Navigating success drivers, challenges and rewards of a strategic integration

This blog summarizes the key takeaways from our fiscal resiliency podcast, episode 16.

Higher education is in a unique time as critical conversations continue across the industry about the growing need to transform institutional business models to better serve students, strategically differentiate institutions and achieve sustainability. In fact, some higher education leaders note that the situation is analogous to the recent overhaul by the healthcare sector as an example of an industry drastically rethinking its model.

In Baker Tilly’s latest Higher Ed Advisor fiscal resiliency podcast, Dan Greenstein, Chancellor of Pennsylvania’s State System of Higher Education (PASSHE or the State System), joined Christine Smith, Baker Tilly Managing Director and fiscal resiliency specialist, to explore the complexity of this issue.

They discussed how strategic integrations, or mergers, are a part of the sustainability plan for some of Pennsylvania’s 14 state-owned institutions to navigate the challenges facing institutions and chart a data-driven course as they strive for fiscal resiliency, meet community needs and most importantly, expand opportunities and improve outcomes for students.

The State System’s transformation: shaping and embarking on an integration road map

In setting the stage for the discussion, Smith noted that Baker Tilly “is seeing many more of our higher education clients discussing the need for bold, transformative actions – things like mergers, integrations and acquisitions as a means to address unsustainable subsidies or to avoid closures.”

PASSHE required that type of forward-thinking mindset, and Greenstein understood well what that transformation looks like when he joined the institution in 2018 while the redesign process was already underway in response to issues with student enrollment and other challenges. The State System’s sustainability effort was designed to address:

• Student affordability
• Continued state-wide access to higher education 
• Fiscal instability for several of the State System institutions 

The decision towards a system-wide redesign proved to be particularly critical when the PASSHE leaders realized that the severity of the financial challenges they faced were “far worse than anybody had predicted.” They concluded that if every campus within the State System was forced to sustain itself on its own means, it would be likely that some of the institutions would prove to be unviable, either in terms of attracting enough students or by providing the depth and breadth of degrees that are needed in the local community. Greenstein detailed that at least five of the State System’s 14 schools were “suffering pretty severely” at that time, which, he added, was dragging the overall system health down with them. It was here, during the redesign, that the strategic integration concept emerged.

The State System’s sustainability journey began with equipping their board and leadership with the necessary tools and resources to assist with goal-setting, strategy, budget planning and developing an accountability structure, among other key areas. Greenstein established early on that PASSHE lacked these essential tools and did not have the type of incentives (and disincentives) that ultimately hold institutions accountable for setting and achieving goals. The State System also needed a widely used data and analytics platform to give a “clear line of sight into the extent of the challenges that we faced,” explained Greenstein. Additionally, he and his teams recognized the institution’s other weak areas, such as project management and change leadership, and how their strategic alliance with Baker Tilly provided guidance and support to identify and then fill in these gaps.

The State System’s transformation also required diligent planning and communications, because as a public institution, PASSHE needed to get the approval of Pennsylvania legislature while simultaneously considering the public perception before making major changes. “We’re very visible publicly,” Greenstein said, “so we had to bring the entire state of Pennsylvania along with us.”

However, one approach that Greenstein emphasized continued to present itself as an opportunity in the State System’s quest for fiscal resiliency is something industry struggles to do: “working in lockstep” as a system of universities to address critical issues that are beyond the reach or resources of any single university to tackle on its own.

Understanding PASSHE’s success drivers and challenges

As one transformative component in the sustainability plan, the State System took six previously separate institutions and integrated them into two institutions with one integrated university in a defined region of the Pennsylvania Commonwealth as of July 1, 2022.  Greenstein outlined certain key performance indicators (KPIs) that helped determine the success of the newly formed three-in-one institutions:

• Student success – above anything else, PASSHE’s transformation was and remains centered on student success and alignment of their educational and career paths with those of the regional and state economies
• Leadership alignment – it was imperative that the board, chancellor and university leadership were aligned towards and had clarity about the integration’s vision and desired outcomes
• Working group engagement – beyond leadership, the vast number of individuals, groups and third parties involved in the State System’s integration design and execution banded together to operationalize each integrated institution’s unique strategy. Smith noted how those involved in this transformation often eventually felt “that intrinsic value of ‘I’m changing something in a way that’s going to be impactful for the students.’”
• Change and communications management – with 29 distinct teams at one point in the process and more than 1,000 separate planning tasks, having structured frameworks, project accountabilities and communications consistency helped address any uncertainties, especially as there were multiple universities, leaders and teams being integrated
• An investment in the “human element” – Greenstein stressed the power of leadership demonstrating empathy and having open, honest and difficult conversations about how reductions and other disruptions were going to occur as a result of the integration

In fact, balancing the emotional aspect of a transformation in which positions were going to be eliminated was one of the biggest challenges that Greenstein and university leadership faced. PASSHE invested significantly in early retirement incentives, which created soft exits for some employees while simultaneously creating openings throughout the State System for other employees who wished to remain with the organization.

Reflecting on lessons learned and proud moments

When Smith asked about lessons learned during the State System’s integration journey, Greenstein began by discussing the importance of building and developing an aligned and effective leadership team. The PASSHE situation faced a complicated factor in this space in that its new leadership team could not truly be implemented until the accreditation was approved. The integration approach intentionally worked to identify and develop leaders as part of the integration design process. It also offered institution-level leaders the chance to chart their own path in support of the aligned vision of the Chancellor’s office and the board.  The approach used to craft the working groups and considerable redesign of integrated university functions offered the chance to support and work with potential leaders in their roles as functional transformation leaders and partners. These not-yet-officially-named leaders worked tirelessly to build the necessary vision and operational parameters for the new integrated universities often while also doing their full-time jobs. Although this was a risky decision, ultimately, Greenstein said, “I don’t think I would have done it any differently.” 

Both Greenstein and Smith agreed on the importance of building advocacy via strong project and communications management as being key foundational elements of any transformative plan. Taking the time to develop integration management tools at the outset of the process is key, including governance protocols, metric and milestone design/tracking, a communications plan that addresses stakeholder coordination and message consistency are all critical integration tools. “We built (those tools) while flying the plane,” he says now, in retrospect. “And that caused a degree of stress and anxiety.” Having these tools in place sooner would further enhance institution-wide alignment with the integration plans.

Greenstein expressed that he remains proud of his team for accomplishing the successful cut over to integrated university status, particularly in the face of the COVID-19 pandemic. “We paid attention. We listened carefully. We did everything the General Assembly asked us to do in terms of addressing our financial challenges, setting ourselves on the path to operate effectively and with quality, and including integration.” In effect, the integrated university teams took a proactive approach to controlling what they could about their destiny. 

At the time of the podcast recording, the integration appears to lead towards a positive, favorable destination. How? “The net result was a 16% increase in our annual state appropriation,” he said. “And that’s a big deal. It doesn’t happen a lot in higher education. And it testifies to the strength of the work and the character of the people and the general recognition of the value of what we do. And that's a good thing. More of that, I hope, in the future.”