Building a More Sustainable Higher Education Operating Model

Why the traditional higher ed cost-cutting playbook is no longer sufficient

Cost cutting has an important place. It can help institutions respond to a weak enrollment cycle, an unexpected increase in operating costs or an urgent capital need. An across-the-board reduction may lower spending today, but it does little to change tomorrow’s cost structure.

Repeated incremental cuts carry hidden costs: work is deferred, service slows, morale suffers, and faculty and staff absorb more responsibility without better tools, simpler processes, or greater decision-making authority. Over time, institutions may appear leaner on paper while becoming less effective in practice.

Temporary or recurring cost cutting is a poor substitute for structural change when many institutions are confronting long-term challenges. Demographic shifts, intensifying competition, constrained public funding, rising student expectations and escalating operating costs have changed higher education’s financial reality. Meanwhile, healthcare and retirement costs, cybersecurity, deferred maintenance, regulatory requirements and long-standing employment commitments leave relatively little of the budget truly flexible.

The key question is what’s driving costs? At many colleges and universities, costs are embedded in accumulated complexity: outdated processes, organizational silos, duplicated systems and fragmented decision-making.

Cost cutting, cost containment and cost leadership are different strategies

These terms are often used interchangeably, but they represent fundamentally different approaches:

• Cost cutting reduces spending quickly. Hiring freezes, position eliminations, delayed projects, travel restrictions and budget reductions provide immediate relief. Sometimes they are unavoidable. But they leave the operating model largely unchanged. The work remains. Fewer people simply carry more of it.
• Cost containment slows future expense growth. Institutions negotiate contracts, consolidate purchasing, standardize technology, improve energy efficiency and manage benefits more strategically. These efforts are worthwhile and often produce meaningful savings. But they generally assume the institution is organized in the right way.
• Cost leadership focuses on improving operations. It is a discipline of design rather than deprivation. Institutions achieve cost leadership by redesigning how work gets done so they can deliver equal or greater value at a lower structural cost.

In higher education, cost leadership means building an operating model that reduces unnecessary cost and complexity instead of relying on annual budget reductions to stay afloat. It is structural, not incremental; proactive, not reactive; and focused on redesigning work before eliminating positions. It also requires institutions to reinvest savings strategically in the capabilities that drive enrollment, retention, completion, research productivity and long-term mission fulfillment.

Cost leadership begins with the operating model

Cost leadership requires leaders to examine the institution as a system rather than a collection of independent budgets. Instead of asking every unit to absorb another percentage reduction, leaders ask sharper questions:

• What work is essential to our mission?
• What complexity has accumulated over time?
• Which processes create value and which create delay or duplication?
• Which academic programs could be brought together to amplify their impact?
• Where are we paying for multiple versions of the same service or technology?

These questions often reveal that the greatest opportunities are found in redesigning work, simplifying processes, consolidating duplicated services, and eliminating unnecessary complexity — not reducing headcount. Shared administrative services, joint purchasing arrangements, common technology platforms and coordinated academic structures can lower unit costs without reducing educational capacity or service quality.

Complexity is expensive. In our work with colleges and universities, we often see opportunities hidden in ordinary operating details: a hiring process with 126 separate steps, multiple licenses for the same software platform or a high-demand course capped at 18 students because it was assigned to an undersized classroom. These are organizational design problems.

The opportunity for institutions to improve is both administrative and academic

Institutions often begin this work by looking for administrative savings. That is a logical starting point, but it is not sufficient. Academic costs and academic structures must be part of the conversation as well.

One persistent misconception is that protecting the academic mission means shielding academic programs while reducing administrative and student support functions. Yet weakening advising, enrollment management, financial aid, HR, finance, communications, marketing or institutional research can undermine enrollment, retention and student success just as surely as eliminating an academic program. The academic mission depends on the systems that support it.

Cost leadership requires that academic programs be evaluated with the same discipline applied to every other institutional investment. Academic portfolio decisions should consider student demand, academic quality, financial sustainability, post-graduation opportunity and institutional identity together. The goal is to understand where the institution creates the greatest value, where investment should increase and where resources no longer align with priorities.

Cost leadership also uses data to surface costs and missed opportunities that are easy to overlook. At one institution, our methodical analysis showed that nearly 30 percent of course sections enrolled fewer than 10 students. That did not automatically mean those courses should be eliminated, but it did prompt important conversations about scheduling, program design, faculty workload and how academic resources could be better aligned with student demand.

Cost leadership means making structural choices

The greatest barrier to cost leadership is rarely analytical. Institutions usually know where complexity exists, where processes have become cumbersome and where resources no longer align with priorities.

The challenge is institutional leadership. Reimagining an underenrolled academic program, consolidating administrative functions, sharing services across the institution or even considering a merger requires leaders to challenge long-standing assumptions and make difficult decisions that affect tradition, governance and institutional identity.

That is why many institutions default to cost cutting and cost containment. Temporary reductions are politically easier than structural change. But postponing difficult decisions rarely preserves future options. More often, it narrows them. Institutions that redesign while they still have financial flexibility, institutional credibility and time to manage change retain far greater control over their future than those forced to act in crisis.

Cost cutting buys time. Cost leadership builds the future.

Colleges and universities cannot achieve long-term sustainability one budget cycle at a time. Temporary reductions may stabilize the budget, but they do little to address the operating model that produced the imbalance in the first place.

The institutions most likely to thrive will take a different approach. They will view costs not simply as line items to reduce, but as the product of choices about how work is organized, decisions are made, technology is deployed and resources are aligned with mission. They will redesign processes before eliminating positions, simplify operations before accepting inefficiency and invest strategically in the capabilities that strengthen enrollment, student success, research and institutional resilience.

Cost leadership is about building an institution that consistently delivers greater value with the resources it has. In the years ahead, that may prove to be one of higher education's most important strategic capabilities.