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Turning A Crisis Into An Opportunity:
The Strategic Response of KIMEP to the Financial Crisis
Paper Presented to
"Higher Education under Financial Crisis: Strategies and
Development" Roundtable
The Beijing Forum 2009
Chan Young Bang, PhD, President of Kazakhstan Institute of Management, Economics
and Strategic Research (KIMEP).
Ewan Simpson, PhD, Executive Director, Office of the President, KIMEP.
Leon Taylor, PhD, Adviser to the President, KIMEP.
Michael Quinn, Communications Director, KIMEP.
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Abstract
The article highlights the strategic response of the Kazakhstan Institute of Management,
Economics and Strategic Research (KIMEP), based in Almaty, Kazakhstan to the challenges
posed by rapid negative changes in its operating environment. The turnaround strategy is
discussed in detail, with an emphasis on how KIMEP restructured following this model.
Restructuring focused on eliminating institutional weaknesses that emerged during an
extended period of significant growth. KIMEP was able to successfully restructure and
position itself for the recovery with an aggressive development strategy thanks to a reserve of
trust in its management held by key constituencies. This trust was built over many years due
to the transparency of operations, unity of purpose in the management team, the integrity of
the chief executive and the democratic, action-oriented, decision making processes which
characterize the management system. This culture of honesty, integrity and transparency
made the decisions defensible. This set of circumstances is difficult to replicate but
fundamental for success.
KIMEP1 was founded in 1992 on the initiative of the President, N.A. Nazarbayev to train
managers and leaders to support the transition of Kazakhstan to the market economy. Chan
Young Bang. PhD, the current President of KIMEP, was its founding Executive Director,
drawing on his experience in US academia and his work as Vice Chairman of the Economic
Expert Committee under the President from 1990-1992. KIMEP was privatized in 20002 and
is financed largely by tuition fee income. KIMEP follows the American model of education
with a curriculum delivered almost entirely in the English language, offering degree programs
at the undergraduate and graduate level in business and social sciences and a doctoral
program in business. The governance system also follows the American model and is
characterized by transparency, integrity and participative decision-making processes which
aim to engage all key stakeholders.
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Granted full independence in operations by the government of the Republic of Kazakhstan,
KIMEP experienced significant growth in the post-privatization period 2000-2008. In 2008
growth stalled, driven by a series of external shocks and internal inertia. Factors such as a
major shift in the dynamics of demand leading to a structural imbalance in its academic
programs, adverse demographics, the early onset of the financial crisis in Kazakhstan, the
global recession, devaluation of the national currency and a series of disputes over taxation
combined to threaten the financial viability of the organization.
In the period 2008-2009 KIMEP overcame these challenges and emerged a leaner, more
focused organization. This paper demonstrates how the Institute developed and implemented
its turnaround strategy, which had the goal of ensuring financial viability without
compromising the educational experience or its participative, transparent management
culture. Restructuring led to refocusing of programs to better fit with market demand and
major operational cost savings. This has placed it in a strong position to take advantage of the
resurgence of the Kazakhstani economy. The paper illustrates the critical importance of
process, showing how the core principles of transparency, integrity and democratic, action-
oriented management founded on trust from key stakeholders were a critical factor in the
successful implementation of a radical turnaround and reinvestment strategy without
compromising academic integrity, cultural norms or financial viability.
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1. Introduction
1.1 KIMEP Origins
The Kazakhstan Institute of Management, Economics and Strategic Research (KIMEP) was
founded on the initiative of President Nazarbayev in 19923 to offer graduate-level
management and administration programs that would train executives, managers and civil
servants to lead Kazakhstan in its transition to a market economy.
Privatized in 2000, KIMEP is a tuition driven university operating in Almaty in the Republic
of Kazakhstan. KIMEP follows the American model of education with a curriculum delivered
almost entirely in the English language, offering degree programs at the undergraduate and
graduate level in business and social sciences and a doctoral program in business. The
governance system also follows the American model and is characterized by transparency,
integrity and participative decision-making processes which aim to engage all key
stakeholders. KIMEP has the largest concentration of Western-trained terminal degree holders
in the CIS.
The institution has five separate colleges and departments, offering undergraduate and
graduate degrees in business, law, economics, finance, accounting, public administration,
political science, international relations, journalism and mass communication. Currently,
4,500 students are enrolled at KIMEP.
While KIMEP initially received considerable grant funding from the EU TACIS Program,
USAID and the Soros Foundation, almost all of the current operational revenue of the
Institute is derived from tuition. Many organizations offer scholarships to individual KIMEP
students and grants to faculty for research at KIMEP, but KIMEP receives no institutional
support from external sources.
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1.2 KIMEP Growth and Expansion, 2000-2008
During its first eight years of operation, KIMEP exclusively offered graduate-level programs,
granting a Master’s Degree in Business Administration, a Master’s Degree in Public
Administration and a Master of Arts Degree in Economics. Student numbers were relatively
low, with the largest graduating class of this period containing only 209 students. In 1998 –
the peak of this period, KIMEP had 461 students enrolled and 82 part and full-time faculty
members.
In the run-up to privatization in 2000, it became clear that the model of a graduate institution
was not financially sustainable. Graduate-level education required a proportionally large
number of professors with doctorate degrees, incurring large costs for a small revenue base.
Continuing this institutional model depended on external funding in the form of grants, which
could not be renewed indefinitely.
