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.

Outsourcing Fallacies in Higher Education

Outsourcing of services by colleges and universities is again in the news (see “The Ins and Outs of Outsourcing,” The Chronicle of Higher Education, 24 August 2015).  Having been a purchasing/supply chain manager while working in industry, there are four fallacies that university leaders should be aware of:

  • Outsourcing = Savings. Maybe, maybe not. The metric commonly used to determine savings, “purchase price variance,” gives an inaccurate reading of savings: unit price, not total cost. Be prepared to incur higher costs in other budget categories.
  • Someone whose only job it is to do XYZ will do it better and at lower cost than the university can (“core competency” argument, brought to us by professors who never worked in industry). Likely not the case, since both the university and outsourcing company process material and information the same way: batch-and-queue. The savings come from lower labor costs (“you get what you pay for”) and minimum contracted services (subcontractors will miss their profit plan if they go the extra mile).
  • Scale drives down cost. That is only true if material and information are processed batch-and-queue. Flow diminishes or invalidates the economies of scale effect.
  • Outsourcing helps administrators focus on the educational aspects of the college or university. That’s bullshit. The value proposition for students is unchanged (higher tuition, same education) and the quality of instruction usually remains exactly as it was before outsourcing.

The Lean view of outsourcing is as follows:

  • To the extent both possible and reasonable, an institution should have and be able to do everything it needs to provide educational and related services to students.
  • If you own the process, you can see the process and its problems, and take immediate action to improve the process – and thus reduce costs immediately.
  • Outsourcing difficult work weakens the capabilities of both the people and the institution.
  • Never lengthen supply lines; in this case, the information supply chain. Instead, get closer to the last process (student success and graduation).

In most cases, outsourcing decisions made by leaders is cost problem avoidance rather than addressing cost problems directly via process improvement. They hand their problem off to a supplier, rather than take responsibility for their own process problems.

Outsourcing may be appropriate for some activities. However, the decision-making process must not be biased towards the upside savings potential (“Let’s do it! We’re going to save millions”). It must be balanced and include the downside (“What could go wrong? What might our liabilities be? How much could it cost us?), in addition to awareness of the above four fallacies.

Bet On A Boiler

A recent article “More College Students Selling Stock—in Themselves” (The Wall Street Journal, 5 August 2015) highlights the terrible outcomes that fall onto students shoulders when universities are run for the benefit of self instead of students. This, from institutions that claim to serve the greater good, and create citizens that can function in and contribute to society.

High tuition prices lead some students to take loans against future earnings to complete their college degree. A $15,000 loan could end up costing as much as $60,000. That is equivalent to taking out a $15,000 bank loan at an interest rate of 26 percent for 15 years. See anything wrong with that? Undergraduates could easily be taken advantage of because they are not financially literate and do not understand contracts.

These “income-share” agreements are yet another trick to finance high-cost education while ignoring methods to improve processes and reduce costs. University leaders are taking the easy way out of their cost problem by continuing to shift it onto students and lenders. Income-share is a bad deal for students and it will deepen their student debt problems.

Remarkably, some higher education leaders think this alternative form of financing an education is a good idea. The president of Purdue University, Mitch Daniels, wants to start an “income-share” program called “Bet on a Boiler.” The name, at least, is transparent in its intent – gambling. It is a bet that the student can get a job, make enough money to pay off the loan, and maintain continuous employment for a decade or more – in a future where jobs are likely to be less plentiful as computers/software, robots, etc., automate more human activities.

Gambling with students (“players”), whether they consent to it or not, is wrong. And, the “house,” of course, always wins, as “income-share” debt cannot be discharged in bankruptcy. Boilers who can’t pay-up will get boiled by their creditor.

Universities, especially, should not spend time and resources creating or endorsing novel ways to finance a product whose cost is high as a result of decades of mismanagement. They should instead own their cost problem and reduce costs at the source. Processes define the costs. Most processes are terrible (batch-and-queue) and, as a result, are high cost. Improve the process (flow) and reduce costs.

Read my low-cost, student-friendly plan to make college more affordable.

Methodological Errors in Lean for Higher Ed

Flaws_in_LeanAs both a participant and witness to the practice of Lean management in higher education, I would like to point out methodological errors in relation to how Lean is practiced in industry. Those in industry who practice Lean management correctly provide us with a standard by which we can compare the practice of Lean in higher education. This comparison is fair because Lean management, fundamentally, is a system for processing information. All organizations process information, whether for profit, not-for-profit, government, NGO, etc.

With the industry standard in mind, here are 13 methodological errors in the practice of Lean management in higher education that must be corrected:

1. Program or Initiative: Lean is seen as a “program” or “initiative.” It’s not a program or initiative. It is the replacement of your university-wide batch-and-queue information processing system with a flow (Lean) information processing system. Lean is a new management system in which improvement has no end, not a program or initiative which has an endpoint.

