Competitive strategy: Understanding investment decision-making in higher education

The existing authoritative literature on decision theory in higher education was developed some three decades ago and served as a springboard for this study on decision making within the current context of intense competition and increasing financial pressures. The changing landscape in higher education has led to the empowerment of an administrative hierarchy that parallels the traditional academic community of scholars. The arrival of a new administrative actor on campus, the chief investment officer (CIO), is the most recent manifestation of this trend. This study examined investment decision making at three institutions by conducting interviews of investment committee members and document analysis. The research produced five major themes: pre-CIO vs. post-CIO process describes how the process has become more structured and efficient; power of group dynamics refers to behavioral finance phenomena that pervade the process; effective communication reveals the ability of a CIO to mitigate the adverse influence of behavioral dynamics; clear goals and prevalent use of data portrays straightforward objectives that are readily measured and evaluated. Data are filtered to a point where an investment committee can reach reasonable conclusions given the time constraints of quarterly meetings and the limited attention spans of its members; manifestation of organizational traits explains the extent to which the unique organizational characteristics of colleges and universities shape the process. The findings reveal that no single model of decision making fully explains the investment process in higher education. Rather, it is best described as a blending of decision models and other forces. While the process is best characterized as a corporate approach, the theory of bounded rationality, behavioral factors, and institutional influences each carry some explanatory power as well. To ignore them would result in an overly simplistic and incomplete analysis of how investment decisions are made in higher education. These findings suggest that higher education will face numerous challenges with regard to governance, the allocation of financial resources, and human resource management in an increasingly competitive environment for the best students, faculty, and administrative personnel.