On Monday, The Chronicle of Higher Education reported that two consulting firms, Bain & Company and Sterling Partners, were “unveiling” a tool that would help universities determine whether they are “unsustainable.” The “tool,” which purports to show that about a third of American colleges and universities are “unsustainable,” with another third imminently at risk of being so, is accompanied by a document, “The Financially Sustainable University,” which offers Bain and Sterling’s chief recommendations for universities to deal with the “liquidity crisis” in which they find themselves and make themselves sustainable. The Chronicle notes that one of its own staff, its Vice-President and Editorial Director Jeff Selingo, helped to write the report, a fact that one commenter on the Chronicle site has declared shameful, but let’s focus on the question of what’s in this “news.”
Readers of the University of Alberta’s Colloquy will recognize Selingo’s name, which featured in a Colloquy posting urging members of the University of Alberta community to pay attention to the “disruptive innovation” coursing through the academic world. This “disruptive innovation” features in the report by Jeff Denneen (Bain & Company) and Tom Dretler (Sterling Partners), but the contention that the “online market” for higher education is “rich with opportunity” plays only a minor role. In fact, it is one of the tamer aspects of the report, as Denneen and Dretler suggest that universities actually might want to exhibit caution in getting involved in the new online possibilities: “For some institutions,” they write, “rushing into the online space too rapidly to grow enrollment and create new revenue is another me-too strategy. There are already too many entrenched players and new entrants with significant capital in the market for an undifferentiated strategy to succeed.”
Other aspects of their report might, on first glance, have attractions. Denneen & Dretler declare, for example, that “the growth of support and administrative costs” must be stopped. “In no other industry,” they write, “would overhead costs be allowed to grow at this rate — executives would lose their jobs.” The report is nevertheless alarming, for amidst its shallow framing of the issues and its mostly hackneyed recommendations Denneen and Dretler suggest that one of the most effective ways for American universities and colleges to Save Themselves is for them to Sell Off Their Assets. Just “non-core” assets, they claim, but the meaning of that will become clearer below.
Universities for Sale!
The report begins with the brief glowing statement that “US colleges and universities are the cornerstone of our economic prosperity and the key to realizing the American dream,” but this is hardly the prelude to an argument about why American colleges and universities should be funded as a public good. Denneen and Dretler assume that the solutions to the bleak situation that they describe can come only from the private sector, and so they cite and quickly dispense with declining public investment and the state of the economy as irremediable facts.
They are hardly going to urge higher levels of funding by the American federal or state governments as that would go against their purpose.
Instead, readers are told that university “[f]inancial statements . . . are significantly weaker than they were several years ago,” and that university endowments have taken a plunge — facts that the faculty members at the University of Alberta know only too well, having had to give up a portion of their salaries in 2009-2010 when the University declared that it suddenly had a $60 million budget shortfall. Readers are expected to accept that all of this, along with reduced government funding, makes the solutions that Denneen and Dretler propose necessary. And to whom should they turn for assistance with help cleaning up the mess that has resulted from the tanking of their endowment investments and the deplorable decreases in public funding? Well, to capitalists, of course! “There is a growing class of private equity investors,” Denneen and Dretler write, “looking to infrastructure investments to provide low-risk, stable cash flows to balance out their portfolios.”
“A Growing Class”
This “class” would help universities out, they suggest, by buying up university real estate and any “hard assets” they might have, such as power-generating plants. “US colleges and universities collectively have more than $250 billion worth of real estate assets on their balance sheets,” they write. “In other real estate-intensive industries, such as lodging, restaurant and healthcare, organizations have consistently found ways to turn a portion of these assets into cash by selling and leasing back, without losing their ability to use the real estate in the same way as before.” Universities own “other physical assets that could also be converted to cash through sale and leaseback arrangements or outsourced service contracts.”
Let’s get this straight. There has been a fire, as they would have it, one that universities did not set ablaze, and now we must have a fire sale. Universities ought to sell off their real estate to private interests who can then lease the property back to them for their use. A university’s use of the property need not change. The universities just won’t be the owners of it anymore. Which is to say — in the case of public universities — that the public won’t own the real estate anymore. (As it stands, such property is held by Boards as trustees for those universities as public corporations.)
In short, what do Bain & Sterling see when they look at universities? Untapped capital-making assets that private equity now has the opportunity to snap up.