Two four-year undergraduate programs were added in the fall of 1999 to expand KIMEP’s
revenue base and support its graduate programs. Undergraduate programs generated
economies of scale, allowing both doctoral and non-doctoral faculty members to optimize
teaching hours. Graduate students were also incorporated into the undergraduate program as
teaching assistants, offering graduate students practical experience. The pool of potential
future graduate students also grew, as KIMEP began training undergraduates who were
capable of enrolling in its graduate program immediately after graduation.
The addition of the undergraduate programs began a wave of intense expansion. The first
class of undergraduates more than doubled KIMEP’s student body; 424 freshmen were
enrolled in the fall semester of 1999, in addition to 392 graduate students, and each successive
class of students added an average of 300 students to the total student population. By 2003,
the total number of students had increased by 1215, which led to a total revenue increase of
454m KZT ($3m)4. To match the significant increase in demand brought on by a growing
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student body, four more academic programs were added, along with an additional 96 faculty
members. To increase efficiency and bring KIMEP closer to the American model of higher
education, KIMEP’s academic departments were reorganized under three separate colleges:
the Bang College of Business, the College of Social Sciences, and the College of Continuing
Education.
Thanks to a variety of favorable conditions, including a strong economic climate, a growing
number of available high school students5 and ministerial support, these trends continued
unabated until 2008. During this period, the number of students annually increased by an
average of 600 students per year, an average of 18%. Revenue increased by an average of
27% per year. KIMEP continued to increase the number of academic programs offered,
adding a BA in International Journalism in 2003, a Doctor of Business Administration in
2006 and a Master of Arts in Teaching English to Speakers of Other Languages (TESOL) in
2007.
KIMEP’s growth in revenue was accompanied by institution-wide expansion. Skyrocketing
enrollment numbers drove an intense demand for professors, especially those with Ph.D.s
from Western academic institutions. In total, the number of faculty members grew by 165
(i.e. more than tripled) from 2000 to 2008. KIMEP also invested in facilities, spending 450m
KZT ($3m) on a new library and 1,500m KZT ($10m) on a new teaching facility. These
projects were completed in 2006 and 2008, respectively.
The kind of growth summarized in Figure 1 was a rare phenomenon and a challenge for any
management team.
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Figure 1: KIMEP Growth Indices 2000-2008 (Students, Faculty and Revenues,
2000=100
Throughout, the institution was threatened by overexpansion and inefficient allocation of
resources, which was only spurred on by each successive year. In 2000, KIMEP had an
operating revenue of 494m KZT ($3.3m) and a total operational costs of 441m KZT ($2.9m).
In comparison, KIMEP’s revenue for 2008 was 3,308m KZT ($22m), 660 percent larger, with
costs of 3,067m KZT ($20m).
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2. The Context for the Crisis
The performance of KIMEP is closely linked to economic performance. As a tuition-driven
institution, enrollments are dependent upon the capacity of students and their families to pay.
In a country where per capita incomes are around 1m KZT ($6,700) per annum,
undergraduate tuition levels of 795,000 KZT ($5,300) per annum represent a huge
investment6. Understanding the performance of KIMEP therefore demands an understanding
of the economic context in which it operates. In this section, the key factors are outlined.
Forecasting KIMEP enrollment is complicated by two factors:
• long-run uncertainty about the transition of Kazakhstan to a full-fledged market
economy;
• short-run uncertainty about the global downturn.
2.1 Long run uncertainty.
Over the past two decades, few economies have changed as radically as that of Kazakhstan.
The Soviets had tried for 80 years to convert this huge, thinly populated country into a global
exporter of wheat and cotton. The purpose was to earn foreign currency with which the
USSR could import machinery. This campaign met with limited success. Among other
consequences, the campaign delayed Kazakhstan’s evolution to a modern, services-oriented
economy. Even today, Kazakhstan lacks the institutions required by an information-intensive
economy, such as a body of corporate law that has withstood the test of time. The lack of
such institutions hinders economic growth and subsequently some income-driven demand for
higher education.
In the 1990s, the transition of Kazakhstan to markets might have failed, had geologists not
discovered major new deposits of oil and natural gas in the north and east of the Caspian Sea.
The farm sector, which probably would have remained the country’s largest employer had the
fossil-fuels sector failed to flourish, is still resistant to reform. Due to its backwardness,
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agriculture’s share of national output value (gross domestic product) has fallen from 27% in
1992 to 6% in 2008. It has been displaced, on almost a one-to-one basis, by the services sector
as Kazakhstanis steadily migrate from the farms to the cities (Figure 2).
Figure 2: Kazakhstan: Farming and Services - Share of GDP 1992-2008 (%)
Notes: Farm: Value of agricultural products produced in Kazakhstan, expressed as a percentage share of KZ GDPServices: Value of services produced in Kazakhstan, expressed as a percentage share of KZ GDPSource: All data are from the World Bank, World Development Indicators, at www.worldbank.org (accessed Sept.18-25, 2009).
The economy is diversifying more rapidly than might be evident from a single-minded focus
on the primary sectors. As a consequence, Kazakhstan recovered from the Nineties
breakdown of the market transition more rapidly than the rest of Central Asia did (Figure 3).
0,0
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Figure 3: GDP per capita, Selected CIS Countries
Source: All data are from the World Bank, World Development Indicators, at www.worldbank.org (accessed Sept.18-25, 2009).
In the long run, this recovery may generate a rising demand for higher education, but the
picture is obscured by demographic changes. As elsewhere in the Commonwealth of
Independent States, birth rates fell and death rates rose in Kazakhstan during its difficult
transition to markets. One consequence may be shrinkage of the pool of high school
graduates by as much as a fifth in the coming decade. This pool is KIMEP’s potential market
for undergraduates.
