Competitive Strategies and Financial Performance of Small Colleges

Abstract

Many institutions of higher education are facing significant financial challenges, resulting in diminished economic viability and, in the worst cases, the threat of closure (Moody’s Investor Services, 2015). The study was designed to explore the effectiveness of competitive strategies for small colleges in terms of financial performance.

Five research questions related to small, accredited, private, non-profit, four-year colleges were addressed in the study. 1. What were the range and variance in the Composite Financial Index (CFI) for small colleges in FY2010 to FY2014? 2. What competitive strategies were employed and with what frequency by small colleges in FY2010 to FY2014? 3. What relationships existed between the employed strategies and the related perceived institutional financial performance, as assessed by college leaders? 4. What relationships existed between the employed strategies and the documented institutional financial performance, as measured by the CFI? 5. What relationships existed between the perceived institutional financial performance resulting from the employed strategies and the documented institutional financial performance, as measured by the CFI?

This quantitative, multi-method, causal-comparative study collected data on a nationwide random sample of small colleges (N = 251). Five years of ex-post facto data on the Composite Financial Index (CFI) were used to determine documented institutional financial performance. Inventory data, collected from vice presidents of finance (N = 51), were used to determine the strategies employed by colleges and the resulting perceived institutional financial performance.

Based on the CFI scores, many small colleges (46%) were identified as seriously or severely under-performing financially. The most frequently employed strategies (≥76%) were: new marketing procedures, new undergraduate programs, tuition discounting, restructured debt, and new or renovated facilities. Significant correlations (p≤.05) were found between 34 of the 39 strategies employed (87%) and perceived institutional financial performance. No significant correlations were found between strategies employed and documented institutional financial performance or between perceived and documented institutional financial performance.

The conclusions and recommendations deal with the need for small college leaders not to seek easy solutions, but to apply strategic planning in the selection of strategies to employ; to identify indicators that relate employed strategies to financial performance; and to test their perceptions of financial performance against documented evidence.