2. Employees’ Concerns. Employees today have the same six criticisms of Lean as they had at the dawn of progressive management 100 years  ago. Management’s focus on the rapid implementation of Lean tools ignores their important and real concerns, and thus fails to respect people from the outset. Leaders must address employees’ concerns from the start. Unfortunately, most leaders don’t know how to explain they are not trying to turn people into robots or speed them up and burn them out. They must learn how to do this if they hope to obtain employee buy-in for Lean management in higher education.

3. Projects: Improvement activities are seen as discrete “projects.” The term “projects” is a carryover from conventional management practice, which have a start and end. In Lean, we practice kaizen, which never ends. Replace “project” with “kaizen.” Projects have executive “sponsors.” These people don’t actually do anything.  Replace “sponsor” with “kaizen participant.”

4. Map Every Process: Many universities require process improvement teams to map the process before efforts to eliminate waste, unevenness, and unreasonableness can begin. This is not necessary and causes delays. Instead, proceed directly to kaizen. If mapping is necessary, do it quickly during the kaizen.

5. Kaizen Events: An “event” has a start and end. An event is infrequent. Kaizen has no end. Kaizen must occur every day. And everyone must participate in kaizen, university president on down. Say “kaizen” instead of “kaizen event.” Click here and here to learn about kaizen.

6. 5S Events: Breaking kaizen up into smaller bits, such as 5S events or value stream mapping events, is incorrect and a carryover from conventional management practice. Don’t atomize kaizen. Kaizen, done correctly, results in more than a dozen improvements in different aspects of a work process, to get information to flow, not one single aspect such as 5S.

7. Suggestion System: Suggestion systems, QC Circles, etc., are important continuous improvement methods, but the huge gains in productivity can only be achieved through traditional industrial engineering-based kaizen. Universities must do this, especially in administrative processes where there is significant division of labor. There is no Lean without kaizen.

8. Recommendations: The result of projects and events are recommendations to management about what improvements the team would like to make. This is a carryover from conventional management practice. Kaizen teams do not study an abnormal condition and then make recommendations to management, which introduces a delay. Instead, they quickly study an abnormal condition and then immediately make improvements. Management, from the start, empowers kaizen teams to eliminate waste, unevenness, and unreasonableness without needing to seek permission to do so.

9. Reporting to the CFO: The head of the Lean Office reports to the chief financial officer. This is incorrect. It is a common error because Lean is understood narrowly by university leaders as cost savings. Instead, the head of the Lean Office should report to the most senior person responsible for the value creating activity of the organization. In higher education, this would be the provost or president.

10. Savings to Justify My Position: The head of the Lean Office says: “I have to find savings to justify my position.” While cost reduction is indeed important, the head of the Lean Office is also responsible for improving the value proposition for students and payers, guiding faculty and staff on how to improve information flow, organizational learning, and so on.

11. Change Management: Continuous improvement leaders in higher education think they must invoke complicated change management protocols rooted in organizational behavior and organizational development. This is a carryover from conventional management practice. Ignore change management. Kaizen, itself, is the change management practice. Change management programs on top of kaizen simply add cost and create delays. Instead, do kaizen; lots of kaizen.

12. Lean in Administration: Colleges and universities engaged with Lean limit its practice to administration. This is the opposite of the early days of Lean in industry, where company leaders thought Lean was a “manufacturing thing” and limited its application to operations. That was a huge mistake. It took more than 20 years to convince non-manufacturing departments that Lean principles and practices applied to them as well. College and university leaders must avoid making the same mistake. Lean applies to academic processes as well.

13. Time Required to Make Improvements: The results universities get and the speed that they get them depend upon leaders’ understanding of Lean management and the processes they use to improve. In every case that I know of, leaders’ understanding of Lean management is poor, and the processed used are poor or incomplete. The result is very slow process improvement. Improvements made in higher education that occur over the course of 5 years are done within two or three months in industry. Nothing can justify such a great difference.

If these methodological errors are not corrected, then your understanding of Lean will remain static. As a result, you will not learn and evolve, and you will never realize the future potential of Lean management.

I Called It!

In December 2004, I wrote an article, “Lean in Higher Education,” about the future of higher education in the United States. I made the case that due to declining enrollments and other factors, “…some schools will go out of business, some will merge with other schools, and others will exist for a period of time as zombie (half-dead, half-alive) schools.” A recent article, “Mergers on the Rise?” (Inside Higher Ed, 7 July 2015), discusses how such changes are now under way. (As does another article “More university mergers on the way, predicts legal expertTimes Higher Education, 5 August 2015). Unfortunately, I called it.