2.2 Short-run uncertainty
Kazakhstan is exposed to a bleak environment. Kazakhstan has a small open economy.
Exports comprise 70% of the $100 billion of products produced each year (Figure 4).
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Kazakhstan Kyrgyz Republic Russian Federation
Tajikistan Uzbekistan
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Figure 4: Kazakhstan: Exports and Imports as Share of GDP (%)
Notes: Exports: Value of exports from Kazakhstan, expressed as a percentage share of KZ GDPImports: Value of imports into Kazakhstan, expressed as a percentage share of KZ GDP Source: All data are from the World Bank, World Development Indicators, at www.worldbank.org (accessed Sept. 18-25, 2009).
The economy depends heavily on world income (Figure 5). Since independence, the simple
correlation between world and Kazakhstani income per capita has been .89. The source of
global economic growth was the slow but steady economic recovery in the early 2000s of the
United States. The U.S.A. normally accounts for a third of global demand. The American
recovery benefited Kazakhstan by lifting global prices for oil and gas. By 2007, the
Kazakhstani economy was half again as large as in 2004.
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Figure 5: Kazakhstan and the World Economy, Gross National Income per Capita,
1991-2008
Notes:
Kazakhstan: Gross national income per capita in current international dollars, for Kazakhstan, using purchasing power parityWorld: Gross national income per capita in current international dollars, for the world, using purchasing power parity."Purchasing power parity" adjusts exchange rates so that a dollar would have the same purchasing power no matter where it isspent. Such a dollar is an "international dollar." The purpose is to enable comparison of Kazkahstan's income to those of other nations. Source: All data are from the World Bank, World Development Indicators, at www.worldbank.org (accessed Sept. 18-25, 2009).
Despite the government’s attempts at diversification by subsidizing factories and farms, the
fastest-growing sector of the economy has been services. Much of the growth in this sector
derives from spending by the extractive sector. One element of the services boom has been a
strengthening demand for the Western-style instruction that has made KIMEP prominent in
Central Asia. One indicator of this potential market is the soaring number of Internet users
per 100 residents (Figure 6).
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1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
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Figure 6: Kazakhstan: Internet Users per 100 population 1994-2007
Source: International Telecommunication Union, World Telecommunication Development Report and database,and World Bank estimates, sourced from World Bank, World Development Indicators, at www.worldbank.org(accessed Sept. 18-25, 2009).
Another element of the market transition was apparent overexpansion of finance. As in most
of the non-European region formerly under Soviet control, Kazakhstan’s financial markets
remained anemic well into the 2000s. Kazakhstani firms financed most real investment by
borrowing from the country’s five dominant banks. Foreign financial investors in search of
high returns had no choice but to lend to these banks; interest rates in the U.S. were too low to
attract many investors. This surge of “hot money” in Kazakhstan temporarily lowered the
banks’ borrowing costs and tempted them into high-risk lending to the construction and real
estate industries. Abetting this trend was a secondary market for such loans, organized and
subsidized by the central bank. Real estate prices in the country’s financial center, Almaty,
rose sixfold in two years, attracting yet more hot money from abroad. By 2007, most bank
funds had been provided by foreigners for terms much shorter than those for which they had
been lent out.
0,00
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Internet Users
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The stage was set for the bursting of the real estate bubble and the inevitable collapse of the
banks. The dive in oil prices in 2008 pricked the bubble. Generally, commodity indices fell
by nearly 60% in 2008 (Figure 7). The most conspicuous victims were Kazakhstani banks
that had relied on petrodollars to finance their lending.
Figure 7: Selected Commodities – Index of Price Trends 2004-2009, 2004=100
Source: IMF data.
The government responded with a ‘too-big-to-fail’ policy. It bought three of the largest
lenders – BTA, Alliance, and Astana Finance. Creditors have reluctantly accepted the losses
that the government has imposed upon any settlement, since the lenders otherwise would be
insolvent. Nervous investors abroad continue to remove their funds from financial industry of
Kazakhstan, perhaps by as much as a sixth in the winter of 2008-2009.
Bowing to the inevitable, the government devalued the tenge by a fourth in February 2009.
This reduced dollar outflows – according to formal statistics, at least. However, the
government’s decision to borrow hundreds of millions of dollars abroad, rather than tap the
National Fund of petrodollars, left some investors wondering whether the Fund is already
over-extended.
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In addition, the government concentrated its fiscal stimulus on the banking and construction
industries – the over expansion of which had probably precipitated the initial crisis. This
largesse to unprofitable industries may aggravate long-run, or structural, unemployment; it
may also divert public funds away from education.
These events threaten KIMEP enrollment in three ways:
• The collapse of oil export revenues, and the related shock waves, may cost
Kazakhstan nearly $40 billion, or 40% of annual gross domestic product. Although
simple correlations between enrollment and income appear negative, the dataset is too
small to permit controls for other possible determinants of enrollment. It is
reasonable to think that a sudden reduction in national income of $40 billion may lead
to sharp cutbacks in the immediate consumption of such durable goods as higher
education, since these goods may easily be purchased later.
• The collapse of the banks cut off loans to potential students and to KIMEP itself.
Students from poor families may suffer the worst, since they may lose, to recession,
savings that might have paid for tuition. In the extended downturn of the Nineties,
the share of income going to the poorest fifth of Kazakhstani residents fell swiftly,
from 7.5% in 1993 to 6.7% in 19967.
