Run Universities Like Businesses

This article, “Giving College Administrators a Business Education” (The Wall Street Journal, 27 August 2015), by Bruce Benson, president of the University of Colorado, has received high praise. Let’s look more closely at his work to operate the university “more like businesses” and to better understand if his fiscal accomplishments are truly worthy of the praise he has received.

First, recognize that if you run a business like a business, you can easily get into a lot of trouble. Management decision-making is typically centered on short-term solutions to current problems (financial or other), often made with information that has been filtered by subordinates to conform with leader’s biases. Solutions tend to be unrelated to the root cause and are typically zero-sum (win-lose), which marginalizes the interests of key stakeholders who then become more concerned about self-preservation than about customers or the welfare of the organization. This helps one understand why the average life of a for-profit business is less than 20 years, while that of non-profits are significantly longer.

For many years I have taught a course that rigorously analyzes failures in leadership decision-making in all types of organizations: for profit, not-for-profit, government, etc. There are three recurring failure modes in each one of the more than three dozens of failures we have studied:

  • Leaders make penny wise, pound-foolish decisions, the result of illogical thinking and decision-making traps.
  • The existence of blocked information flows, which prevents leaders from understanding the true nature of problems and of opportunities.
  • Problem-solving is ad-hoc. They do not use structured problem-solving methods to identify actual root causes (as lower-level people are often required to do in businesses).

Business is presumed by most leaders to be an economic activity when, in fact, it is a socio-economic activity. If universities are run like businesses, then management decisions will be based more on economic arguments and short-term perspective, increasing the likelihood of similar types of failures.

Mr. Benson’s solution to reduced state funding is simply line-item budget review with the chief financial officer and negotiation with suppliers by the head of purchasing. The focus is on the costs that one can easily see – numbers on a spreadsheet – not on the costs that one cannot see. Anybody can cut costs that they can see on a budget spreadsheet. This is nothing more than basic business acumen. Few leaders in business or in higher education know how to cut costs that they cannot see. This is advanced business acumen.

How do you cut costs, especially those costs that you cannot see, without doing harm to people? Kaizen is how you do it. Understood and practiced correctly, kaizen is non-zero-sum (win-win) and develops people’s capabilities for problem recognition, problem-solving, innovation, and enthusiasm for continuously improving processes. Reducing costs by improving academic and administrative processes is what “fiscally responsible” businesses do for current and future survival. Higher education institutions should do the same.

Benson’s argument that “we streamlined bureaucracy and let go of 148 administrative staff – a painful down-sizing for some, yes, but a right-sizing for the school that helped preserve many other jobs” is nonsense. The University of Colorado employs more than 16,000 people full-time; cutting 148 people (0.925 percent) is more likely a show of leadership exercising power at the expense of employees (both those laid off and the survivors) and instilling fear. Lean leaders would instead re-deploy these valuable human resources to other needed areas and to kaizen teams.

According to the article, leaders looking at budget spreadsheets over a seven year period saved some $35 million in annual recurring costs, excluding one-time gains from selling assets. This is in relation to annual cuts in state funding ranging from $45-83 million. Thus, the seven-year savings did not offset even one year of cuts in state funding in the eight years between the years 2008 to 2015. The total savings over seven years from looking at budget spreadsheets is less than one percent of the University of Colorado current budget of about $3.5 billion. Unimpressive, to say the least.

President Benson simply did the things he knew how to do – what any former business leader knows how to do – which resulted in meager cost savings. He did not do anything noteworthy, such as:

  • Improving processes to reduce costs, improve quality, and reduce lead-times (eliminate batch-and-queue information processing and create flow).
  • Improving the value proposition for students by improving academic and administrative processes.
  • Improving the quality and effectiveness of teaching.
  • Reducing the cost of tuition and the total cost of earning a degree.

This remains true even if my annual savings calculations are off. Instead, tuition has has increased every year since 2008, headcount has increased by 1000, and the number of overhead management and staff positions nearly equal the number teaching positions at the University of Colorado.

Does President Benson deserve praise for running a university more like a business? No.

From a business perspective, the University of Colorado’s leaders did things that garner great attention and praise from politicians and business leaders, but without actually changing much of anything financially. He has succeeded in maintaining the fiscal status quo; the institution remains more-or-less the same as it was when President Benson started in 2008 – with the exception of a self-congratulatory article in The Wall Street Journal.

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