Originally posted in LinkedIn, March 1, 2016

According to a study from higher education researchers at Vanderbilt University, in the ten years leading up to 2013, five nonprofit colleges and universities closed per year on average. However you rationalize these numbers, the social conditions surrounding the industry of higher education are changing. Will small private colleges keep up?

Small private higher education institutions continue to lose pricing power, and in some cases are forced to increase unfunded discount rates to fifty, sixty, even upwards of seventy percent in order to keep students coming through the doors. As some pursue the illusion of success in the short term, long term sustainability becomes increasingly uncertain. If we needed proof of these trends, Moody’s Investment Services – the independent company that vouchsafes industry viability – is shifting its measure of financial viability for such colleges away from simple cost management (think cost-cutting) and toward revenue generation.Canary in the coal mine or shot across the bow, the old ways of doing business are not working for higher education. New organizational strategies are necessary for small, not-for-profit schools.

Add in the rise of the for-profit schools; the low cost and increased relevance of community colleges; and stiffer competition from state schools looking for revenue outside their own state; and the lines between entrepreneurship and education, between survival and demise, between educational options get increasingly blurred.

What will create focus and definition where there is only blur now? Perceived value and not historical hubris will settle the matter. I would argue that as families evaluate the inherent value of the small private higher education experience through a different set of lenses than they have in the past, the 20th century model of higher education is unsustainable and we have not yet identified or adopted a viable alternative.

If you further confound the issues above with growing consumer uncertainty regarding credentialing versus education; price versus value; opportunity costs versus rising affordability gaps; entitlement versus employer needs; outcomes versus experience; then the blur gets even blurrier and higher education, as we have historically defined it, loses its relevance. But where there is crisis there is also opportunity.

In what follows, I will argue that the way other industries, in previous decades, had to rethink their employee base and their relationship with their customer/investors in order to reestablish their organizations’ relevance, now small private higher education will have to undergo a similar metamorphosis over the next decades in order to remain both solvent and inherent.

This transformation will need to begin within the organization and its employees while carefully aligning organizational values with external stakeholder expectations. External stakeholders for small private higher education — those who want to learn, be employable, invest, and donate — might not see the value in reimagining education within the small private higher education experience. This is especially true, if the value proposition of what the internal stakeholder wants to deliver does not align with what the external constituents perceive as valuable, worthwhile, or relevant.

A Parallel Perspective – Pre 1980’s

Allow me to draw a parallel from other industries and decades prior. One of the most significant issues that troubled organizational management during the Industrial Age, Fredrick Taylor’s period, was the concept of efficiency. Efficiency was the fundamental goal that management experts in that era wanted to achieve. These managers instituted techniques for measurement, and developed salary structures that promoted productivity (Harris, 2005).

This approach was the norm until the 1980’s, when systems like Just in Time were invented. By the 1990’s it became apparent to most organizational entities that productivity is not as important as survivability. Survivability can be defined as an organization’s ability to react to rapid environmental changes in order for the organization to adapt and evolve successfully. This is further supported by Harris’ comment, “Just as Fredrick Taylor broke down the labor process into specialized tasks on Henry Ford’s assembly line, today the labor process is being coordinated and structured on a global scale, creating new forms of labor stratification” (2005, ¶ 27).

However, for higher education, as with any organization, mere survival is not enough. An organization’s goal is to achieve its mission, to achieve a prescribed impact, and yet, even that is not enough. In order to survive and achieve impact, an organization that is dependent on external funding sources of any kind – philanthropy, clients, customers, etc. – must also demonstrate or communicate its value to its stakeholders.

In order for value to have an affect that value must be a perceivedvalue. In a market economy, like higher education, organizations, even colleges/universities must increase their market value by increasing their perceived value (Feldman, 2005). As such, it becomes necessary to clarify the meaning of perceived value and to elaborate on the systems dynamics that affect the organization’s perceived value in order to get a complete perspective of the entire process to achieve long-term sustainability.

Perceived Value

To understand perceived value several questions need to be addressed. How are we perceived by our various stakeholders? How do they value us? How do we affect them? Do we have the ability to create our future?

