Most colleges and universities are under pressure to innovate on their business models coming out of the pandemic as Covid-era federal funds dry up.

• On average, colleges rated by S&P Global Ratings received $11 million from Uncle Sam, Jessica Wood, S&P’s education sector told me during the Next Office Hour I hosted last week. “It’s not an insignificant amount,” Wood said. “These funds certainly reduced credit risks for schools.”
• Indeed, the average operating margins (i.e. profit) at private universities rated by S&P were about 2.5% in 2021 and 4.3% at public universities—meaning the one-time federal dollars essentially made up the entire financial cushion for many campuses.

What’s happening: Unfortunately, innovation has become such a buzzword in higher ed that it has lost its meaning with the very people it is meant to inspire. Too of­ten innovation is promoted simply because the word sounds good. It’s about marketing more than mission.

• For institutions to suc­cessfully change coming out of the pandem­ic, they must take a hard look at their identity, measure their place in the larger ecosystem of institutions, and anchor their innovations in their mission.
• For higher ed as a whole, innovation in the near future means improving outcomes for all learners and helping students find a sense of belong­ing that truly maximizes the impact of institutions.

How it works: Innovation is both overused and misunderstood in higher education. It’s critical for colleges and universities to have an innovation strategy—a framework for how they source and apply new ideas, Randy Bass, vice president for strategic education initiatives at Georgetown University, said during the webinar. Bass leads the Red House at Georgetown, basically a skunkworks that is headquartered in a red house across from the main campus.

• At Georgetown, Bass described a “three level innovation model” the university has developed. “We call it the Zen-stone model,” he said.
• At the very top of that model is “venture research and development.” That’s the highest risk innovation. It doesn’t necessarily have the biggest failure rate, he said, but it has the “tightest learning cyles”—meaning fail fast and often and continue to iterate on the ideas.
• The next level down is “applied innovation.” That’s where the university is taking proven pilots in one department, or part of campus, and scaling them to seeing “what it looks like to move them into different kinds of disciplines, different schools, or just scaling them themselves,” Bass said.
• The bottom part of that model is “long-term institutional transformation” that changes the structures and practices of the institution.

Why it matters: Most college leaders blame faculty and shared governance for the lack of change on their campuses. An innovation strategy and framework is critical in working within faculty governance, Bass said.

• “There’s a faculty governance group [at Georgetown] that was created whose sole purpose is to review and approve and monitor the projects that only happen at that venture R&D level,” Bass said.
• As a result, as a separate committee (made up of representatives from different schools at the university), they’re using different rules and criteria for a special class of projects. But because they review the work on a regular basis, they better understand what the university ends up funding downstream.

The big picture: Bass acknowledged during the webcast that Georgetown, with its reputation, location, and billions in endowment, sits in a privileged position in higher ed. But the principles behind the university’s three-tier model can be applied elsewhere, he added.

• Having an innovation strategy and framework allows institutions to better understand the “long-term transformation that they think they’re effecting,” Bass said. Are you trying to expand revenue into new markets? Are you trying to improve student retention and success?
• Every institution, Bass suggested should have a portfolio of strategies—much like an investment portfolio. “Some of those strategies should be high growth, high risk—you want to put some of your money there, you want to put some of your energy there,” he said. “Some should be more surefire slow growth, safer, but you know that they have a long-term transformational impact.”

Bottom line: The end of federal Covid funds for higher ed means the sector is running out of time to innovate on its business model. Sure, there might be a short-term enrollment bump from students who sat on the sidelines during the pandemic, or by the simple fact that many campuses were starting from a lower baseline of enrollment the last two years. But a demographic shift is already underway, with the high school graduating class of 2025 expected to be one of the largest for quite some time.

To watch the full webcast on demand, register here (sponsored by Workday).

Measuring the ROI of Colleges. “Return on Investment” is certainly a term that has entered the higher ed lexicon over the last decade as tuition has continued to rise and family incomes stagnant. A source I always recommend to families is the U.S. Education Department’s College Scorecard, which includes a college’s net price, graduation rate, and the debt students incur. Michael Itzkowitz, who served as director of the College Scorecard during the Obama administration, has put together all the data in an easy-to-use report and spreadsheet in his role as senior fellow in the think-tank Third Way. As Ron Lieber recently reported in the New York Times, Itzkowitz found that at 52% of colleges, more than half of the enrollees were not earning more than the typical high school graduate six years after they began their studies. (Third Way; New York Times).

Perhaps You Want Your College Grad to Come Back Home? A new paper out this week from the National Bureau of Economic Research on college grads living with parents shows that “co-residence” increases when young adults can’t find “matched” jobs. Living at home, however, helps them wait out the labor market and better match to a job—ultimately helping them in their career. (LinkedIn)

A Bailout for the Public or for Colleges? I’ll have more to say on President Biden’s executive order to forgive billions of dollars in student loan debt in a future newsletter, but in the meantime check out just one of the many takes in the last week—this one from Scott Galloway’s newsletter: “The bad news: We’ve treated the symptom but not the disease. When dealing with a malignant tumor, standard procedure is first to shrink it. But cancer is the underlying disease, and the day after the debt is forgiven, this tumor will resume its growth.” (No Mercy/No Malice).