The price of prestige: Does prestige seeking affect management decisions to increase tuition in private nonprofit higher education?

Tuition at American colleges and universities has been rising faster than inflation for more than 40 years. Public opinion research shows that the majority of Americans increasingly believes that college is becoming unaffordable. Scholars have viewed the problem of rapidly rising and increasingly unaffordable tuition as an economic problem, a cost problem, and as a political problem (because of changes in state financial support of public higher education). The issue has not been looked at as a management problem. Yet as press releases evidence, decisions about changes to tuition are so important they often require approval by boards of trustees, thus, placing responsibility for the problem firmly on the shoulders of higher education managers and administrators. This study takes as its starting point that tuition setting is not a routine, but a strategic, decision. Senior leaders employ managerial cognition to evaluate strategic decisions against a mental map of their environment and competition. For private nonprofit higher education organizations, increasing prestige, the organizational objective, and the associated prestige-seeking strategies are central to those mental maps. The isomorphic forces of institutional theory reinforce the selection and implementation of similar strategies. The research question, therefore, is whether there is evidence that prestige seeking is present in the mental maps of decision makers when setting tuition increases. The researcher conducted a qualitative directed content analysis of documents published on the websites of private nonprofit universities in the U.S. News and World Report list of the top 200 national universities. The content analysis found evidence at some universities of an association between tuition increases and prestige seeking strategies. Changing managerial cognition is not easy. Although awareness of the issue of affordability seems to be recognized in speeches by leaders of universities, the annual decision to increase tuition remains in the range of two percentage points higher than the rate of consumer price inflation. More steps must occur before changes in manager mental maps take place. Tuition increases must be taken out of the realm of routine decisions and looked at through a different lens. This study shows that administrators, faculty, and trustees have not revised their mental models and have not changed their interpretation of the environment for their universities. When mental models change, we might expect a different, and lower, level of annual tuition increase.The Price of Prestige: Does Prestige Seeking Affect Management Decisions to Increase Tuition in Private Nonprofit Higher Education? By Jane Sadd Smalec A Thesis Submitted to the Graduate Faculty of University of Maryland University College, in Partial Fulfillment of The Requirements for the Degree of Doctor of Management Advisory Committee: Dr. Leslie Dinauer Dr. Sharon Hadary Dr. Dennis Winters June 2014 ii Abstract Tuition at American colleges and universities has been rising faster than inflation for more than 40 years. Public opinion research shows that the majority of Americans increasingly believes that college is becoming unaffordable. Scholars have viewed the problem of rapidly rising and increasingly unaffordable tuition as an economic problem, a cost problem, and as a political problem (because of changes in state financial support of public higher education). The issue has not been looked at as a management problem. Yet as press releases evidence, decisions about changes to tuition are so important they often require approval by boards of trustees, thus, placing responsibility for the problem firmly on the shoulders of higher education managers and administrators. This study takes as its starting point that tuition setting is not a routine, but a strategic, decision. Senior leaders employ managerial cognition to evaluate strategic decisions against a mental map of their environment and competition. For private nonprofit higher education organizations, increasing prestige, the organizational objective, and the associated prestige-seeking strategies are central to those mental maps. The isomorphic forces of institutional theory reinforce the selection and implementation of similar strategies. The research question, therefore, is whether there is evidence that prestige seeking is present in the mental maps of decision makers when setting tuition increases. The researcher conducted a qualitative directed content analysis of documents published on the websites of private nonprofit universities in the U.S. News and World Report list of the top 200 national universities. The content analysis found evidence at some universities of an association between tuition increases and prestige seeking strategies. Changing managerial cognition is not easy. Although awareness of the issue of affordability seems to be recognized in speeches by leaders of universities, the annual decision to increase tuition remains in the range of two percentage points higher than the rate of consumer price inflation. More steps must occur before changes in manager mental maps take place. Tuition increases must be taken out of the realm of routine decisions and looked at through a different lens. This study shows that administrators, faculty, and trustees have not revised their mental models and have not changed their interpretation of the environment for their universities. When mental models change, we might expect a different, and lower, level of annual tuition increase. Keywords: Tuition, prestige seeking, strategic cognition, cognitive strategic groups, higher education, content analysis, institutional theory, isomorphic forces. iii Acknowledgements This journey began nearly 40 years ago as I was leaving England to enroll in a second master’s degree in America. My sister, Prue, asked why I was enrolling another master’s degree, and not a terminal degree. She wanted to address me as “Doctor.” Well I held onto that thought until the fall of 2010 when the opportunity finally arose to enroll in the program of my dreams and aspirations. So my first thank you goes to Prue for sowing that seed. Throughout my career, I have had some wonderful mentors who have encouraged me to challenge brashly the conventional way of thinking and to look at problems from multiple different angles. The first mentor I would like to thank specifically is Andy Rosen, president of Kaplan Inc. and Kaplan University, who lit the fire of a passion to learn about business models in higher education in the United States. The second is Dr. Joe Cronin, who, in so many ways, has been years ahead of the curve in recognizing the issues that stem from prestige seeking by higher education organizations and who always has a twinkle in his eye and a story to tell about his experiences as a senior academic leader. As the 4 years at UMUC have flown by, I have grown years younger and hundreds of years wiser. Of greatest pleasure has been sharing the journey with a cohort of accomplished management practitioners who have now become fully fledged scholar practitioners. The thought of graduating