August 27, 2010 « Are Public Universities Responsible for the Success of For-profits? »
Runaway Inflation in a Recessionary Period
As predicted, public universities are increasing fall tuition by double-digits, one as high as 17% and many in the 13-15% range. For the most part, these presidents did everything they could to convince their legislatures that their budgets should not be cut. Now, having secured what they could from the taxpayers, they have no choice but to raise tuition to meet projected shortfall.
Or do they . . .?
Most of us, myself included, love to love our state universities. We love them for their contributions to our communities, large and small, visible and invisible.
Public universities 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 cause them to adapt more quickly, become more effective in meeting the changing roles that await them, and to become more efficient at everything they do by implementing and using modern management tools.
Rather than embrace the future, public university presidents chant the shibboleth 'quality' to secure needed revenue, diverting our attention from bloated budgets and runaway budgetary increases caused by ineffective enterprise management. "We need more money" they say, "to preserve the quality of [your favorite program]." They ask for this money to perpetuate, not improve, their operations.
The Situation Troubles Us on Several Levels
- These institutions neither measure nor manage quality in a way that is scientifically sound. Thus, they have forfeited rights to speak knowledgeably about quality.
- Many claims made about the relationship between money and quality are provably false.
- Public universities possess so few of the management structures, and so little of the real-time information necessary to manage effectively, that they have no way to manage services to defined standards of quality.
- There exist many constructive solutions to these budget crises that would improve quality while reducing expenses.
High Cost, Low Output
Public universities are grossly inefficient and growing more so each year. This situation plays into the hands of their competition and further contributes to their loss of market share and inability to control their destiny.
Average taxpayer costs for a public education are in excess of $11,000 per student per year, plus taxpayer opportunity costs associated to a variety of forgone taxation contexts. (Public universities pay no federal and state income taxes, no sales and use taxes, no property taxes, and no taxes on interest and capital gains on the sales of assets, leaving the opportunity shortfall to be picked up by taxpayers). Average tuition (not including rapidly inflating hidden fees and assessments including $300-900 conference athletic subsidies) is more than $7,500 per year.
The total per student expenditure for a public university education is approaching $20,000 per year! Factor in graduation rates of 20-60% and the "average cost--per-degree" metric (which no one is required to measure) can easily reach $0.25M, perhaps more. How can we not know that the costs are this high and that only elite private universities cost the taxpayer more money.
Missing: Public Measures
How is it that public universities can be so inefficient yet escape public scrutiny while millions of dollars in the form of lost business, inefficiency, and misdirected funds slips through their hands? How is that the for-profit universities can be the object of such derisive attention from the Department of Education and from Senator Harkin (whose own state institutions under-perform in relation to their student SES) while they turn their backs on the public's problems of much greater scope and magnitude? Once can only conclude that the Departments agenda is not to right the wrongs of the for-profits but to further underwrite the wasteful practices of the public institutions.
It is difficult to see the disturbing waste in our state universities because there are no requirements to gather, manage, and report the information that illuminates the lack of effective enterprise management. Difficult but not impossible. One need only look at the top and bottom line metrics (dollars per degree; opportunity costs per average degree delay, etc.) to see how badly things have slipped.
At the management level, however, the absence of real-time and comprehensive performance metrics forces presidents to rely on charisma and the performance of sports teams to assure us that the university is running as well as can be expected.
Efficient Change
Public universities are too massive and their structures are too culturally hidebound to transform themselves through incremental change. Leverage must be sought.
The leverage created by a small number of organic changes in how public university presidents lead and manage their institutions would 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 also 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 increases in adaptability, efficiency, quality, and less dependence on external funding.
Join the 20th Century with Respect to Metrics
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.
Only public universities believe they can manage the unmeasured. 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 accounting, management information, and decision-support 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.
Public university leaders will learn much from this comprehensive information system. The information will be shocking. Some will look for someone to blame. Others will get right to work. Change will take place.
With the new metrics in hand, here are other changes that will follow and be guided by the continuous flow of meaningful intelligence.