• The parlous condition of banking casts doubt on whether families will be able to
obtain student loans later or for an extended time. This poses continuing challenges
for KIMEP enrollment even after the first signs of economic recovery.
3. The KIMEP Model: Applying the Turnaround Model in a Culture of Trust.
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In addressing the challenges posed by the internal and external dynamics noted above,
KIMEP implemented a turnaround model within their current operating paradigm8. In essence
the model followed the steps shown in Figure 8.
Figure 8: KIMEP Turnaround Model
Source: Johnson, G., Scholes, K (2002) Exploring Corporate Strategy, pp79, Prentice Hall 6th ed.
As the discussion below will illustrate, KIMEP successfully realigned itself after stage 2. It
was not necessary to fundamentally alter the paradigm. However, this was not known at the
time and all options were open. The fundamental elements of the operational paradigm which
formed the context for the actions of 2008 and 2009 are shown in Figure 9.
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Paradigm Strategy Development Im plementation Performance
Step1: Tighten Co ntrol
Step2 : Review Strategy
Step 3: Abandon paradigm
And find a new one
If unsatisfactory
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Figure 9: KIMEP: Operational Paradigm
KIMEP seeks to deliver education of the best quality and value for money possible in English following an
American curriculum emphasizing ethical leadership, creativity, problem-solving, teamwork and
independence of thought within operational constraints such as:
• the fact that it is the only US style institution operating successfully in the CIS countries;
• the need to compete in international markets for expertise;
• severe limits on revenue per unit given the low per capita income of Kazakhstan
• lack of non-tuition revenue streams given the infancy of the corporate giving culture within
Kazakhstan.
To deliver this output, the management of the Institute place great store in developing unity of purpose and
an engaged culture9
of self-improvement amongst employees to focus on delivery of the mission.
Management systems are based on consultation, integrity and transparency with all key stakeholders in the
process such as students, parents, employees and the external community engaged to ensure the broadest
possible consensus.
Building and maintaining trust is the foundation of the operational philosophy. While the
growth of the Institute can be taken as a proxy for trust and satisfaction, more direct evidence
of the views of key constituencies is shown in Figure 10. These show satisfaction with
operating culture and education provided.
Figure 10: Attitudes of Key Constituencies
Sources: KIMEP Quality Assurance and Institutional Research Unit internal reports, available at www.kimep.kz
This trust based cultural paradigm was tested by the need to fundamentally review whether
KIMEP could continue to operate successfully given the unfavorable environment as noted
Faculty 2008 Score out of 5
Institutional Morale 3,6
Institutional Integrity 3,7
Quality of Management 3,9
Management demonstrates integrity 4,0
KIMEP is fulfilling its mission 4,1
Quality of Leadership of President 4,2
Staff 2008
Executive Leadership is strong 4,3
Executive Leadership is professional 4,3
Students 2009
I would recommend this course 4,3
I would recommend this faculty member 4,3
I would recommend KIMEP as a place to study 3,7
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previously. The discussion below details the process that was undertaken and the key role
which the cultural context of the organization played in implementing the turnaround strategy.
3.1 The Response to The Crisis
The discussion below details the process which KIMEP undertook in its turnaround strategy.
Essentially this comprised three stages:
1. Initial assessment and cost cutting within current operations
2. Strategic review and cost restructuring
3. Investment in the new strategy.
The process timeline is summarized in Figure 11.
Figure 11: Turnaround Timeline
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Initial Assessment
and Cost Cutting
in Current operations
May 2007-December 2008
Strategic Review and
Cost Restructuring
Investment in the New Strategy
December 2008-August 2009 September 2009 -present
Crisis Recovery
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3.1.1 Initial Assessment
In the summer and Fall of 2007, as noted above, the first signs emerged that there were
serious structural problems in the Kazakhstan economy. KIMEP management began to take
stock of the implications of the challenges. While overheating was occurring, KIMEP
enrollments continued to grow, reaching a peak of almost 5,100 registered students in the Fall
semester of 2007. During the Fall semester, as inflation rose significantly, a note of caution
was introduced to the financial planning process. No new major capital investments were
planned for the academic year 2008-2009 as the external economic signals suggested
challenging times ahead. Instead, a decision was made to invest heavily in the development of
the faculty of the Institute, particularly in the Bang College of Business, based on the view
that the key to continued success was investment in quality to enable KIMEP to enhance its
reputation for affordable high quality education.
3.1.2 First Round Cost Review
Assumptions on enrollments, did, however presume continued growth, fueled by a freshman
class of similar proportions to that enrolled in the Fall of 2008. When Fall came, this proved
over-optimistic. The freshman class was just over 900, 33% below that of the previous year
(Figure 12).
Figure 12: Freshman Enrollments, 2004-2008, KIMEP.
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Revenue estimates were reassessed and a budget review committee appointed by the President
on August 25 2008 to revisit spending projections. This was the first sign that external factors
were impacting the Institute negatively.
Cautious optimism was replaced by pragmatism as it was clear revenue targets would not be
met. The culmination of this was a reduction in the revenue projection of 9%. The budget
committee also recommended cuts in projected expenditure of 10% to bring the budget into
balance. Consultations followed with senior board members, members of the business
community, student representatives and senior faculty. The revised budget, which
incorporated a previously unaccounted deficit, saw a reduction in the projected operational
surplus to under 75m KZT ($500,000) compared to previous projections of over 300m KZT
($2m).
At an open meeting with faculty at the end of October 2008, the President set out the
challenge both for the current year (2008-2009) and the next (2009-2010). At this point, it
was assumed that operations in 2009-2010 would remain at broadly the same levels as in
2008-2009. As previously, the commitment to no major capital expenditures was restated.