together has sustained my efforts over the last few more lonely months. Thank you all for the rich diversity of experience and perspectives you brought to our online and in-the-classroom interactions, for the advice and support you offered on the days or weeks when the going was tougher, and for the iv pleasure of celebrating success together as we left one semester behind only to rise to the challenge of the next one. To UMUC faculty members who have been both encouraging and demanding of the best, thank you. The greatest thanks go to my dissertation committee, Dr. Dinauer, Dr. Hadary and Dr. Winters. First, to Dr. Winters, thank you for steering me with great reading suggestions from a positivist to more interpretivist perspective and for suggesting Mapping Strategic Thought (Huff, 1990) as the foundational theoretical construct for the problem this dissertation addresses. Second, thank you to Dr. Hadary for your incredible patience and incorrigibly upbeat attitude even on the most down of all down days, and for identifying that disease we laughingly called intellectual attention deficit disorder, which you kindly rechristened the desire to go to the deepest and broadest level of understanding even in the face of disastrous time crunches. Third, thank you to Dr. Dinauer for your forthright, extensive, and detailed feedback and for insisting on only the highest standards of quality. Thank you for being the toughest critic and the most constructive supporter, but thank you most of all for seeing and sharing that moment of intellectual excitement when you suggested I evaluate content analysis for the study methodology and all the pieces suddenly fell into place. Lastly, thank you to my family, my sons, Tom and James, for sharing the journey, for your uncritical encouragement (How few days did I need to write those 100 pages?), and the joy of your company. I hope you too will eventually love learning as much as I do. v Table of Contents Chapter 1: Introduction ........................................................................................................1 Problem Statement ...................................................................................................4 Research Questions..................................................................................................8 Significance and Purpose of Study ..........................................................................8 Scope and Limitations............................................................................................11 Dissertation Organization ......................................................................................13 Chapter 2: Literature Review.............................................................................................16 The Economics of Pricing......................................................................................17 Neoclassical Economic Theory..................................................................17 Price as an Indicator of Quality .................................................................18 Price, Quality, and Status...........................................................................20 The Economics of Nonprofit Organizations ..........................................................21 The Nondistribution Constraint .................................................................22 Nonprofit Organization Objectives............................................................23 Other Arguments About the Unique Economics of Higher Education......25 Prestige, Status, Reputation, Legitimacy, and Quality ..........................................27 Theoretical Lenses .................................................................................................33 Institutional Theory and Isomorphism.......................................................33 Management Cognition..............................................................................43 Application of Propositions in Higher Education..................................................55 Prestige Seeking by Universities ...............................................................58 Imitation of Prestige-Seeking Strategies....................................................64 Decision makers’ Mental Maps in Connection With Tuition Increase......68 vi Summary of Literature about Prestige Seeking and Prestige Seeking Strategies by Universities ......................................................................................71 Chapter 3: Methodology ....................................................................................................76 Management Research Methodologies ..................................................................77 Content Analysis ....................................................................................................78 Content Analysis in Management Research ..............................................80 Types of Content Analysis.........................................................................84 Reliability and Validity of Content Analysis.............................................86 Process of Content Analysis ..................................................................................87 Generic Content Analysis Procedure: Definition of Steps ........................88 Modified Procedure for Deductive Content Analysis Such as Directed Content Analysis ........................................................................................91 Content Analysis Process in This Research...............................................92 Reliability and Validity in This Study .....................................................100 Expert Stakeholders .............................................................................................101 Expert Stakeholders Role.........................................................................101 Expert Stakeholders .................................................................................102 Chapter 4: Findings..........................................................................................................103 Content Analysis Findings ...................................................................................104 Decision makers.......................................................................................116 Evidence of Prestige-Seeking ..................................................................119 Framing the Tuition Increase Decision With Cognitive Strategic Groups......................................................................................................121 Imitation of Prestige Seeking Strategies ..................................................122 vii Experts’ Feedback................................................................................................127 Discussion of Findings from Content Analysis ...................................................129 Quality of Conclusions ............................................................................135 Alternative Interpretations .......................................................................136 Chapter 5: Implications, Limitations, And Summary.....................................................138 Implications for