College of Central Florida's sustainable competitive advantage and market positioning

College of Central Florida has only one sustainable source of competitive advantage, which is government funding that allows it to be a cost leader, while still offering high quality programs. Other advantages are perhaps less sustainable, but the school has been able to carve out a niche in the competitive market for higher education in central Florida. Its location serves people in a specific geographical region, and its programs are heavily-oriented towards those that enhance people's careers, which makes the school especially appealing.

There are high barriers to entry, which insulates CF from new competition, and it has been able to establish its competitive advantages to find its own niche. The result is that there is some pricing power, and the buyers are largely price takers. However, there remain many substitutes that can draw potential students away from the school, and high switching costs mean that students will examine their options very carefully before selecting a school.

It is recommended that CF continue this focus, perhaps expanding its programs in order to better appeal to a wider customer base and reduce its dependence on government financing to attain profitability.

Market Analysis

One of the best ways to analyze the competitive positioning of an organization is to examine the pricing power that the organization has. The five forces model from Michael Porter (2008) is a great way to understand the profitability dynamics of the college. This model should probably be adapted to reflect the reality that CF is a public college, so its mandate is not to maximize shareholder wealth but to maximize public good while maintaining a balanced budget. The college's mission statement reflects its mandate: "CF is an accessible, affordable, lifelong learning center and we provide tremendous quality and value in our educational programs." So some of the objectives of the college will relate to quality of education, the number of students that the college attracts and there will also be some financial metrics because presumably being a public college does not imply that losing money is acceptable.

The five forces that determine profitability, according to Porter, are the bargaining power of suppliers, the bargaining power of buyers, the intensity of rivalry, the threat of new entrants and the threat of substitution. Looking at these, we can see that CF has a decent positioning that should allow it to balance its budget or better, while fulfilling its public education mandate to the State of Florida. The bargaining power of suppliers is relatively low. CF works within the framework of the Florida College System, where it is in partnership with 27 other colleges in the state. Within this system, there should be considerable buying power with respect to supplies, any union negotiations and other inputs. The college owns its own land, which was donated to it. Personnel are the biggest input, representing 60% of systemwide expenses (DOE, 2012) but the system exerts bargaining power through systemwide negotiations. Therefore, the college should have good control over its costs, something that can help to towards profitability.

One supplier that might pose the biggest challenge is the State of Florida, which provides some funding to the college. The college receives funding through a variety of government expropriations. In the 2011-12 budget year, general revenue supplied around 45% of the system's budget. Student fees accounted for 47.8% of the budget and lottery funds accounted for 6.7% of the budget. Twice in the past three years, special appropriations known as federal stabilization funds were required to balance the system's budget. The emphasis on state-level funding, however, places the college at risk because it has very little bargaining power over the supplier of a critical input. The state's funding for the system peaked in 2007-08, and aside from strong performance and politicking, there is little the managers of the College can do to secure additional funding from the state.

The bargaining power over buyers is relatively high. Buyers are price takers, save for the threat of substitution or switching. However, students are entirely price-takers, and this is part facilitated by programs that help offset tuition fees -- such programs are distinct from the school's pricing strategy.

Competition is what keeps the college from being able to set prices too high. For the school, this competition compels it to moderate its prices. The University of Florida, one of the largest schools in the nation, is not too far north in Gainesville, and another large school exists to the south in the University of Central Florida in Orlando. There is also competition from other schools in the state college system, and competition from private universities like the University of Phoenix as well. These schools have different focal points, but all provide educational opportunities for the of the region, compelling CF to find a niche in which it can attract different students from these other institutions. The decision on which school to attend is taken seriously, in part because it is difficult to transfer credits between institutions, which increases switching costs once enrollment has begun.

There is also the threat of substitution. Many students realize that there is an economic element to the decision to go to school. Students must weigh the opportunity costs of going to school against working, trade school or the military. Thus, CF must not only attract students who are looking at other schools, but it must also attract students were are considering other pathways in their lives and careers. The threat of substitutions increases the bargaining power of students, who must find that CF offers them a good value proposition with respect to their career development.

There is only limited intensity of rivalry among the different competitors. Each competitor seeks to find its own niche in the marketplace. This is done in many ways. CF competes on the strength of its programs, its price structure and its location. Location is important because students in Citrus, Marion and Levy counties do not necessarily want to relocate or commute to Gainesville or Orlando for school, because there are many costs associated with doing so. Furthermore, the emphasis on government funding allows CF to offer lower tuition rates than its competitors, something that improves its value proposition. There is a relatively high degree of differentiation between the competitors in the college and university-level education market in central Florida, which allows CF to carve out a particular niche.

There is only limited threat posed by new entrants. The state controls market entry and exit for colleges and universities, and there are high fixed costs that pose a barrier to private entry into the market. The only real threat of new entrants comes from online education, which grew rapidly in the 2000s but has tailed off in recent years. For example, industry leader University of Phoenix is on a four-year declining revenue trend (MSN Moneycentral, 2013). With that industry beginning to slump, the threat of new entrants is declining for CF.

Overall, the structure of CF's market is such that the school should be able to continue to offer low tuition rates. The state is cutting funding across the system, which increases reliance on tuition, but the state's backing remains a key factor in the school being able to offer a strong value proposition. CF management has also been able to put together a program that attracts students despite competition and substitution threats. CF's trend is most likely stable at this point, and the decline in the threat of new entrants will offset the decline in state government support for the college system.

Recommendations

CF relies on the strength of its programs and its cost advantage. However, declining levels of state funding for the college system put that cost advantage at risk as the colleges must make up for declining state funding with tuition increases. The easiest way to manage this is to increase tuitions, thereby increasing revenues without the costs associated with a new program. School management should consider, however that it might want to develop new programs. There is upfront cost associated with these, but they can build upon existing technical and business competencies. Such a tactic could bring new students into the school, increasing revenue and reducing dependence on government financing.

A further recommendation is that the state college system overall can look into finding ways to consolidate and build an online program. Fewer, larger colleges can increase the economies of scale, and if matched by assistance programs can help the system to become more efficient. Large, desirable campuses like CF can be a focal point for such a strategic shift. Online education is another option, since CF can undercut the private online institutions. Furthermore, CF is a respected institution which is more than can be said for many online schools. There is also room for growth in adult skills, for example in providing ESL education for Spanish-speakers (or Spanish lessons for people who want to do business in Latin America). Such program expansions leverage existing capabilities and strengths for incremental revenue gain.