How to cut the waste at colleges that's driving up tuition costs

Universities must learn how to do more with less.

By Jeff Denneen

Published on October 02, 2014
min read


This article originally appeared in LinkedIn. Why do US colleges and universities continue to spend beyond their means, even after years of public outcry over the rising price of a degree? My take, after hundreds of conversations with campus leaders: Power is so diffuse, emanating from the faculty to central administration, that broad change cannot be mandated. In the corporate setting, by contrast, it’s easier for an executive team to make decisions and direct employees to execute. This dynamic shouldn’t let higher ed leaders off the hook. Some institutions have found ways to implement a strategy that allows the organization to better define and focus on its core academic mission, to reduce costs and to develop innovative programs. Faculty members may have a low tolerance for business administration and change that disrupts their routines, but most care deeply about the educational mission of the institution and will listen to evidence that argues for change. At schools that have managed to effect meaningful change, I’ve often seen the leadership start by disabusing the campus of three myths. Myth 1: The status quo is an option. Too often, stakeholders believe that the current cash crunch and need for change are a temporary phenomenon that will subside as the economy continues to improve. Those who see things this way probably haven’t been exposed to the data showing that many institutions are overleveraged, with financial statements that are significantly weaker than they were several years ago. Deans, faculty and other key stakeholders must be shown clear and compelling facts to disprove the “return to the status quo” notion and to clarify the negative consequences of inaction. Myth 2: Each unit can solve its own problems. The magnitude of the challenge is too great and the organization is too complex for changes to be restricted to certain corners of the campus. Scale matters when you are trying to minimize the cost of administrative functions and deliver better service at the same time. Few departments or colleges on a campus have enough scale to achieve real benefits. So change will take deep root only when it cuts across the institution. At one university I worked with, the central facilities administration wanted to improve classroom utilization to accommodate a growing student body without building new classrooms or renovating old ones. Many rooms had been scheduled and managed at the department level in nonstandard blocks, so the administration offered an inducement: In exchange for standardizing schedules and allowing nondepartmental use of classrooms, the administration would pay for technology upgrades. Beyond capital savings, the teamwork and standardization saved the university $800,000 and gave it more flexibility in negotiating its overhead rate with federal grant-making agencies. Myth 3: Smaller budgets mean worse service. People on many campuses have the misconception that if you cut a budget, quality will decline. Given the fragmented, subscale nature of how services typically were provided, this might have been true in the past. But a high-performing organization busts this myth. Poorly run operations actually costmore than well-run operations for a given service level (assuming the poor operations can actually deliver on that service level). In a function where people aren’t well trained, don’t have the requisite expertise and lack well-defined processes and tools, it takes longer to get things done, more mistakes and rework occur, and “customers” spend more time checking in and voicing complaints. For higher education, there is no status quo. The industry is at a major inflection point and will change dramatically over the next 10 years. Individual colleges within a university can’t solve the problem on their own; instead, they will have to take a pan-university perspective. (Don’t get me started on the antiquated nature of the typical college structure!) Universities must learn how to do more with less. Unlike other industries, higher education has not yet managed to come down the experience curve, where cost per unit of output declines over time. That dynamic must end if traditional colleges and universities expect to compete and thrive amidst the new realities of higher ed.

This article originally appeared in LinkedIn.

Why do US colleges and universities continue to spend beyond their means, even after years of public outcry over the rising price of a degree?

My take, after hundreds of conversations with campus leaders: Power is so diffuse, emanating from the faculty to central administration, that broad change cannot be mandated. In the corporate setting, by contrast, it’s easier for an executive team to make decisions and direct employees to execute.

This dynamic shouldn’t let higher ed leaders off the hook. Some institutions have found ways to implement a strategy that allows the organization to better define and focus on its core academic mission, to reduce costs and to develop innovative programs. Faculty members may have a low tolerance for business administration and change that disrupts their routines, but most care deeply about the educational mission of the institution and will listen to evidence that argues for change.

At schools that have managed to effect meaningful change, I’ve often seen the leadership start by disabusing the campus of three myths.

Myth 1: The status quo is an option. Too often, stakeholders believe that the current cash crunch and need for change are a temporary phenomenon that will subside as the economy continues to improve. Those who see things this way probably haven’t been exposed to the data showing that many institutions are overleveraged, with financial statements that are significantly weaker than they were several years ago. Deans, faculty and other key stakeholders must be shown clear and compelling facts to disprove the “return to the status quo” notion and to clarify the negative consequences of inaction.

Myth 2: Each unit can solve its own problems. The magnitude of the challenge is too great and the organization is too complex for changes to be restricted to certain corners of the campus. Scale matters when you are trying to minimize the cost of administrative functions and deliver better service at the same time. Few departments or colleges on a campus have enough scale to achieve real benefits. So change will take deep root only when it cuts across the institution.

At one university I worked with, the central facilities administration wanted to improve classroom utilization to accommodate a growing student body without building new classrooms or renovating old ones. Many rooms had been scheduled and managed at the department level in nonstandard blocks, so the administration offered an inducement: In exchange for standardizing schedules and allowing nondepartmental use of classrooms, the administration would pay for technology upgrades. Beyond capital savings, the teamwork and standardization saved the university $800,000 and gave it more flexibility in negotiating its overhead rate with federal grant-making agencies.

Myth 3: Smaller budgets mean worse service. People on many campuses have the misconception that if you cut a budget, quality will decline. Given the fragmented, subscale nature of how services typically were provided, this might have been true in the past.

But a high-performing organization busts this myth. Poorly run operations actually costmore than well-run operations for a given service level (assuming the poor operations can actually deliver on that service level). In a function where people aren’t well trained, don’t have the requisite expertise and lack well-defined processes and tools, it takes longer to get things done, more mistakes and rework occur, and “customers” spend more time checking in and voicing complaints.

For higher education, there is no status quo. The industry is at a major inflection point and will change dramatically over the next 10 years. Individual colleges within a university can’t solve the problem on their own; instead, they will have to take a pan-university perspective. (Don’t get me started on the antiquated nature of the typical college structure!)

Universities must learn how to do more with less. Unlike other industries, higher education has not yet managed to come down the experience curve, where cost per unit of output declines over time. That dynamic must end if traditional colleges and universities expect to compete and thrive amidst the new realities of higher ed.