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Diversifying Campus Revenue Streams: Opportunities and Risks
Constrained government funding imperils the preservation of the academic
status quo. Lowered funding from traditional sources, increased
expectations, and the shifting competitive landscape, where new providers
and technologies threaten long-standing assumptions about institutions'
assured market positions, are forcing institutions to seek additional
revenue sources. This report considers how colleges and universities are
diversifying their revenue streams.
KEY POINTS FROM THE REPORT
- There is no limit to what could be spent by institutions in
pursuit of their goals, and therefore institutions will always raise and
spend all the money they can.
- Institutions are diversifying their revenue streams in many ways,
- Instructional initiatives. Due to threats to the financial
resilience of core programming, institutions are changing the grounds on
which they make academic decisions, such as new providers, new markets, and
new technologies. These include online programming and niche-oriented
- Research and analysis initiatives. Some institutions are repackaging
their research and analysis capabilities to generate revenue, including
business incubators, technology-transfer offices, research and technology
centers and parks, small business development centers, e-commerce
initiatives, and research collaborations with private industry and the
- Pricing initiatives. Tuition and fees have risen significantly in
recent years, and have become increasingly differentiated. Institutions are
experimenting with finer distinctions in pricing and user fees, beyond state
residency and field of enrollment.
- Reforms in financial decision making and management. Financial reforms
can help improve revenue flow, including venture capital investments and
participation in arbitrage and options markets.
- Human resources initiatives. Human resources are being employed in new
ways, including compensation initiatives for entrepreneurship and
retirement/rehiring initiatives for faculty.
- Franchising, licensing, sponsorship, and partnering arrangements with
third parties. Such endeavors include logo-bearing clothing, tours and
camps, and event sponsorship.
- Initiatives in auxiliary enterprises, facilities, and real estate.
Revenues from auxiliary units do not always exceed costs. Some auxiliary
enterprises can pay off, however, including on-campus debit cards, facility
rentals, and alumni services.
- Development office initiatives. Institutions are diversifying their
development efforts in response to the challenge of building a
self-sustaining development effort. Appeals to donors abroad are one example
of such efforts.
RECOMMENDATIONS FOR PRACTICE
- The ultimate goal of any revenue-diversification effort should be
the generation of new net returns, not simply the generation of new
- In order for fundamental changes to occur, the impulse to do business
in different ways must be communicated and institutionalized at all levels
of the organization.
- Any decisions about pursuing new revenues ultimately must deal with
the question of why new revenues are being sought.
- Producing new institutional revenues that are fully offset or dwarfed
by new, associated costs is acceptable only if there are notable
nonfinancial returns and if the new net costs are viewed as acceptable from
an individual, institutional, or public perspective.
- Pursuit of new revenues should be with the understanding that new
revenue-oriented initiatives will be undertaken only after rigorous
consideration of the associated costs, including the opportunity costs of
forgoing other initiatives.
- New initiatives need to be evaluated rigorously to ascertain mission
appropriateness, cultural fit, substantive quality, short- and long-term
financial prospects, risk tolerance for all parties involved, and
- Effective decision making on prospective initiatives should be
institution-specific and should consider factors not easily monetized.
- Revenue-seeking initiatives should be congruent with the existing or
desired institutional mission and culture.
- Launching new revenue-generating enterprises requires entrepreneurial
spirit and cultural and organizational conditions necessary to fuel and
support that spirit.
- Some revenue-seeking choices affect an institution only at its
periphery (e.g. renting athletic facilities out for tournaments), and other
choices have more profound impact (e.g. the effect of offering degrees
online on the "brand" identity of the institution).
- Consideration of two potential dangers is key:
- The risk that public authorities may come to believe that higher
education can obtain enough new revenue to take care of itself without
additional substantial societal investment.
- Unreflective movement toward diversified revenue streams can threaten
core institutional identities and missions.
- Institutions must do what business does - change as revenue
possibilities change. This leads to the question of how institutions can
become adaptable while remaining true to their traditions of self-management
and intellectual achievement.
Hearn, J. C. (2003). Diversifying campus revenue streams: Opportunities
and risks. Washington, DC: American Council on Education Center for Policy
Submitted by Leah Ewing Ross, May 2004.
This is a report summary and excerpts are quoted directly from the text.
Iowa State was the first chartered land-grant institution.