Previous commitments on anticipated payroll increases were reined back and hiring only
authorized in areas where there were serious deficits. A review of administrative staffing and
control systems was announced to ensure their fitness for purpose. The academic program
was instructed to schedule more cost effectively. In addition, plans were announced to build a
larger contingency into the 2009-10 budget, fixed at 5% of revenues.
In November 2008, a draft budget for 2009-2010 was presented to the Board of Trustees and
approved by them following consultation with faculty and students and internal approval by
the KIMEP Council. This projected revenues at 4,110m KZT ($27.4m), 13% higher than the
level projected for 2008-2009. This also anticipated a reduction in the number of students by
just over 200 or 4,5%. Revenues were projected to grow due to an increase in tuition of 16%
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on average. KIMEP was seeking to increase the yield per student rather than having more
students to maintain revenue growth.
3.1.3 Strategic Review and Cost Restructuring
At the beginning of January 2009, it was clear that the bad news was piling up 10. Initial
revised budget projections pointed to a potential multi-million dollar deficit if enrollments did
not meet the projections and spending plans remained in place. To assess the options, the
President appointed a Strategy Committee comprised of faculty and senior administrators to
review operations across the Institute on January 8,2009 with the following remit:
• To monitor the external environment and review current projections related to
KIMEP’s performance;
• To review administrative and academic operations and where necessary make
recommendations to ensure that value for money was being generated both for
KIMEP and its customers while providing the best quality service to students, faculty
and all employees.
The President further instructed that recommendations for any changes in budget and strategy
should be place by mid February 2009 with a full revised budget and strategy to be presented
to the Board of Trustees in April 2009. An intensive period of consultation then followed. The
Strategy Committee’s initial report was submitted in late February 2009, making twenty-one
recommendations. The most important were:
• That a fundamental review of financial planning be carried out and the projected
2009-10 budget be set aside;
• Immediate expenditure controls should be put in place and all budget allocations
for 2008-2009 set aside;
• A hiring freeze should be implemented and all salaries should be capped until
January 2010;
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• All operations should be reviewed to identify potential improvements and cost
savings, with operations market tested where relevant to ensure value for money;
• Every effort should be made to maximize cash flow in Summer by building the
summer school program to the greatest extent possible;
• Academic management should be restructured to focus on programs rather than
departments;
• Suspend majors, programs and degrees not in demand, remove duplication of
courses and implement scheduling reform to maximize the use of faculty in the
classroom;
• Where necessary, reduce the number of faculty on the payroll if their services are
not in demand;
• Maintain financial aid at 5% of total revenue to support as many students as
possible who are unable to pay for their studies.
These findings were given impetus by further external developments. As noted above, on
February 4, 2009, the national currency was devalued by 25% overnight against the US
dollar. This further eroded the competitive position of KIMEP making retention of
international faculty a serious challenge.
On receipt of the Strategy Committee report, the President called an open meeting with the
faculty on February 23, 2009. At this meeting, the President announced that he had decided to
set aside the 2008-2009 budget and take personal control of all expenditures. Faculty were
informed that he had accepted the recommendations detailed above and that he had created a
Task Force to review the proposals made by the Strategy Committee, make further
recommendations on how to proceed and oversee implementation. The Task Force was
chaired by the Executive Vice President and staffed by senior independent faculty. Each of
the recommendations of the Strategy Committee were reviewed and recommendations made
in a series of nine reports to the President.
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A two track process was then instituted. The Strategy Committee continued its work in
developing a mid term (three year) strategy and financial forecast, while the Task Force began
to implement the recommendations. Each of these is dealt with in turn below.
3.1.4 The Task Force
The Task Force supported the recommendations that there was a need for restructuring of the
academic administration to reduce bureaucracy and duplication and that the portfolio of
programs offered (and specializations within these) needed to be rationalized. This first phase
of restructuring led to recommendations that twenty-three professorial faculty be made
redundant, with faculty payroll savings of 246m KZT ($1.64m). The President approved this
recommendation and faculty were notified in March 2009 that their employment would be
terminated at the end of the academic year in August 2009. This action was taken in areas
where there was limited demand for educational services, particularly in areas such as
operations management and political science. Other decisions were made on the basis of lack
of fit of faculty with changing program needs and on cost grounds for particularly high paid
faculty. The decision process in terminating faculty is a good illustration of the participative
management model which is fundamental to the KIMEP operational paradigm. A nine stage
process was undertaken to ensure consensus when these difficult decisions were made (Figure
13). At all levels objective criteria based on service demand and performance were the only
acceptable measures of assessment. This was a critically important element of the process. If
the process had used other criteria such as personal preferences or biases, the credibility of the
whole process and of the Institute itself would have been undermined. Objectivity led to
defensibility.
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Figure 13: Faculty Termination Process
Other key actions implemented by the Task Force included:
• Rationalization of the central administration, combining functions and saving almost
75m KZT ($500,000).
• Redundancy of eighteen instructors in the Language Center due to shrinking demand.
• Rationalization of financial management systems, linking HR, accounting and finance
systems to generate efficiencies and more effective reporting.
• At the same time, tight financial controls remained in place, with all expenditures
requiring the approval of the President.