Recapture Market Share
Public university presidents stand idly by while for-profit and a few independent colleges take millions of dollars in revenue from under their noses. They enjoy complaining about or criticizing the competition, but they don't do anything about it. The 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 almost 12% market share. They did so by offering services that exploit the inattentiveness and inferior programmatic and service responsiveness of public universities. In 2009, four of the eight largest for-profit universities produced $6.8-billion in revenue (and the University of Phoenix paid almost a half-billion dollars in income tax). As much as half of this revenue represents potential share taken from public universities. If the tide is not stemmed, public 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 public 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 public university behind their program, they will win market share if their program is only 75% as student-centered as the competition's.
Manage Time and Cost to Degree
The time it takes to earn a 4-year baccalaureate is ballooning to 5 years or more because our public universities can’t deliver the courses needed when students need them to graduate on time. Our public universities teach supply chain management very well 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, public 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 public university costs increase at two or three times the rate of inflation, even in good economic times. It is also a leading reason why prospective students choose for-profit and some independent colleges over state universities. Even though the for-profit's tuition may be higher ($14,500 vs. $7,500 + hidden fees), the total cost to degree is substantially lower because they have the ability to graduate people on time. The student cost of a one-year extension in time to graduation is roughly equivalent to the first year post-graduation salary plus the tuition and fees for the additional year, less any earnings that would have occurred anyway. Public universities don't get this. Skillfully managing cost-per-degree with precision information would save the average public 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. Properly delivered means that professors must stop teaching out of the 1906 play-book used by their grand-professors. Most professors proudly teach they way they were taught, citing Socrates and others for methodology. These folks would run for the hills if their personal physician or airline pilot expressed the same sentiment. A 3-year degree must vigoroussly expoint the findings of modern (i.e., last 50 years) learning, brain, and evaluation sciences into the classroom, physical or otherwise. Many 3-year degrees will benefit from blending since many good research studies show that blended learning produces the greatest outcomes, followed by online only, with traditional physical classrooms coming in last place. [See this Department of Education meta-analysis for detail.]
Reverse Growing Productivity Losses
In most industries, the more you sell, or make, or do, the more you earn. In public 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, public university presidents have little choice but to follow their instincts and their instincts can be clouded by the lobbying of special interests. Public 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.
Will Change Take Place?
I hope so but history suggests otherwise. A more likely course of action following these double-digit increases is that tuition will continue to increase shameful, if slightly lower rates, further reducing educational opportunities for the lower middle class and underclass, and driving more students into the doors of the competition. Additionally, public university presidents will restrict enrollments, reduce services, place hiring holds on jobs that serve students, and raise student fees. The only thing they will not do is reduce their core production costs. They will make business decisions that would get them fired in the private sector, executing almost perfectly into the hands of their competition.
More Money for the For-profits
In making their university less accessible, less friendly, less attuned to the needs of the market, the actions of many public university presidents will transfer additional business to for-profits and other schools, most of which are out-of-state, and will make the public university even less efficient and less competitive in the future.
And so the downward spiral continues . . .
What Can You Do?
If there were ever a time to contact every elected representative and the Department of Education, this is it. The management structures of public universities preclude presidents from making these changes on their own. They need outside support. Contact your representatives and other influential individuals and groups.
Robert W. Tucker, President and CEO of InterEd, Inc.,
has been leading innovation in higher education since 1986.
He can be reached through this forum.
The expression of differing views by other leaders is welcomed.
Reader Comments (2)
Bravo! Of course all of these injunctions apply equally to non-public traditional schools. I remember an alumni event at Yale in 1991 at which one crusty old alum aked Benno Schmidt, Jr., " I see that you gave W. Edwards Deming an award. Have you attempted in any way to apply his statistical methods of quality control and process improvement to Yale's educational apparatus?" Benno thought a lot more like a businessperson than most college presidents, but he literally did not understand the question. He didn't think there was anything in Yale's output that could be numerically measured.
We have found that the most effective response to professors and administrators who assert that one cannot measure what they teach is the question: "If no one can measure what you teach, how can you make a rational determination that someone has learned it, and how can you assign grades that reflect the inevitably different levels of learning of your students?"
- Staff