Understanding the meaning of perceived value requires a holistic view of the organization within its environment. Perceived value is created from fundamental building blocks such as satisfying consumer needs; maintaining satisfactory levels of stakeholder support; providing a challenging work-environment for employees; creating a supportive organizational culture; financial growth; support for wider community interests; and support for wider employees needs (Kauffman, 1980).

Kauffman also suggests that the organization’s perceived value is more than the value of its products or services. One must also understand that perceptions are dynamic. Perceptions can change as a result of many external factors: cultural, political, economic, etc. Understanding these dynamic factors that could influence the organization’s perceived value requires profound systemic analysis of the organization’s relationships with its stakeholders (Kauffman, 1980).

Organizations occupy niches left empty or created by what others do, and their ability to create value depends on the needs and wants of others, and on the strength of their capacity to respond to these factors. The fluidity and relative nature of value makes the issue of perceived value very complex. In order to understand the organization and its value, one needs to identify all stakeholders and understand each of the stakeholders’ interests and perception of the organization.

The Internal Environment

It seems clear enough that an organization’s employees, performing according to the organization’s internal processes, and as experienced by the external stakeholders, create most of the organization’s value.  Hence, understanding the role and work of the employee is key to understanding the perceived value of an organization.

During the Industrial Age, management concepts were based on the following basic assumptions: 1) employees’ major interest is to maximize their earnings and minimize their investment, and 2) in order to maximize the organization’s benefit, the organization should develop strict central control mechanisms (Suárez-Orozco, 2005). If one assumes that there are two contradicting interests, the employees’ vs. the organizations, then one must establish efficient control mechanisms to ensure that the employees’ interests will not interfere with the achievement of organizational goals.

According to Cebrowski, Ross Ashby in 1970 defined the Law of Requisite Variety, “Only variety destroys variety.” Applied to the industrial organizational model this means that in order to control a situation an organization needs a control mechanism which is complex enough to match the controlled situation’s complexity (Cebrowski, 2004).

However, as Suárez-Orozco’s points out, the controls and inputs available within an industrial model of higher education are no match for the complexities of the 21st century student and social environment.

An intellectually curious, cognitively autonomous, socially responsible, democratically engaged, productive, and globally conscious member of the human family in the 21st century cannot be educated in the 20th-century factory model of education. The regimented mastery, internalization, and mechanical regurgitation of compartmentalized facts and rules that served the Industrial Age are anachronisms (2005, ¶ 20).

I might argue that industrialized education never was truly up to the task of educating any humans, but this is an argument for another day.

Regardless, if the perceived value is indeed affected internally by the employees of the organization, and this seems hard to argue against in the education and not-for-profit world, then the organization must make sure that conflicting motivations are either minimized or managed among the different stakeholders. If they are too complex to succumb to managerial control, then employee motivational conflicts must be minimized. I suggest that this be accomplished through alignment of organizational and individual motivation and values. I also submit that dynamic systems thinking gives us a language by which to understand how to achieve enough alignment to move the institution toward goal achievement.

In the New Age, the systems sciences showed us that the solution lies elsewhere than in managerial control. Conflicting motivations cannot be controlled for long. Such control mechanisms require ever increasing efforts. The solution is to align the motivation of the employees with the motivation of the organization. (Bell & Marrs, 1997). Loyalty to the organization is rewarded by improved benefits, security, challenges, and a renewed sense of professional purpose. In the New Age complex organizations implement autonomous management concepts. No extensive control over the employees is required. Autonomous management improves employees’ performance by encouraging excellence and creativity (Bell & Marrs, 1997).

Modeling Perceived Value

In order to fully understand the internal and external environments, one needs to build a complete, accurate model of the organization and its environment. Amodel is an analytical description of all the relevant components and the relationships between them. The main attribute of perceived value is that it is dynamic. The model should reflect the systems dynamics. Kauffman, Jr. states in 1980’s An Introduction to Systems Thinking, “In a period of rapid change, it is the adaptable, not the well-adapted, that survive (p. 232)” Perceived value and adaptability are very much connected through the systems dynamics.

