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Executive Summary

A QUANTITATIVE ANALYSIS OF FINANCIAL AND STRATEGIC CHANGES IN SMALL PRIVATE HIGHER EDUCATION INSTITUTIONS

By Laura D. Grandgenett

October 2007

The topic of this research was small higher education institutions in the Midwest operating in a turbulent higher education environment that includes increased pressure from changes in economic, societal, and market forces. This quantitative, longitudinal study sought to provide empirical evidence of relationships between specific changes in strategies and external factors and changes in financial performance of small private colleges and universities in the Midwest with enrollments between 200 and 2,999 students between 1998 and 2005. The context for the study was Christensenís disruptive innovation theory that described the explosive growth of for-profit education providers as signals of significant change in the higher education industry.

The research design included analyzing financial data collected from the Integrated Postsecondary Data System (IPEDS) and the Internal Revenue Service for 161 small higher education institutions in Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, and Wisconsin. The results from calculating each institutionís composite financial index (CFI) score for each of eight years of the study served as a basis of measurement of financial performance (the dependent variable). Responses to a 37-item Likert-style survey entitled the Small Institution Strategy Inventory (SISI) from 69 institutions provided data that described the extent to which the institutions changed strategies and were influenced by external factors over the eight years (the independent variable).

The descriptive analysis results indicated one third of population of 161 small institutions operated at or below the threshold of financial viability and two thirds exhibited an overall decline (negative slope) in financial performance. Descriptive analysis of the SISI responses showed that many small institutions changed strategies to a substantial extent but were influenced by external factors to a less than moderate extent. Correlation and regression analysis failed to support rejection of the null hypotheses of no relationships between changes in thirty distinct strategies, seven external factors, and changing financial performance.

Additional findings include

The conclusions reached are that small private, non-profit institutions in the Midwest deployed sustaining strategies that acted as insufficient barriers to turbulence in the higher education industry. In terms of Christensenís disruptive innovation model, small institutions in the Midwest are losing the competitive battle. It is uncertain if diligent monitoring of strategic and financial performance from a future-based perspective that leverages the unique attributes of each institution will make a difference in ability of small institutions to survive the future.

Recommendations for further research include similar analysis for other regions of the United States. Institutions are encouraged to investigate new governance and leadership structures and processes but with no guarantee of success without additional support mechanisms. Recommendations also urge policy makers to investigate higher education data and recent research to determine meaningful and relevant strategies and policies that help strengthen small colleges and universities. At a more comprehensive level, state and federal policy makers are urged to determine to what extent the nation should allow the market to control the shape, the nature, and the availability of higher education.