You are here

Future Shock

Treasure Island: The Next Generation of Cost-Conscious Colleges and Universities

University Business, Nov 2011

Steve Jobs once opined, “It’s more fun to be a pirate than to join the Navy.” Today, this classic metaphor provides us with a cogent expression of Jobs’ counter-intuitive resistance to the temptation of conformity, and his passionate desire to explore uncharted territory and discover unfound treasures.

When we first learned of the national cost avoidance and expense reduction movement, we thought it mere garden-variety bean counting—the typical end of fiscal year nickel-and-diming that Deans and Department Chairs dread. On closer inspection, what we found was quite remarkable. Indeed, we now believe that higher education can learn new lessons from Steve Jobs’ vision and will – particularly when both small colleges and large research universities are strapped for precious resources. This fiscal squeeze comes at a time when competition has never been more craven and the economic consequences never more harrowing. With spiraling tuition, rising default rates, increasing health and benefit costs and unbridled financial aid discounting, institutions find themselves searching for buried gold in an imperfect storm.

Early on in the recession, both small business firms and Fortune 500 companies searched for hidden treasure by co-sourcing with corporate treasure hunters (expense reduction experts who can move nimbly as cost avoidance change agents without burdening in-house finance and administration staff). Paradoxical though it may seem, some campus leaders are still somewhat gun shy of such engagements because the prospect of significant retrenchment can quickly turn into faculty no confidence votes— an unintended yet pernicious result of knee jerk reductions in campus workforce.

“What clients like best is 100 percent results based compensation without faculty layoffs—providing no risk exposure and significant campus reward," says Steve Brown, CEO of Chicago-based Stratego Partners. He has 25 years of experience in corporate cost avoidance and expense reduction. "The typical campus treasure hunt targets cost avoidance and expense reduction of non-core functional areas like vendor services and procurement, campus financing and facility costs, employment benefits and healthcare costs, energy and utilities, business income tax strategies, health, property, casualty and liability insurance, risk management, educational telecommunications, IT and library technologies, and equipment spending, to name a few.”

From corporate expense reduction experience we learned more about potential campus cost cutting clues that are readily discoverable in monthly statements of transactions, independent audits, and internal books of account. This forensic approach drills down deep into campus audit trails for purposes of identifying pending contracts, RFPs, purchase orders, requisitions, and other encumbrances ripe for the picking.

Stefan Krug, dean of the Simmons College (Mass.) School of Social Work has one way to describe the cost avoidance trend.

"All higher education administrators, whether presidents, provosts, deans, or department chairs, must work to create a cost-conscious culture among faculty and staff," he says. "Faculty and staff are ideally positioned to identify operational inefficiencies and areas for cost savings but, in a misplaced paternalism, are protected by administrators from full knowledge of the institution’s financial challenges until it’s too late. At that point, the possibility for making strategically sound, surgical cost-reduction interventions is lost, and administrators may face the even more difficult challenge of managing workforce reductions, the effects of which can ripple through an institution for months, even years to come."

From the partnership perspective, emergent higher education consortia are exploring new and creative ways and means to best effectuate economies of scale, efficiencies in operation, and non-duplication of programs, services, infrastructure, and technology resources. Take The Boston Consortium, for example. This consortium of 15 institutions in the Greater Boston area—including such venerable places as Harvard, MIT, Boston University, Boston College, Northeastern, Tufts and Wellesley—serves as an honest broker and facilitator for effectuating collective procurements, health and benefits cost reduction, captive insurance pools and energy cost sharing.

“Colleges and universities in the Consortium have formed wholly owned entities to provide services at lower cost, taking the form of joint ventures, partnerships, or alliances with other organizations or schools for the purpose of increasing service, lowering cost, and improving overall efficiency,” says Phillip DiChiara, managing director of the consortium.

Speaking from the for-profit viewpoint, Todd Rickel, president of Herzing Online, says, “Operations executives across higher education are facing shortfalls in revenue that are forcing difficult discussions of expense reductions and resource/program prioritizations. While cuts are nothing new to our industry, its prevalence across private, public, and proprietary sectors alike is unique. Schools cannot approach [cost cutting] the same way we have in the past. New and innovative methods to identify cost savings are front and center in our board rooms. The staid and customary big ticket funding reductions by large accounting firms is insufficient to meet our needs. We need more.”

For higher ed industry insiders, the answer is clear: Colleges and universities need to become more fully engaged in a proactive search for buried treasure. Cost avoidance, expense reduction, and bottom line profit improvement organizations like The Boston Consortium, Simmons College, and Stratego Partners are at the forefront of this movement, finding new ways to figure out where "X" marks the spot.