Selling Change to Finance VPs

The Chronicle of Higher Education published the article “New Role for College Business Officers: Selling Change” (23 July 2014). It is remarkable. So, herewith are selected excerpts from the article and my critiques:

“The college vice president agreed that some of the proposals discussed for fixing the broken financing model for higher education might alienate some faculty members. But ‘they don’t see what we see,’ he said.”

Here’s what faculty have long seen: rising costs due to excessive and high-paying administrative positions, new facilities, generous student amenities, etc., declining revenue due to tuition discounts, lower enrollments, etc., and greatly reduced academic support. Do you see what we see?

“Karen L. Goldstein… [a] former chief financial officer at Davidson College, said she has sometimes wondered about professors who refuse to engage. ‘Don’t they understand,’ she said, ‘that if they don’t participate in this, not only are they not going to get raises, they’re not going to have a job because there won’t be any institution?'”

We won’t have a job. I think faculty understand that. I don’t sometimes wonder, I always wonder why administrators refuse to engage Lean management. Don’t they understand that if they don’t participate in Lean, not only are they not going to get raises, they’re not going to have a job because there won’t be any institution?

“High on their [college presidents] list, she said, was that ‘the CBO [chief business officer] needs to be an educator in the sense of helping the trustees, cabinet members, faculty, students, and staff to understand the financial status of the institution’.”

Maybe I can be a CBO. Here’s how  would educate trustees, cabinet members, faculty, students, and staff to understand the financial status of the institution: “It’s a pile of shit and it’s going to get worse. But, how you go about improving the financial status of the institution is critically important. Zero-sum ways causes great harm. You should cut costs and grow revenues in non-zero-sum ways so that people are not harmed. That way, people will support and participate in efforts to improve the financial status of the institution. You must have that. Let’s compare and contrast the alternatives, apply some critical thinking, and have a spirited dialog so that we make good decisions.” What do you think; do I have the job?

“The revenue side of colleges finances is the one that gets most of the attention. But the other half of the equation—the expense side—is increasingly important, Mr. Walda said.”

OK, here’s where you need to watch out. Finance people are helpless when it comes to revenues, other than to count it. But, they are deadly when it comes to costs because they possess a special skill which learned in undergraduate and graduate business school (6 years in total): They know how to put a red line through a budget number and write a lower number next to it, usually 5 to 10 percent lower – sometimes even 15 or 20 percent lower. People with this special skill, and there are many (and thus outsourceable for lower cost), are referred to as “cost-cutting experts” – though they are actually budget-cutting hacks. Apparently they do not realize that cost-cutting and budget-cutting are two different things, the latter requiring no expertise while the former requires great knowledge of and experience with process improvement.

“‘There’s a robust discussion about how to constrain costs,’ he said. ‘It goes from more profound things like combining academic programs or sharing academic programs with other institutions to using technology to reduce costs. And then there are simpler things like outsourcing and realigning procurement’.”

These are not profound things, as John Walda, president of the National Association of College and University Business Officers (NACUBO), claims. This is what the herd does. It is simply copying others, not innovating for yourself. Notice, there is no mention of administrative and academic process improvement as an effective way to “constrain” costs. College and university CBOs haven’t yet figured out that costs are subordinate to processes: bad processes result in high costs, good processes result in low cost. It looks like it is up to us as faculty to sell this type of change – process improvement – to college and university business officers.

“‘They found that class size was potentially one of the bigger levers you could use to generate more margin,’ he said. Another was capacity.”

WOW! It must be gratifying to have finally figured that out. But seriously, this is a simple view based on an incremental increase in sales volume with all other things being equal. How about improving teaching (see posts here and here) as a way to increase enrollments?

Here is a law of business: When costs go up and revenues decline, finance VP’s become more influential to an organization’s leaders, and they gain greater control to do more dumb things. Watch out.

Unfortunately, this situation is no false dilemma. You can either have college and university business officers (finance VPs) “constrain” costs, or we, as faculty and staff, can do it ourselves via process improvement (with the participation of trustees, leadership, alumni, students, etc.). I can assure you that our (nonzero-sum) method, which requires thinking, creativity, and innovation, is superior to their crude and unsophisticated (zero-sum) red-pen method.

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