Leading Colleges and Universities as Business Enterprises
Six CEO lessons from corporate America
By William D. Rezak

From the October 2000 AAHE Bulletin

Today’s sophisticated consumers of higher education are evermore conscious of the cost of the investment they are making. An organization grown accustomed either to an adequate allocation of resources or to escalation of prices to cover costs must now function with more attention on containing costs and reducing the price of services.

The public — state legislators, employers, students, parents, and other consumers of higher education services — is not willing to pay ever-escalating prices, so college and university CEOs must perform a sophisticated balancing act as they try to allocate scarce resources to programs attractive to students and to employers of graduates.

During the last 20 years, American business and industry have faced a similar dilemma, under pressure to reduce costs, maintain profit margins, and compete successfully for market share in a global economy. The companies that survived and thrived can serve as role models for colleges and universities.

Those institutions that employ faculty and staff who have practical experience in the "real world" will be all the better for those experiences during this time of shifting paradigms. Lacking the benefit of corporate experience, institutions might try these effective approaches.

Open the Financial Books
The key to meeting the challenges higher education face is an adaptable, flexible faculty and staff who understand the realities of the 21st-century economy, and of society as a whole. The first step that a college president can take in helping to enlighten them is to open the financial books to the entire organization. In this way, everyone will gain an understanding as to how the college expends its resources. A detailed breakdown with respect to the cost of salaries, fringe benefits, operating supplies, laboratory equipment, and overhead charges such as utilities, telephones, postage, space, and the like should be provided. When everyone understands where the financial resources go and realizes that those resources are becoming scarcer, there will be a good deal of scrambling to reduce costs and maximize the share available for programs and people.

Define Workload
Workload is always an issue of concern for faculty. This is especially true for those faculties that are unionized. As a former faculty member, I know how exhausting it is to maintain 15 to 20 contact hours per week and still have breathing room outside of class time to meet and work with students, grade student work, and assist the department and the institution in meeting goals and objectives.

It is reasonable to expect that faculty will, in addition to teaching a "full load," work on one project per year having to do with enhancement of a course, laboratory, or academic program within the department, and to engage in a college-wide initiative of some kind (service on a meaningful governance committee, search process, or relationship building outside the institution). Only in this way will academic programs and institutions maintain a level of excellence that allows them to successfully compete in today’s environment. In essence, faculty must transform themselves from revenue consumers to revenue generators.

Institutions must arrive at a rational method for determining the allocation of faculty positions to each academic program or department. There are several unit productivity factors (a term much despised by faculty) that allow for this type of analysis — students-per-faculty ratio, student contact hours per semester per faculty member, and student credit-hours per faculty member per semester.

One of the most useful unit productivity factors is student credit-hours per faculty member per semester. This ratio is determined by multiplying the number of credit-hours for each individual course by the number of students in the class, summing the total for all classes taught in a given semester, and dividing by the number of faculty members involved in the program or department.

When this ratio is compiled for a period of five or 10 years (ample longitudinal data should be available), it is easy to determine whether faculty workload has trended up or down over the period. The institution can then arrive at a reasonable student credit-hour factor per faculty member per semester for each program or department. The ratio then can be used to determine the need for reallocating faculty positions from one area to another.

In addition to a basic teaching load, each faculty member should have a meaningful assignment in support of departmental goals and another in support of institutional goals. Some will argue that if these responsibilities were not in the faculty’s workload in the past, they should not be now. This is the same argument the United Auto Workers used in the 1950s and 1960s when they demanded higher wages and more fringe benefits of the automobile manufacturers until they drove the price of American automobiles higher than that of quality imports. The rest is history. Americans proved beyond a shadow of a doubt that we would quickly and aggressively purchase goods and services of high quality and reasonable price from suppliers abroad.

The United States has approximately 3,700 colleges and universities competing for the enrollment of approximately 14 million people currently availing themselves of higher education services. Institutions aggressive in pursuing innovations attractive to students will garner the benefits of enhanced resource bases — state tax allocations and tuition and fee revenue.

It is easily and quickly evident which academic departments and programs are successfully engaging an agenda for the future. A review of the college’s budget by every member of the organization, coupled with an analysis of workload designed to successfully engage the challenges of the future, should help to move the institution forward, much as it has enhanced the performance of successful businesses and industries.

Evaluate Performance
Another way in which presidents can emulate the successful approaches of business and industry is to require personnel performance evaluations at least every other year. Human beings need, desire, and should receive periodic feedback with respect to performance. We all thrive on positive feedback and are challenged by constructive criticism to improve our performance.

Lack of evaluation is one of the most oft identified reasons for the failure of organizations. A union contract that precludes such evaluation is an embarrassment to both the institution and the union. This feedback is essential to the well-being of both the individuals involved and the colleges and universities they serve.

How can faculty be effectively evaluated? Evaluation by peers is ineffectual or, at best, limited in effectiveness. Departmental colleagues become too close on an emotional level to be objective about one another’s performance. Furthermore, any group of individuals who know that each will "receive a turn in the barrel" will not recommend corrective action for a colleague.