The claim is that they would show us the way to “free up the capital” locked in such assets. But what is this argument they offer us, when they contend that for universities to stay afloat they must do the one thing that no prudent business would do, sell off some of their prime assets for some quick cash or momentary liquidity?
Sure, the initial sale of any such property “could free up tens of millions of dollars of capital” for any given university. But who will gain from future development of that property? Not discussed. How will universities fare with those assets off their books? Not discussed. There is not a single word in Denneen and Dretler’s report to indicate that they are asking universities to engage in profoundly short-sighted thinking, and no acknowledgement that the short-term liquidity that their solutions would offer would benefit parties other than the institutions themselves, while very well putting the institutions at longer-term risk. There is also nothing in their report to indicate that they understand the risk that their various other recommendations, such as the increased commodification of thought as intellectual property, pose to the core missions of the academy. The only time the word “intellectual” enters their discussion is in their paragraph on the “underleveraged” assets of intellectual property.
Less ‘More,’ More ‘Moore’
Denneen and Dretler’s recommendations come with the unctuous directive that universities are to give up their “Law of More.” In material to warm a satirist’s heart, they urge universities to “create value” at their “core” by trading in the “Law of More” for “Moore’s Law.” The “Law of More” leads us, they claim, to build and spend and diversify and expand in our attempt to create prosperity for our institutions. “Moore’s Law,” on the other hand, dictates that as a company’s output goes up, the cost of its “units of production” will come down. We can find this principle in action, they inform us, in the phenomenon of “the number of transistors on a computer chip [doubling] approximately every two years,” which leads to “consistent increases in computing power and cost reductions for the technology that is at the heart of the digital revolution.”
OK, make more “units,” bring down your costs, start revolutions that make great wealth for a few. We get it. But wouldn’t there be other factors involved in bringing down the price of the “units”? What are the “units” that we’re supposed to be producing at a lower cost? Degrees? And how exactly does this relate to what we do in the academy, where our interest is in making general social wealth? None of this is clear from their immediate context. Their next sentence simply reads: “The natural question for higher education, then, is what incremental value is being provided for the incremental cost?” Of course that’s the “natural” question. Naturally.
Perhaps we are supposed to be producing one student who can think for three while crowded with others onto the head of a pin. If so, let’s hope that once they’re there, the students start a revolution that rids the world of the crude thinking that would reduce them to “units of production.” Meanwhile, perhaps someone could explain to Denneen and Dretler that the imposition of market values upon our, er, transistors won’t necessarily increase their power, and may very well diminish them, if only because our interest is in cultivating talents that cannot be commodified. Oh, and they might also note, as one commentator on the internet has quipped in response, that “[University] profits don’t show up as income. They show up distributed all over society.”
The Power of the Faculty & the “Clear Path Forward”
As they urge us to reject the “Law of More” and create value in our “core,” Denneen and Dretler acknowledge that they understand that the academy is an unusual “industry” (sigh) in that it operates according to something funky called “shared governance.” And they acknowledge this presents them with a certain difficulty. Or rather it presents university administrators with a difficulty. University administrators understand that “Change is needed, and it’s needed now,” and they know what they need to do. But universities come with this pesky constituency called the faculty. “Creating change on campus is harder than creating change in a corporate setting,” they write. “In the corporate ecosystem, power resides largely with the executive team and cascades down. In academia, power usually emanates from the faculty and works its way toward the central administration.”
Let’s leave aside the question of whether (or where) faculty are successfully exercising the authority that is indeed supposed to be theirs under the academy’s organizational principle of shared or collegial governance. The point is that Denneen and Dretler recognize that it is one thing for Bain and Sterling to convince university administrators to concede to their logic, quite another for them to convince faculty to concede to it and allow such actions as the selling off of any of their universities’ real properties. And so they propose that university administrators will, in the face of shared governance, have to “work with the faculty to build a compelling case and a clear path forward.” And how precisely do they propose they go about this? Well, first administrators must make their faculty understand, as one of their headings declares, that “There is no status quo.” This sounds not unlike what members of the University of Alberta community have heard lately, when they have been informed that the project of restructuring requires that nothing be treated as “sacrosanct,” or as a “sacred cow.”
“Apply a Set of Consequences”
Once administrators have inculcated the attitude that anything and everything is “up for grabs” or can be changed, they should proceed to “apply a set of consequences.”
