. Andrew L. Meyer, Vice President for Learning, Anne Arundel Community College (Maryland)

Kathy Yeager, Business Solutions Director for Center for Business & Technology and Sally Winship, Vice President for Continuing Education & Community Service, Johnson County Community College (Kansas)

Wayne Williams, Associate Vice President, Enterprise & Workforce Development, Tacoma Community College (Washington)

Paul McNamara, Director of Business Solutions Group, Valencia Institute (now Valencia Enterprises) (Florida)

Linda Hammond, Director of Business & Industry Services, Washtenaw Community College (Michigan)

Robert (Rab) Thornton, Ph.D., Dean of Outreach Services, Housatonic Community College (Connecticut)

References:

Adamus, Rebecca. (2006, March 13). Learning the Ways of the N ew President-Entrepreneur. Community College Week, 18(16), pp. 9, 12.

Ashburn, Elyse. (2006, October 27). Living Laboratories: 5 community colleges offer lessons that have produced results. Special supplement on community colleges. The Chronicle of Higher Education, 53(10), p. B1.

Brumbach, M. A. (2005, Winter). Sustaining Financial Support Through Workforce Development Grants and Contracts. New Directions for Community Colleges, 132, 49-58.

Commission on the Future of Higher Education. (2006, September). A Test of Leadership: Charting the Future of U.S. Higher Education.

Report of the Commission Appointed by Secretary of Education Margaret Spellings. U.S. Department of Education.

The National Community College Benchmark Project (2005). Office of Institutional Research. Johnson County (Kansas) Community College. http://www.nccbp.org

Pekow, C harles. (2006, May 8). Presidents’ Biggest Worry? Survey Says ‘Lack of Public Funds.’ Community College Week, 18(20), 9.

Phelan, D. J. (2005, Winter). The Changing Role of the President as a Fiscal Leader. New Directions for Community Colleges, 132, 87-98.

Sallie Mae. (2006, April 21). Lack of State and Local Funding is the Biggest Challenge Facing U.S. Community Colleges. http://www.salliemae.com/about/news_info/newsreleases/04_21_06.htm

For more information:

To order reprints of this Executive Brief or to learn how to bring the Solving the Profitability Puzzle workshop to your colllege, contact VisionPoint at 800-300-8880.

About the Authors

William J. Flynn compiled 35 years experience working in higher education. In 2001 he retired from Palomar College where he was Dean of Community Learning Resources to become Managing Director of NCCET. At Palomar, he produced the annual North American Conference on the Learning Paradigm for five years and co-chaired the first two Learning Summit Conferences for the League for Innovation. He also Chairs the Coalition of Affiliated Councils of the American Association of Community Colleges.

Laura (Tarrant) Bernstein is an acknowledged master trainer and innovative business executive. Her contributions to the training industry are reflected in the development of award-winning training programs, her tenure on the board of ISA (Instructional Systems Association) and her prior leadership experience at The Dow Chemical Company, Delta College Corporate Services, AchieveGlobal and American Media.

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