The troubling aspect is how the article cites mergers as a “method of survival.” My article promoted Lean management as a method for survival. But alas, higher education leaders remained committed to business-as-usual. Instead of understanding their problems, they rapidly capitulate and pursue “mergers, absorptions, affiliations and partnerships.”

Faculty are quick to criticize management practices used by for-profit businesses to solve basic problems such as declining sales (because they usually result in zero-sum, win-lose, outcomes), and hope that their leaders will not use such practices. They will, because they do not know what else to do and so they simply follow the herd. They are now in a pinch and are forced to pursue the same avenues for survival as those used by most other leaders.

Another troubling aspect is how the article says “scale is strength,” that “scale gives you an advantage,” and mergers can deliver “economies of scale.” Leaders would make better management decisions if they understood that economies of scale apply only under very narrow circumstances, and diseconomies of scale exist and must not be ignored. Nothing is all upside.

The economies of scale effect occurs when information is processed using  the batch-and-queue method. This is indeed the information processing method used by colleges and universities. So, they may indeed see a favorable scale effect (after adjustment for diseconomies of scale). But, an organization should not process information using the batch-and-queue method. Why? Because it is high cost, low quality, results in long lead-times, and dissatisfies students, payers, and other higher education stakeholders.

The conventional wisdom articulated in the article “Mergers on the Rise?” will provide only short-term relief to what ails these schools. They face peril in the long-term because they still process information using the batch-and-queue method. If instead of pursuing scale through mergers, processes were improved by (correctly) applying Lean principles and practices, the result would be information flow, along with growth and prosperity. College and university leaders should be pursuing flow instead of scale. This would allow them to control their own destiny. View my 2010 presentation titled “How Flow Destroys Economies of Scale.”

This article, “Closure Concerns and Financial Strategies: A Survey of College Business Officers” (Inside Higher Ed, 17 July 2015), clearly illustrates the lack of creative and innovative thinking that exists among business officers. Their uninspired strategies will buy some time, but that’s about all. Higher education faces greater cost challenges than healthcare, where the leaders of some hospitals such as Virginia Mason Medical Center and ThedaCare have adopted Lean management as the strategy for improving healthcare delivery and ensuring a more prosperous future.

The future of higher education lies in the hands visionary leaders. Those who who pursue mergers and scale are not visionary; they are bland conformists. Visionary leaders are those who pursue flow.

Kaizen for Higher Education

kf_smallI would like call call your attention to a small (98 page) but important book that I co-authored called Kaizen Forever: Teachings of Chihiro Nakao.

While few in pages, the book is a giant in delivering to readers the mindset that created Toyota’s Production System and their overall management system.  Mr. Nakao co-founded the Shingijutsu Company in 1987 at the behest of Taiichi Ohno to teach the principles and practices of the Toyota Production System to a wider audience. He has over 50 years of of genba kaizen experience. Nakao-san is an amazing teacher.

So, why should you care out this book, which might seem to you to be irrelevant to teaching. No so! Nakso-san’s teachings are relevant to what we do as professors, in the classroom, in service work, and in research too. The book is also highly relevant to improving administrative processes.

My formal training with Shingijutsu began when I worked in industry in the mid-1990s and ended in the late 199s. I lost touch with them for some years, until recently. Based on what I learned from Shingijutsu kaizen consultants 20 years ago, along with my more recent interactions with Nakao-san to produce this book, it has inspired me to think more deeply about how to improve my teaching and create better learning outcomes for students.

Kaizen Forever will give you a much better understanding of kaizen and give you dozens and dozens of practical teachings on how to improve the work that you do as a professor or administrator – from department chair to president to trustees. I hope you are curious to learn more.

Lean Higher Ed Conference Presentation

The Third International Conference on Lean Six Sigma for Higher Education was held at Heriot-Watt University in Edinburgh, Scotland, on 8-9 June 2015. The theme of the conference was “Making Higher Education Institutions Efficient and Effective through Lean Six Sigma Deployment.”

The title of my keynote talk was: “Application of Lean to Teaching.” I discussed how I developed and applied the Lean teaching pedagogy over the last 15-plus years. In addition, I presented my new approach to course design aimed at transforming face-to-face and hybrid teaching from “push” to “pull.  Click on the image below to view my presentation.

lsskeynote_2015

I also led a workshop titled: “Lean Leadership for Higher Education,” which presented how university leaders should begin a Lean transformation and gain broad-based buy-in. Both were very well received.