Management ..............................................................................139 Implications of Emerging Trends ........................................................................146 Limitations ...........................................................................................................152 Areas for Future Research ...................................................................................153 Summary..............................................................................................................156 References.......................................................................................................................158 Appendix A: Biographies of Members of the Expert Stakeholders ................................180 Appendix B: Private Nonprofit Colleges and Universities in the 2014 USNWR Top 200...................................................................................................................................182 Appendix C: Colleges and Universities for Which no Data Could be Located About Identity or Role of Participants in the Tuition Increase Decision....................................186 Appendix D: Content Analysis – Identity of Decision Makers .......................................189 Appendix E: Tuition Increases and Prestige Seeking ......................................................194 Appendix F: Tuition Increases and Strategic Cognitive Groups .....................................209 Appendix G: Tuition Increases and Student Quality/Admission Selectivity...................219 Appendix H: Tuition Increases and Faculty Quality or Research ...................................228 Appendix J: Tuition Increases and Prestige Seeking Through Buildings........................241 Appendix K: Tuition Increases and New Programs ........................................................250 viii List of Figures 1 Traditional Demand Curve and Upward Sloping Demand Curve ............................19 2 Relationship of Content Analysis to Toulmin’s Theory of Argumentation .............80 3 Elicited Cognitive Taxonomy of a Managing Director of a Scottish Knitwear Firm...........................................................................................................................83 4 Results of Search on Website of Southern Methodist University.............................94 5 Cognitive Model of Strategic Change Process. ......................................................142 ix List of Tables 1 Summary of Reported Scholarly Research About Prestige Seeking Strategies by Universities ..........................................................................................................71 2 Prestige Seeking Strategies and Behaviors of Universities Abstracted From Scholarly Literature ..................................................................................................75 3 Comparison of Process for Inductive and Deductive Content Analysis ...................91 4 Criteria for Excluding Documents From Content Analysis......................................95 5 Types of Documents Included in Content Analysis ..............................................106 6 Types and Dates of Meeting for Which Meeting Records were Retrieved ............111 7 Count of Documents With “Tuition Increase” and Prestige Seeking Content or a Prestige Seeking Strategy.....................................................................................133 The Price of Prestige 1 CHAPTER 1: INTRODUCTION According to the College Board’s 2011 edition of Trends in College Pricing (Baum & Ma, 2011), “Over the decade from 2001–02 to 2011–12, published tuition and fees at private nonprofit four-year institutions increased at an average rate of 2.6% per year beyond inflation” (p. 3). At public 4-year colleges, the comparable statistic was 5.6% in excess of the general rate of inflation. Fifteen percent of undergraduates in private nonprofit universities attended institutions that raised their tuition by more than 6% between 2010–2011 and 2011–2012 and 25% attended institutions that raised their tuition by more than $1,600 between these two academic years. These data confirm and continue a trend that dates back to 1958. The issue of high rates of increase in tuition is not confined to undergraduate education. According to data published in the Digest of Education Statistics (Snyder & Dillow, 2012), graduate program tuition at private colleges rose by 48% in constant dollars (adjusted for inflation) between 1989–1990 and 2010–2011 compared to 52% for undergraduate tuition at such colleges. The cost of higher education in the United States has risen at a rate faster even than the cost of healthcare over the last 10 years (Christensen, Horn, Caldera, & Soares, 2011). Observing that the rate of increase of tuition in excess of inflation is not sustainable, the Economist magazine asked, how can colleges do more with less (Wooldridge, 2011) and how can degrees be re-engineered to cost less. A Pew Research Center poll of 2,142 adults conducted in March 2011 found that 75% of respondents disagreed with the statement “College costs are such that most Americans can afford to pay for a college education” (Taylor, Parker, Fry, & Cohn, 2011, p. 126) and 57% said that colleges fail to provide students with good value for money spent. The Price of Prestige 2 What makes the sustained increases in tuition surprising is that the rise has continued to take place in spite of attempts by policy makers every decade to address it. In 1995, public concern about college affordability led to the creation of the National Commission on the Cost of Higher Education (1998), which reported that it was convinced that The simple truth is that no single factor can be identified to explain how and why college costs rise. The Commission suspects that part of the underlying dynamic is the search for academic prestige and the academic reward systems governing higher education. (p. 24) The commission’s first recommendation was that the major onus for strengthening cost control be placed on higher education institutions. Its second recommendation was for improved market information and public accountability. However, these actions did not stop tuition from continuing to increase at a rate well ahead of the rate of consumer price inflation. A decade later, in 2005, another commission was appointed to address the future of higher education. Known as the Spellings Commission, after the Secretary of Education who created it, the mandate of this commission was broader—how best to improve the United States system of higher education and to ensure that its graduates are well prepared for the workforce of the future. The commission addressed access, accountability, cost, and affordability. This commission reported in 2006 that American higher education had become increasingly risk adverse, at times self-satisfied and unduly expensive. It found that “in addition, colleges and universities have few incentives to contain costs because prestige is often measured by resources, and managers who hold down spending risk losing their academic reputations” (U.S. Department of Education, 2006, p. 20). This commission also recommended improved accountability about costs The Price of P