Department chairs can and should participate in evaluation of the faculty they lead. Generally, the chair is a colleague, and so it will be necessary to identify chairs with the courage to tackle this difficult task. This is all the more challenging where department chairs are members of the same union as the faculty they lead.

Feedback from students is an essential component of evaluating teaching effectiveness. Some faculty will argue that student feedback is an invalid indicator. The truth is that faculty who come to class well prepared, with high energy, who "sell" their subject matter to students in and beyond the class, are friendly and accessible outside of class, and who demonstrate that student success is uppermost, will receive positive feedback no matter how tough their student workload and grading processes may be. Evaluation of faculty without student feedback is a meaningless endeavor.

There are several valid and reliable commercially available instruments for the assessment of teaching effectiveness. Most of these have a nationwide database for purposes of comparison with peer group benchmarks.

The other component of faculty contribution is much easier to assess. This has to do with progress toward departmental and institutional goals and objectives. This is an assessment of whether a new course was developed on time and within budget, whether a new laboratory was functioning by the beginning of the scheduled semester, whether a search process resulted in a positive conclusion, and whether the contributions of an institutional committee have enhanced the organization. These outcomes are usually tangible and measurable.

Establish Profit Centers
Another model from business and industry that can be applied to higher education is the consideration of each academic department as a profit center. In the corporate world, the production facility or service provider is where "the rubber meets the road." That is, where goods are produced or services are delivered, and the customer is able to assess cost against quality and timeliness.

The rubber meets the road in higher education in the classroom. This is where the delivery of services takes place. Therefore, each academic department may be considered a revenue-generating enterprise. Its financial success can easily be evaluated by comparing the cost of its operation to the revenue it generates. For this analysis, one compares the cost of salaries and fringe benefits, operating supplies, laboratory equipment, etc., against the tuition and fees paid by student clientele plus other allocations obtained from grants, endowments, and state allocations.

When costs are equal to or less than revenue, the department profit center is a relative success. When costs exceed revenues, it is likely that resources will begin to be withheld for redistribution to those programs more successful in controlling costs and increasing revenues.

Incidentally, it is important to allocate institutional overhead to each departmental entity based on its student credit-hours generated or its number of employees. Student credit-hour generation (the number of credit-hours in coursework taught by a department multiplied by the number of students in each course and summed over all courses) can be used to help proportion overhead costs. The number of staff members in a given unit compared with the entire organization can also be used.

College overhead allocated on a department-by-department basis should include the cost of operating the offices of college administrators, admissions, financial aid, registrar, bursar, budget, purchasing, personnel, physical plant operations, public safety, student affairs, and the like. To the extent that any of them, such as residence halls, food service, or other concessions, generates revenue, it should itself be a profit center, and its costs not allocated back to the academic "production" departments.

This analysis will make it easier for the organization to understand the contribution that a particular department or division makes to the fiscal well-being of the college or university. It will also put a quick end to arguments for additional resources, if the cost-to-revenue ratio is greater than 1!

Schedule for Convenience
Convenience is also a hallmark of consumer evaluations of higher education. Americans have become accustomed to banking at any time of the day or night, making electronic airline ticket reservations, purchasing from the Internet and having goods delivered to the home, and paying for commodities and services by direct debit of bank accounts. Successful colleges and universities of the 21st century will offer the kinds of coursework that students want and need at times of the day or night and the days of the week that students find convenient, and with the utilization of technology that students demand. Distance education, asynchronous learning, evening and weekend programs for nontraditional students, and coursework delivered in the corporate setting will be the norm. Colleges that prove themselves flexible and adaptable to these market demands will meet with success.

Enhance Faculty Governance
To the extent that faculty governance engages in development of dynamic, attractive, and effective new academic programming that meets the needs of students and employers, it is effective and appropriate. If institutional leaders can avail themselves of the expertise of faculty and staff as the college makes its strategic plans, participation in the decision-making process is positive.

Too often faculty governance becomes an excuse to suggest that faculty "know best" with respect to allocation of resources and the agenda for the future. I submit that faculty and staff who have the time to constantly analyze the performance of college leadership are not fully engaged in their own responsibilities. This is not to say that a solid foundation built upon trust and respect is not required for organizational success. It certainly is.

The only way for organizational leaders to achieve trust and respect is by sharing information, keeping promises, apologizing when wrong, raising no false expectations, and avoiding surprises. Trust and respect can only be earned one person at a time, day in and day out.

The assumption here is that a basis of trust and respect already exists in the organization. If this is not the case, no amount of planning and organizing, corporate or otherwise, will lead to success.

College presidents have their hands full in today’s competitive environment. They can learn much from the successes and failures achieved by the thinking that has restructured corporate America. Colleges and universities, with their highly educated and skilled employees and human resource-intensive operations, can adapt to environmental reality and achieve success. It boils down to a willingness to open the books, define workload, evaluate performance, assess revenue against cost, and provide quality and convenience. It’s not rocket science, it’s good old common business sense.

William D. Rezak is president of the State University of New York College of Technology at Alfred. A registered pro-fessional engineer in several states, Rezak spent 18 years in engineering, design, and construction of industrial and utility power generation facilities. He has a master’s degree in mechanical engineering and a doctorate in human resource development. Contact him at rezakwd@alfredstate.edu.

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