What can this mean, you ask? Ah, well, administrators have a certain tool at their disposal: control over budgets. (“Given the scarcity of resources and corresponding competition for those resources, discretionary budget allocations are typically the most effective tool.”) And how might they use this tool? Well, here’s what they offer by way of example:
At one university, the provost provided two budget alternatives to each dean and supervisor. The first was to move forward with the changes suggested by the administration’s “transformation team.” The second offered a flat cut to all units if they did not want to participate in the transformation program. The flat cut in the second alternative was significantly higher than the savings that would be achieved by participating in the transformation.
Administrators should, in short, clear their path forward to getting the faculty to adopt the measures that they promote by manipulating deans into doing precisely what they want them to do while giving them the illusion of choice. Exercising the choice that is no choice at all deans will of course choose, on behalf of their faculties, the alternative that produces, in Denneen and Dretler’s rhetoric, the least pain. Denneen and Dretler recommend, in short, that administrators “apply” coercion to get what they want.
Creating “Value” in the “Core”
Administrators must also refuse to let departments “hoard” resources. To deal with this difficulty, they must eliminate departments (“units”?) that can’t prove their value.
That is, unfortunately, hardly a revolutionary thought on their part, and La Trobe University in Australia is only the most recent amongst the casualties of this kind of thinking. Administrators there have announced that La Trobe will “cease teaching art history, gender, sexuality and diversity studies, Indonesian, linguistics and religion and spirituality.” Diversity? Spirituality? Other languages? Art? What value is there in these for any university “core,” defined by Denneen and Dretler as follows:
The core is where high-performing institutions invest the most and generate the greatest returns. It is the area where they are the clearest about the value they add. It is the domain where they are the most differentiated and the place from which they derive their identity. In short, the core is the strategic anchor for the focused company or the focused university.
No vision of the balanced academy here! With the focus that they urge, anything that is not part of the “core” will be shunted to the periphery where it will drop out of the university’s collective vision. As universities define themselves in terms of market value, and learn to invest only in the part of them, the “core,” that may increase that value, they should “build from the inside out,” taking care as they create new programs that “add value” to make sure that they do not make the mistake of letting any “old programs” now languishing on the periphery live on. These must be “curtailed” or “closed down.” Having established, as it were, a new topography for their institution, administrators must abide by the mantra “Cut from the outside in.” The bonus? Any hard assets associated with the jettisoned “units” can now be sold off as “non-core.”
Get Your Metrics Now!
In a global culture finding it increasingly difficult to imagine any way of being or thinking not dominated by “market” ideology, the report may very well have many readers whose response will be the equivalent of “Right on!” “Translation: Run your business like a business” one writer declares in his account of Bain and Sterling’s report. Trapped in the thinking that makes it impossible for them to construe or comprehend universities as something other than a business — thinking that others similarly trapped will applaud — Denneen and Dretler also argue that universities are not securing nearly enough by way of return for the “R&D” investment in them. In their view, “technology transfer offices [as] the custodians of some of their institution’s most under leveraged assets” come nowhere near to securing what “intellectual property companies that manage the patent portfolios of technology giants such as Microsoft typically get [by way of return on] their clients’ original R&D investment.”
“Comparing federal funding with research funding by companies or dividing licensing income by federal funding to calculate ‘ROI’ is overly simplistic and shows a lack of understanding of academic research and technology transfer,” responds Todd Sherer, President of the Association of University Technology Managers. (See Sherer’s comment under the article on the Chronicle website.) The funds invested are not, he notes, “R&D” funds, but funds “in support for basic research and for training students who learn the research process while working on these projects,” and “[s]imply considering research funding as an ‘investment’ that deserves a decent financial return could greatly hamper the scope of basic research required to encourage scholarship and important discovery as researchers begin to target only areas with the greatest potential financial return.”
We know this, of course, but should all be grateful to Sherer for taking the time to post his comment to the Chronicle. For one of the most striking things about the report is the lack of concern it demonstrates with how the academy thinks, or what its principles of organization are, or the extent to which its “mission,” to which it blithely refers once or twice, is inherently caught up with the public good. Denneen and Dretler take account of “shared governance,” after all, only because it constitutes a stumbling block to the success of any implementation of their recommendations.