3.1.5 The Fallout
24
President
StrategyCommittee
Task Force
Colleges
Departmentsand Faculty
1
Terminated Faculty
2
3
4
5 6
7
8
9
Stages:
1: President Commissions StrategyCommittee
2. Strategy Committee reports toPresident
3. President commissions Task Force
4. Task Force consults colleges
5. Colleges consult departments andfaculty
6. Departments and faculty makerecommendations to Colleges
7. Colleges make recommendations toTask Force
8. Task Force make recommendationsto President
9. President issues termination letters
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While every effort was made to engage with all interested parties throughout the process,
through meetings with faculty and administrative staff, students and parents, it was inevitable
given the scale of change that there would be some discontent, particularly among students. A
number of senior faculty who were popular were among those terminated. Entryist groups 11
opposed to the concept of KIMEP and jealous of its success piggybacked on student
discontent. In addition, some faculty who were terminated sought to manipulate the media –
with some success – accusing the management of the Institute of gross incompetence. This
culminated in a staged student protest fuelled by an inflammatory article published in a
newspaper 12. This situation was made worse by the intervention of the state authorities who
were concerned that in the face of the global crisis, students might respond with violence13. A
series of personal and political agendas converged on KIMEP, most of which had little to do
with the organization. In response, the management met with students and explained their
position. Public statements explaining the situation were made and the President called a
press conference where he set out the case for change in detail14. This was negatively reported
as the press jumped on the bandwagon often with blatant misrepresentation. The state
authorities also played the populist card, with the mayor of the city asserting that no faculty
should be terminated15. These assaults continued throughout the summer of 2009, culminating
in the publication of a report in Newsweek 16 which suggested KIMEP had carried out its
redundancy program on the instruction of the Government due to the need to remove
troublesome faculty. This article was contested and Newsweek issued an apology17.
Despite the opposition to the process, KIMEP management continued to confirm their
determination to restructure in the best interests of the students and the organization. Public
statements were issued to the KIMEP community18, students19 and parents20, outlining the case
for change. This consistency was a critical part of the Institute staying the course and built on
the consensus developed throughout the process with the Strategy Committee, Task Force and
management all constant in their message of why restructuring as adopted was necessary.
This is analyzed further below.
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This opposition must be kept in context. While many threats were made, not one terminated
faculty member took legal action against the decision. Only one faculty member was formally
supported by students in their appeal against termination. Those faculty who did appeal were
informed that the decisions were taken by the President on the advice of the Task Force who
were in turn following the recommendation of line managers (Chairs, Deans and the Vice
President of Academic Affairs) This highlights the value of the process summarized in Figure
13. By ensuring that all constituencies were aware of the process and consulting with the
management of the Institute at all levels before decisions were finalized, a coalition in support
of the process was developed. Thus a robust case was made and understood before the
decision was publicized. In no case was a decision reversed. Three faculty were re-hired due
to unexpected departures of other faculty.
3.1.6 Investment in the New Strategy
The Strategy Committee produced a report that recommended a development framework
within which KIMEP will build on the foundation achieved to date, developing a sustainable
financial base and continuing to invest in quality to achieve world class status. The key was
financial sustainability and improving the competitiveness of the Institute by raising the
quality of the program and thus its graduates, while leading by example in its management
style and systems. The Strategy is structured around four goals which are shown in Figure 14
below, which seek to position the Institute to take advantage of the economic recovery when
it happens.
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Figure 14: KIMEP Strategy to 2012
Goal 1: Develop students equipped for professional success in leadership positions with the
capacity for lifelong learning in the contemporary world
Goal 2: Develop and maintain faculty well equipped to support the development of the Institute
Goal 3: Create standard setting programs based on core ethical principles to ensure the role of
the institution as a leader in education, research and innovation
Goal 4: Development effective and efficient management systems and lead by example.
The Strategy was also accompanied by a three year financial forecast which assumed
operations at a smaller scale of 3,200-4,000 students, and revenues adopting a path below the
historical trend. Student numbers were assumed to drop by up to 20% on 2008-2009 levels.
Staffing was assumed to be constant and only minor capital expenditures approved. This
cautious projection sought to instill fiscal conservatism after the years of massive growth. The
foundation for this projection was a further revision of the budget for 2009-2010 which was
presented to the Board in April 2009. As noted above, this had assumed that 2009-2010
operations would be at broadly the same level as 2008-2009. The revision took a much more
pessimistic view, reducing the revenue forecast from 4,100m KZT ($27.4m) to 3,315m KZT
($22.1m), a reduction of 20%. In addition it was recommended to pay off a carried forward
deficit of 255m KZT ($1.7m) from 2008-2009 with a contingency of 5% of revenue, 165m
KZT ($1.1m), a 47% cut. Payroll costs were reduced by 21%, capital expenditure by 40% and
operational expenses by one third. This was approved by the Board in April of 2009.
In the Summer of 2009, due to an intensive campaign to maximize summer revenues, an
additional windfall was generated, with revenues 24% above target. This, combined with the
major cost cutting initiative detailed above, meant that KIMEP was entering the year with a
small operating surplus for 2008-2009 of 51.1m KZT ($394,000).
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3.1.7 Building for the Recovery
With the onset of the Fall semester, registrations were higher than the most pessimistic
projection of a 20% reduction, with enrollments only 7% down on the previous year. The net
result of this was that the revenue projection for 2009-2010 was revised upward from 3,315m
KZT ($22.1m) to 3,705m KZT ($24.7m). Combined with a greatly reduced cost base, this
provided room for an additional investment in areas where there are identified needs. The
President requested the Strategy Committee to make recommendations on adjustment to
expenditure plans as a result. After consultation with Board members and senior faculty, the
President, with the support of his management team, agreed a range of changes to the budget
approved by the Board in April of 2009 which aggressively positioned the Institute to begin to
again invest in further improving the quality of the educational experience.