Business modeling is a whole new discipline, introduced by the systems sciences. In the Industrial Age, most management methods were designed to simplify reality. The only way to keep a system “under control” was to reduce its complexity, to make it “transparent” (Kauffman, 1980). The huge revolution of the systems sciences was that in order to achieve success one needs to embrace and master, rather than simplify, the complexity inherent in the web of relationships between the variety of factors within the organization and its environment.

We need advanced methods to understand complexity, and the area of operations research provides such methods, namely simulation and modeling. Organization modeling takes into consideration five elements. Each modeling element on its own could easily be the subject of a volume. For now, allow me to simply list them as offered by Kaufmann (1980).

  1. Strategic Analysis – In-depth understanding of external forces, markets, alliances, products, customers.
  2. Business Processes Analysis – Deliberate strategic management, core business processes, and resource management processes.
  3. Risk Assessment – Identification of business risks (internal and external), risks monitoring, and development of adequate controls.
  4. Business Measurement – Quantification of performance, financials, processes, and resources.
  5. Continuous Improvement – Management of gaps and opportunities.

So, given these five modeling elements need to be understood and managed, how might that happen?

The Modeling Process

First, identify and prioritize the elements that influence perceived value and what processes or elements create them. As such, the organization should identify and prioritize all internal and external critical factors that influence perceived value. These factors are risks as well as opportunities.

Second, establish information sources that measure the critical factors. Define the accuracy and frequency of measurement according to the degree of relationship between the perceived value element and the critical factors.

Third, the organization needs to characterize a contingency process for any major risks. Similarly, the organization should create reaction plans for opportunities.

Finally, the organization should define Key Performance Indicators (KPIs) to measure the various perceived value elements, and the gaps between KPIs and performance targets. This creates an assessment mentality and allows for individual areas within the organization to contribute and create shared indicators that identify factors by which to measure the successes while providing employees with a sense of ownership.

Again, each step in this process deserves more attention than I am able to give it here.

In Conclusion

Perceived value is a complex negotiation between an organization and its stakeholders. Tracking an organization’s perceived value requires an on-going process of modeling that identifies the critical elements affecting risks and opportunities and maps the relationships between them. Deliberate process helps an organization put modeling elements in place and leverage the opportunities for influence.

The most critical factor that affects an organization’s perceived value is its employees. The organization needs to align the employees’ motivations and interests with organizational goals if it wants to be effective, avoid excessive control, and establish an organizational culture based on autonomy and commitment.

Works Cited

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Bell, T., & Marrs, F., (1997). Auditing Organizations Through a Strategic-Systems Lens.

Bohn, R. E. (1994). Measuring and managing technological knowledge. Shan Management Review, 31(4), 61-73.

Cebrowski, A. K., (2004-Jul/Aug). Transformation and the changing character of war. The Officer, 80 (6), 51-57.

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Feldman, S. J., (2005-Fall). Even universities change. Issues in Science and Technology, 22 (1), 63-68. Retrieved December 1, 2005, from ProQuest Database.

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Forrester, J. W. (1961). Industrial Dynamics; Cambridge, MA: MIT Press.

Kauffman, Jr., D., (1980). Systems One: An Introduction to Systems Thinking. Future Systems, Inc. Minneapolis: S. A. Carlton.

Lowendahl, B. R., Revang, O., & Fosstenlokken, S. M. (2001). Knowledge and value creation in professional service firms: A framework for analysis. Human Relations, 54, 911-931. Retrieved November 28, 2005, from ProQuest Database.

Maslow, A. H. (1954). Personality and Motivation. New York: Harper & Row.

Storck, J., & Hill, P. A. (2000). Knowledge diffusion through strategic communities. Shan Management Review, 41, 63-74.

Suárez-Orozco, M. (2005- Nov). Rethinking education in the global era. Phi Delta Kappa, 87 (3), 209-213. Retrieved November 28, 2005, from ProQuest Database.