In fact, if this report is evidence of how consulting firms think, we can only stand back in awe at just how unsophisticated that thinking is. There isn’t any evidence here that corporate consultants can begin to account for the subtle ways in which the work that takes place at a university in both education and research produces positive effects for the culture. How can we not cringe when the report builds towards the most unoriginal of recommendations by urging that institutions develop “metrics” that will let them determine “value”? Such metrics would attempt to catch and measure the density and dispersal of cumulus clouds with an iron cage for hens.
Where’s the Real Path Forward?
We could simply ignore the report. The sad thing is, though, that administrators aren’t likely to. The report will be read by university administrators, and its shallow platitudes and dangerous recommendations will be cited. This is precisely the kind of document that administrators cling to as a touchstone. And the more that consulting groups and others, on behalf of those outside the academy who wish to profit from its restructuring, can persuade those within the academy to take on their values, the clearer their path forward. They urge their logic upon us claiming that universities have “rich opportunities” before them. But these so-called “rich opportunities” derive from a set of possibilities radically narrowed according to the constraints of market thinking, and the ways in which a certain “class” might like to profit. Amongst other things, as Goldie Blumenstyk notes in the Chronicle, “One of Sterling’s portfolio companies specializes in licensing intellectual property and is looking to expand into the academic market.”
But perhaps we should thank Denneen and Dretler for laying so bare the logic according to which consulting groups and private equity firms think, as they eye our assets. As Denneen and Dretler would have it, North American universities can prosper by only one means, finding things to sell, whether it be their lands, their power-generating plants, or one form or another of intellectual property. They would have us take institutions that are supposed to be sanctuaries of the public good, and reduce them to one kind of commodity or another, purportedly so that we can be saved from ourselves. And by laying this bare they show us our path forward.
If we don’t find other ways to protect them, universities may indeed find themselves having to sell off one part or another of their patrimony — which is an inheritance, it needs to be underscored, that is still, in the case of public universities in Canada, in public hands. The situation for American universities is far more dire than it is for Canadian universities because Canada has managed to sustain its public support for its universities at far higher levels. But there is the danger that Canadian administrators who find American commentary and American ways compelling — who feel that we need to follow the Americans to keep our universities “relevant” — may want to follow American models despite the fact that by doing so we would sacrifice our relative health. We need to declare these arguments unsustainable, and look for others to show the kind of imagination that is nowhere in evidence in Denneen and Dretler’s report.
The Public to the Rescue?
Denneen and Dretler clearly identify the “class” for which they would act. We need another “class” to act — that “class” of investors that controls the public purse. Their investment is the best safeguard for post-secondary institution; they are the ones with the power to keep the assets of public universities, already existing and to come, in public hands.
And by these investors I mean the general members of the culture.
Perhaps it would help if some of these investors sat on university boards. Why is it that university boards are populated only by individuals who have achieved corporate success? Where on our boards are the doctors, teachers, social workers, librarians, nurses, bank clerks, rig workers, psychologists, poets, poet-baristas, journalists, dental hygienists, reservation members, fashion designers, watch-makers, fishermen, dancers, pilots, taxi-drivers — I break off because the kind of person not on our university Boards is endless, and this list can only ever be weakly representative, but one thing’s for sure: there’s no evidence that university administrations or provincial governments in Canada even dream of such representativeness for their Boards.
The larger point is that universities truly are places of rich opportunity, and do possess rich assets, and that these assets are being developed there for all of us. Some of these assets are “real,” some of them, immaterial, but all of them are assets that need to be kept in public hands, and cultivated for the public good. Inasmuch as universities subscribe to any “Law of More,” it is a law for the public good, and this law will not be served by letting brokers convince us to liquidate any of our “real” assets for short-term gain, or commodify our work on their terms so that they have goods that they can take to “the market” for us.
And here is the question that we ought truly to deem the question to be asked: What arguments would Denneen and Dretler make if they were not writing to secure private profit for themselves and the clients, both existing and prospective, of private equity firms? Or, to put this another way, what solutions would they propose if they themselves had no more to gain from their arguments, directly or indirectly, than any other member of the culture, and only the institutions themselves — no private investors — could benefit from their recommendations? Might we then find in the report that they have not written some true innovation for the public good?
* * * * * * *
For another perspective on the brief, you can turn to“The Good, the Bad and the Ugly in Bain’s Higher Ed Funding Report” at http://utotherescue.blogspot.com/2012/07/the-good-bad-and-ugly-in-bains-higher.html.
The Bain & Company/Sterling Partners “Brief” is available here: http://www.bain.com/publications/articles/financially-sustainable-university.aspx