• Building a research culture is fundamental to building a truly world class institution.
Funds were set aside for investment in resources and research projects to increase the
level and quality of research output from faculty.
• To ensure retention of key faculty, compensation was increased by 10% to partially
counter the impact of devaluation. This was retrospectively applied to the beginning
of the academic year (August 2009).
• A commitment was also given that in Fall 2010, a further increase of up to 15% in
faculty compensation would be made to reinforce the competitive position of KIMEP
in the international labor market.
• Merit increases of up to 10% were awarded to high performing administrative staff to
ensure that they stay with the Institute.
• Such was the scale of the turnaround that additional resources could be put into
attracting new faculty in areas of need such as finance, accounting and economics.
For Spring 2010, up to 15 new faculty positions were approved.
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• To complement the improved salary offer, a relocation allowance of up to 750,000
KZT ($5,000) per faculty member was introduced to further improve the competitive
position of the Institute.
• To make sure that the best students can study at KIMEP, financial aid for needy
students was reinforced with an increase of a further two percentage points or 85.5 m
KZT ($570,000).
• Investments in sports facilities on campus are planned to improve the quality of the
student experience. When completed, these will form a core part of a revised and
expanded marketing effort to attract students to study at KIMEP.
• To accelerate the target of fiscal stability, contingency funds were increased from 5%
to 8% of revenue, totaling just under 300m KZT ($2m).
While each of these initiatives may seem relatively minor, taken together they represent a
bold strategy to further develop KIMEP as a world-class center of learning and research. This
is particularly the case when external conditions are uncertain, both in terms of the uncertain
economic recovery and future trends in demographics which continue to pose challenges.
These changes were announced to the faculty at an open meeting on September 3, 2009,
further confirming the transparency of the process.
4. Assessment
This paper has set out in detail the response of an independent private higher education
institution in Kazakhstan to external environmental shocks. The response taken and the
success achieved to this point has to be understood within the established cultural context of
the organization. The importance of the free hand which the management had within this
context also cannot be underestimated. As a an independent institution, KIMEP was able to
make rational choices based on efficiency and supply and demand factors to a much greater
degree than a state financed institution could. In a real sense, the students as consumers are
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the masters in this situation, not the government or trade unions or any other special interest
group.
The response built on the trust developed over a series of years of growth. The structure of the
response was fashioned on the same principles of integrity, transparency and participative
decision making. The restructuring was successful only because of the context in which it
took place. The same principles which built trust in the growth years were applied in difficult
times.
This consistency maintained trust when major changes were made. If a radically different
authoritarian, oppositional model had been implemented which was at odds with the
operational culture there could have been a very different and much more negative outcome.
The process reinforced the consensual culture and built a stronger unity of approach because
of its consistency.
In addition to the care which was taken over the implementation of change within the
organization to ensure that the goals were achieved while minimizing negative side effects, a
further lesson was that continuous attention needs to be paid to financial management and
cost control. In the key period of change 2007-2009, six revisions were carried out to
institutional budgets. This led to major changes in revenue projections, payroll costs,
operating expenditures and capital investment plans (Figure 15).
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Figure 15: KIMEP Budget Projections 2007-2009 (1000 USD)
Note: For convenience a fixed exchange rate of 150 Kazakhstan tenge to the US dollar is used
This attention to detail was essential and has positioned KIMEP well for the recovery,
balancing investment in key areas such as faculty and increased financial aid for students
while building contingency funds and operating with a reduced cost base. (Figure 16).
Figure 16: KIMEP Key Financials 2004-2010 (projected), 1,000,000 USD
Note: For convenience a fixed exchange rate of 150 Kazakhstan tenge to the US dollar is used
While it is too early to definitively say, there is some evidence from the ongoing process of
strategic review in late 2009 that the operating paradigm has been reinforced rather than
undermined by the radical changes of 2008 and 2009. KIMEP has emerged from the storm
stronger and fitter for the challenges of the recovery.
Building on this experience, the Institute has taken the decision to move forward in its
development with a focus on further improving the quality of the education it offers. It has
chosen a balanced path between fiscal conservatism and investing in the recovery. KIMEP
has chosen to invest in faculty where there is student demand and reward those who have
contributed. In addition, new funds have been made available for research to stimulate further
activity based on the understanding that research improves not only the work environment but
2008-9 (1) 2008-9 (2) 2008-9 (3) 2009-2010 (1) 2009-2010 (2) 2009-2010 (3
Novem ber 2007 April 2008 Septem ber 2008 November 2008 April 2009 November 20
Carried forward Deficit 0 0 0 0 -1 761 644
Total revenue 24 793 25 136 24 226 27 398 22 059 24 675
Payroll 14 158 16 377 17 511 18 410 14 538 15 168Operational Expenses 3 610 3 699 3 884 4 475 2 971 3 266
Financial Aid 978 978 1 021 1 200 960 1 527
Capital Expenditure 4 470 2 071 1 414 1 220 726 1 243
Contingency / Net Result 1 576 2 011 396 2 094 1 103 4 115
2004-5 2005-6 2006-7 2007-8 2008-9 (preliminary) 2009-10 (projected)
Total Revenue 9,1 13,1 16,2 21,2 24,3 24,7
Faculty Payroll 5,1 6,6 9,3 12,1 17,5 15,2
Capital Expenditures 1,8 3,8 3,5 6,3 1,4 1,2
Other Operating Costs 1,8 2,4 2,9 4,2 3,9 3,3
Financial Aid 0,3 0,4 0,6 1,1 1,1 1,5
Net result 0,1 -0,1 -0,1 -2,5 0,4 3,5
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also the quality of classroom instruction. Greater attention is being paid to the development of
international partnerships to further embed KIMEP in the global education community.
