The effects of the recession on state budgets are delivering the presidents of many state universities to the steps of their legislatures, where they beg, cajole, and even threaten dire consequences if university budgets are not spared. “We have already cut to the bone,” they say. Further cuts, they allege, will dramatically affect quality.

The situation troubles us on several levels. Most of us love to love our state universities for the many great and good things they do. They enrich our lives in a variety of ways for which they often receive insufficient credit. I defend and support them. Out of tough love, however, we must set aside their empty claims about threats to quality. These institutions do not measure or manage quality in a way that would qualify as minimally sound in relation to modern measurement sciences. They have, therefore, waived their right to speak of the probable or actual effects of budget cuts on quality.

More importantly, these universities are grossly inefficient in ways that are contributing to their decline. Whatever it was they cut to, it was not the bone. Change, ironically, is the only obvious way they can preserve themselves.

We cannot see the profligate waste in our state universities because there are no requirements to gather, manage, and report the information that will illuminate the millions of dollars that slip through their hands in the form of lost business and productivity waste. Absent real and comprehensive performance metrics, we depend on presidential charisma and the performance of sports teams to assure ourselves that the university is running as well as can be expected.

Change Is Possible – Just Difficult

A few changes in how state university presidents lead and manage their institutions will lead to efficiency increases amounting to millions of dollars of additional revenue for the typical institution. Quality—much of it being measured for the first time—will improve. The institutions will become stronger, better, and less dependent on taxpayer support. Here are a few of a dozen or so changes that will lead to increased efficiency and less dependence on external funding.

Only Universities Believe They Can Manage the Unmeasured

In the rarified atmosphere of the public university, one sees behavior that simulates the management of unmeasured functions and their outcomes. To meet public goals efficiently, presidents must manage the revenue, costs, market share, enrollment, outcomes, and other measures for each of the hundreds of programs delivered. They must manage these metrics separately, and must adjudicate and balance them as a whole. Yet, the 1920’s information models currently in place, and the many technical systems that don’t talk to each other and won’t give up information without a fight, are incapable of guiding precision management.

The first change, therefore, is to install a modern management information system. This system will produce richly detailed real-time information on each program and all functions internal to the university. It will also report on program growth trends, changes in market share, and other competitive threats and opportunities.

We will learn much from this comprehensive information system. Initially, the information will be shocking. We will look for someone to blame but, eventually, will accept that we are to blame. We will move forward. Here are a few action items that will be made possible by the new information system.

Recapturing Market Share

University presidents stand idly by while for-profit and a few independent colleges take millions of dollars in revenue from under their nose. These interlopers have no interest in programs that lose money. They want to secure the high-volume, high-profit programs for themselves. Unfortunately, their success leaves state universities with growing program costs, declining revenue to support needed but unprofitable programs, and declining market share with which to control future markets.

In 15 years, for-profit universities have grown from 1% to 10% market share. They did so by exploiting the inattentiveness and inferior service of state and some independent universities. In 2009, four of the eight large for-profit universities produced $6.8-billion in revenue. As much as half of this revenue represents potential share taken from state universities. If the tide is not stemmed, state universities will be left with lossy programs while outsiders enjoy the fruits of the profitable markets. Stemming the tide, even by half, will return hundreds of millions of high margin dollars to our state universities. This tide will not be easily stemmed. To compete effectively, presidents need information they can use to manage programs with precision, adjusting each program to meet the needs of the market. They don’t have to be perfect. With the imprimatur of a state university behind their program, they will win market share if their program is three-quarters as student-friendly as the competition's.

Manage Time and Cost to Degree

The time it takes to earn a 4-year baccalaureate is ballooning to 5 or 6 years because our universities can’t deliver the courses needed when students need them to graduate on time. Our universities teach supply chain management but they prove incapable of practicing it. More than 20% can be saved by creating systems and incentives to graduate students on time. Students save even more.

Even though the core business of our universities is the production of credits and degrees to defined standards, state universities do not manage all-in degree costs. Unmanaged as they are, there is no way to provide presidents incentives for reducing them or achieving outside reductions in the rate of increase. This negligence is a leading reason why university costs increase 2-3 times the rate of inflation. It is also a leading reason why prospective students choose for-profit and some independent colleges over state universities. Even though their tuition may be much higher, their total cost to degree is much lower because they have the ability to graduate people on time. Skillfully managing cost-per-degree with precision information would save the average state university several percent a year, leading to double-digit savings in five years.

Implement 3-Year Degrees

Properly delivered, 3-year baccalaureates deliver higher quality at lower cost. Universities, here and in Europe, are realizing 23-28% savings from these popular programs. Students save even more because they secure higher paying jobs sooner. We have discussed this in detail elsewhere.

Address Productivity Losses

In most industries, the more you sell, or make, or do, the more you earn. In state universities, the productivity curve is inverted. The more professors make, the less they teach and the more they receive independent compensation from the private sector. Full professors teach 25% less than they did 50 years ago while receiving salary increases at rates that are higher than the growth of the CPI.

Eliminate Unneeded Programs – Expand Needed Programs

Cutting unneeded programs sounds like common sense but it seldom happens. Lacking precision information about the performance of each program, state university presidents have little choice but to follow their instincts and their instincts can be clouded by the lobbying of special interests. State universities are bloated with degree programs for which there are no jobs or that take unnecessarily long times to complete. Some of these programs were designed by a professor to meet his interests, irrespective of the market. Other programs hang on because they were once very successful in the marketplace. Even if these programs lose great amounts of money and lack evidence of demand in the market, the university lacks the metrics to form a clear picture and fails to act until unnecessary revenue and opportunity have been lost.

Is This the Time for Change?

I hope so but I am less than optimistic. A more likely course of action is that state university budgets will be cut, even if less than initially believed. When this happens, state university presidents will restrict enrollments, reduce services, place hiring holds on jobs that serve students, and raise student fees. They will execute almost perfectly into the hands of their competition. By making their university less accessible, less friendly, less attuned to the needs of the market, each of these presidents’ actions will transfer additional business to out-of-state schools and will make the university even less efficient and less competitive in the future. And so the downward spiral continues.