New Books: Lean Teaching and Lean University

You are likely familiar with my e-books on higher education, The Lean Professor for faculty and We Can Do It! for administrators.

lean_hebooksI’m happy to announce that I’ve made some important changes:

  • The books have been re-titled Lean Teaching and Lean University.
  • Both books have been corrected, updated, and expanded.
  • They are now available only in paperback, in response to many requests for that format and so that the images can be read more easily.

Lean Teaching is printed in color and contains 48 informative images. These images help give readers a much better understanding of how I designed and delivered my courses over the last 15-plus years. It is your guide to the Lean teaching pedagogy.

Lean university is printed in black-and-white and contains 15 images. It is intended for all levels of university administrators. It describes how to lead a Lean transformation in higher education and provides hundreds of important and helpful details. Administrators will find it to be a great help in assuring a smooth transition.

I appreciate your support in telling your colleagues about these books. Thank you.

BOOK REVIEWS

Here is a review of Lean Teaching by Professor Gloria McVay:

“In this book, Bob Emiliani addresses all of the facets of university teaching and makes both observations (from his own teaching) and recommendations (from his own experiments) for continuous improvement in course content, design, and delivery. If every professor seriously adopted a practice of continuous improvement as recommended in this book, the change to higher education would be nothing short of revolutionary. It takes being willing to really evaluate your teaching practice and realize that any single improvement in and of itself is not major. It is when you make many small improvements, knowing there is no end to improving, that you begin to understand the revolutionary power of lean in higher education. I found many good ideas that I will personally try out in my teaching practice. The big question then is – how do we create an environment which fosters this type of continuous improvement on a large enough scale to achieve a major breakthrough? For some of Bob’s thoughts on this challenging and broad-scoped topic, I recommend Lean University – another excellent book on Lean in higher education.”

Here is a review of Lean University by Mark Graban:

“Bob Emiliani is a most-credible source for this book, targeted at leaders and staff members in higher education. As a long-time industry practitioner of lean management practices, Bob has served as a faculty member at Central Connecticut State University, so he knows what he’s talking about with both lean and higher ed. This book is a succinct primer on how to apply lean management to higher ed. As Bob points out, Lean is not about easy cost cutting or doing anything that harms stakeholders – faculty, students, support staff, etc. Lean management combines continuous improvement with the equally important ‘respect for people’ principle, as Bob highlights throughout the book. Lean management is about creating the best quality education, while reducing costs (by eliminating waste, not by cutting heads). Bob dispels many of the common misperceptions about Lean, shares lessons learned and mistakes to avoid, and covers the role of leaders in transforming an organization’s culture.”

Top Blog Posts – First Half of 2015

Thank you for reading my blog! Here are the top 15 most viewed posts 1 January to 1 June 2015:

Teaching Surveys
Priceless Small Improvements
The Value Of Higher Education
My Student Course Evaluations
Lean Teaching Visual Controls
How To Get Started With Lean In Higher Ed
Lean Must Do No Harm
Imaginary Customers
Are You Satisfied With 10 Percent?
Hire More Faculty
Lean for University Leaders
Thoughts on Lean Higher Ed Conference
The University As Manufacturer
Higher Education Quality
Improving Critical Thinking

There’s more great articles to come. I encourage you to contribute your thoughts and opinions.

Managerialism In The University

Here is an article that I think you will find interesting: “‘Cuckoo managers’ are throwing out academy traditions” (Times Higher Education, 21 May 2015).

The article correctly criticizes managerialism – what actually is better characterized as mismanagement of universities. However, it is unfortunate that academics generally have great difficulty discerning the difference between beneficial practices for managing organizations that come from outside of academia and destructive managerialism derived from poor corporate management practices. Their only improvement idea is to return to traditions while offering nothing to help correct managerialism.

It is akin to witnessing the misuse of a tool, such that it does harm, and then concluding that the tool cannot be used correctly. That is demonstrative of poor critical thinking.

On the bright side, see the article “Laurie Taylor on academics v administrators” (Times Higher Education, 28 May 2015). The second to the last paragraph nails it:

“Might not administrators improve their relationship if they presented themselves not as managers but as support staff to those upon the academic stage, as producers, property masters, scene setters, audience providers? What they must surely never do is to seek to occupy the stage themselves.”

Whether one works in a university as faculty or staff, or elsewhere in for-profit or non-profit corporations, employees greatly prefer servant leaders. That is a major differentiator between conventional management (people serve the leader) and Lean management (the leader serves the people).

Finally, here is a interesting article, “The commodification of higher education” (The Varsity, 20 May 2015) that zeroes in on a big negative impact of corporatization gone awry:

“Yet, given the increasing corporatization of tertiary education, the futures of university graduates do not seem to be nearly as important as securing future funding for the institutions themselves.”

Institutional self-interest is a clear and present danger to students and higher education.