This focus on quality even when the recovery is uncertain is a calculated risk, but essential
given that the core of the Institute’s competitive advantage is the quality of the education it
offers. This is all the more important given the demographic challenges in the years ahead as
the post independence birth rate collapse from the early 1990s feeds through the society.
KIMEP will have to work harder to attract students as the pool will be considerably smaller.
The core values of integrity, transparency, participation, stakeholder engagement and
independence in operations are not easy to replicate. Competitors cannot easily build this
culture. While the case of KIMEP is very specific it confirms a key maxim of competitiveness
strategy – products can be replicated with relative ease but cultural norms cannot.
The case also confirms that if these factors are not in place, then the organization may not be
able to undertake such reforms without undermining operations. KIMEP’s management was
able to draw strength from credibility built over many years of significant growth. If it had not
had this, the result may have been very different.
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References
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35
Notes
1 Until 2000, KIMEP was a state owned institution, when it was privatized as a not for profit
joint stock company under an entrusted management contract awarded to Chan Young Bang,PhD, the current President. As of 2009, Dr Bang holds a 60% shareholding, with the
remainder held by the government as a silent partner. In order to ensure the long term futureof KIMEP, Dr Bang has agreed to transfer ownership of his shareholding to a publicfoundation, named the Bang Education Foundation. The Government has agreed to sell itsremaining share which will also be transferred into the care of the Public Foundation. Under the Charter of the Foundation, it is not possible to trade the shares of KIMEP. The Foundationwill hold the ownership of KIMEP in trust for the people of Kazakhstan. Should it beliquidated, all assets will be invested into scholarships for Kazakhstani youth to study in theUSA and Europe.
2 See footnote 1.
3 See footnote 1.
4 All currency calculations are based on the current exchange rate of 1 US dollar to 150Kazakhstan tenge for ease of reference.
5 Tatimov, M. (2009). Glava gosudarstva i problemy narodonaseleniya. Kazakhstan: Arys6 While KIMEP’s tuition is relatively expensive compared to average Kazakhstani incomes, itis important to note that for this investment, students are trained by Western qualified facultyaccording to a US-style curriculum in English. When compared with US private institutions,where total annual costs can range up to $55,000 per annum, KIMEP provides tremendousvalue for money.
7
Source: World Bank World Development Indicators8 This discussion is based on:Grinyer, P., Spender, J-C (1979) Turnaround: Managerial Recipes for Strategic Success,Associated Business Press;Grinyer, P., Mayes, D., McKiernan, P. (1990)‘The Sharpbenders: achieving a sustainedimprovement in performance, Long Range Planning, 23,1,pp116-125; Lovett, D. Slatter, S.(1999) Corporate Turnaround, Penguin Books;Barker, V.L., Duhaime, I.M. (1997) Strategic change in the turnaround process: theory andempirical evidence, Strategic Management Journal, 18,1, pp13-38.
9 The interplay of culture and strategy has an extensive literature. This discussion is framed
around the ideas of Schein (1997) Organizational Culture and Leadership (1997), 2nd
Edition,Jossey Bass; Brown, A. (1998) Organizational Culture, FT/Prentice Hall; Johnson, Johnson,G. (1992) ‘Managing Strategic Change; strategy, culture and action’, Long Range Planning,25,1, pp28-36 and Johnson, G., Scholes, K., Whittington, R. (2005) Exploring CorporateStrategy, Prentice Hall.
10 In November of 2008, a five yar taxation audit was begun, covering the years 2005-2008.Under an arcane part of the tax legislation of RK, higher education institutions must generateat least 90% of their total revenue from degree program tuition. Otherwise they must paycorporate income tax on all income. When the report was received in December of 2008, thetax authorities found that KIMEP was liable for corporate income tax totaling 200m KZT plus
penalties according to their interpretation of the Institute’s accounts. KIMEP launched a legal
campaign to reverse this decision. As of September 2009, this dispute is ongoing and will beresolved by the Supreme Court.
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36
Notes
11 The Ar-Ruh-Khak Foundation sought to influence.
12 Evgeniya, P., (2009, March 27). Mir-prepodavatelyam, voina-menedjeram. Informacionno-
analiticheskiy. Respublika, #11 (146). Retrieved from http://www.respublika-kaz.biz/files/news/pdf/182.pdf
13 The state authorities sought to coerce the KIMEP management into signing a memorandumcommitting them to suppress student protests. KIMEP refused.
14 Press conference held April 3, 2009
15 Yessimov article Selesneva, E., (2009, April 28). Akim raskritikovalrukovodstvo KIMEP. Vecherniy Almaty. Retrieved from http://www.vecher.kz/?S=4-200904280920
16 Matthews, O., Nemtsova, A., (2009, August 17). Beware of Big Ideas Newly nervous post-Soviet states crack down on Western schools.
Newsweek . Retrieved from http://www.newsweek.com/id/209961
17 Matthews, O., Nemtsova, A., (2009, September 21). Beware of Big Ideas Newly nervous post-Soviet states crack down on Western schools. Newsweek . Retrieved fromhttp://www.newsweek.com/id/209961.
18 February 23, 2009
19 March 30, 2009
20 March 5, 2009