Why Can’t Universities be Run Like Businesses?

Why can't universities be run like businesses? During the 25 years I spent as a professor of management, this question always intrigued me, and is partly responsible for my having spent the last 10 years in the for-profit side of higher education. 

I found the answer. They can, but that does not mean they will be any more successful.

What does it mean to run something “like a business”? It could mean that university presidents should become robber barons; some in the for-profit and not-for-profits have tried. It could mean that university administrations should practice scientific management, engage in time and motion studies, and reward the “good lads” who meet or exceed work standards. Some have tried.

In 2001, Robert Birnbaum wrote a neat little book, Management Fads in Higher Education, that began with that question, “Why can’t a college be more like a business?” and ends with this profound statement (p. 241) : “Academic management fads are potentially disruptive in the hands of insecure or inexperienced managers who adopt them because they do not know what else to do.” 

Most current for-profit higher education institutions are indeed rife with management fads promulgated by many insecure and inexperienced administrators.

The provost in one of the for-profit universities in which I worked became enamored with a baseball book about Billy Beane. All the deans flew hundreds of miles, spending thousands of dollars in the process, for a series of management training sessions related to this book (the premise of which was fundamentally opposite to the operating structure of the university), which we were required to read, which had nothing to do with our jobs or the business in which we operated, and which was never integrated into the structure of our philosophical or existential lives. 

At this the same time this same provost had the deans and directors voting on an organizational structure. The votes were counted, but the results were ignored, and the structure changed drastically at least three times during my three years in the organization. 

Each change was explained as stemming from a need for more control of the academic administrators.

The operative word that prompted this adventure was “metrics.” The metrics that were deemed most appropriate for academics at this university comprised an alphabet soup of labels; Q rates, R rates, U rates were among the most popular of the soup. The president had an interesting logic in explaining the mission of the academics: “We admit students with an ethical responsibility; we take their money so we are ethically obligated to graduate them.” This was generally followed by, “I don’t want to hear any excuses from the academics.” The Q, R, and U metrics were used to measure how well we were doing with this ethical obligation.

There were several flaws in the soup, however. First, a mountain of research on student retention shows that there is almost a one-to-one correlation between student admissions and student retention; the logic is that if you admit the “right” students (i.e., those who fit the mission and culture of the institution), they will most likely stay. So, if you want strong retention, get everyone, including academics, involved in admissions. For me to say this in public at any of the for-profits in which I worked  invited blank stares at best (why would I know anything about admissions), and derision at worst. I saw a lot of blank stares and experienced much derision.

Admissions is key to the success of any academic organization; if you don’t attract students, you don’t succeed. Admissions offices/processes/compensation are governed by law and watched carefully, especially in for-profits, the result of several documented bad practices over the years. This has resulted in creative approaches to get around the law. One of the for-profits sponsored lavish cruises each year for “invited” admissions representatives. Of course these invitations had nothing to do with the performances of the invitees. And of course, the cruises involved “training” exercises. The fact that folks who did well with admissions got to go on cruises and hobnob with top company executives was a part of the company’s belief in training and development. 

No equivalent “training” was offered to non-admissions professionals.

The second flaw is that the most significant aspects of the alphabet soup do not relate to admissions.this university. The universities in which I worked had “open enrollment”  policies, which boiled down to the fact that if you had the tuition money you got in.  Names of potential students were bought from groups called lead aggregators, and colleges paid per name based on the quality of the leads—the cheaper the lead, the lower quality. If one of the metrics employed by the college relates to the lowering of the “cost of acquisition” of students, one does not need to have an M.B.A. to understand the “best practices” of that open enrollment institution.

The third flaw is obvious. If the quality check on admitted students is not operational, it is probable that there will be students admitted who do not have the academic wherewithal to succeed in the institution. This is the ethics flaw in the president’s message. If universities let people into the university who can not succeed, and then not provide them the tools for success, they will fail. In my experience, it was then left to faculty members and academic advisers (in the for-profits these were overworked young folks who were frequently caught in middle between professors and students) to bear the brunt of the obligation for, and work in, retaining these students, without having the proper tools to do so.

This is where the alphabet soup metrics kicked in. “Drop rates”, “Unsatisfactory Grade”, “Retention” rates were measured weekly and deans got reports. If there were too many students failing, deans got subtle messages; I was never explicitly told make sure students passed, but the implicit messages could not have been clearer, if disguised in ethics rhetoric. If there were too many students dropping out, deans got clear messages, weekly.

I was on a phone call with deans of on-ground colleges owned by this major corporation, hosted by the corporate vice president for faculty, dealing with drop rates and retention. “Everyone knows learning is a drag,” she said, “So get those students out of class frequently and feed them ice cream and pizza. We should learn from my experience at this large department store, where I went I last week to buy a pair of shoes and came out with their having sold me $1000 worth of other things. Feed them and get them enrolled in more courses.” This approach is perfectly consistent with buying cheap leads and letting everyone in the door, and reflects a remarkably condescending attitude about learning, higher education, and human beings. 

It was an attitude that pervaded the culture of  “the management” in this institution.

Academic deans, faculty members and advisers were held accountable for retention. They were not privy to lavish cruises, however, training or no training. They were not privy to praise. They were privy to metrics reports. I asked the president what the motivation was for these folks, given this reality. I was told “You get to keep your job.”

Metrics seems to be a Twenty-First Century business word, like “buckets” and “at the end of the day.” I’ll use it in a sentence: “The metrics for your college indicate a downward trend in student retention, which, at the end of the day, shows some significant problems; we need to re-examine each of your buckets, using these metrics, to determine the scope and significance of this significant problem.”

At one of the for-profits I worked for, “drop rates” were viewed as significant metrics. No one knew why, exactly, but we measured them weekly. At the end of the day, we knew no more about the effectiveness and efficiency of the college. We did know that we were delivering 30 percent margins. We did know that was not good enough. I knew it was not good enough because top management had made promises to the parent company, not based on any metric other then greed and hubris, that they could not keep. The management theory then deployed was to intimidate and demand performances, using undefined metrics, examining non-existing buckets, which would, at the end of the day, result in their being able to keep their promises, and therefore their bonuses.

Rakesh Khurana’s book, From Higher Aims to Hired Hands (2007) makes elegant points about what he sees as the denigration of the academic profession of management. His basic case is that business schools have shifted their attention to the training of students to use “financial engineering tools, like leverage and stock options, to align corporate actions with the goal of maximizing shareholder value.” (p. 364). These business schools graduated the management teams that ran the for-profits I worked for; one prided itself on the number of MBAs from big-league schools comprising their corporate leadership.

Jerome Groopman, in his book, How Doctors Think (2007), makes the point that in recent years “medical students and residents are being taught to follow preset algorithms and practice guidelines in the form of decision trees. . .  Similarly a movement is afoot to base all treatment decisions on statistically proven data. This so-called evidence-based medicine is rapidly become the canon in many hospitals.” (p. 5)

These two books document the widespread acceptance of this newest fad, not only in higher education management, but also in at least two professions.

           

The metrics fad in higher education causes problems. Groopman talks about doctors taught the algorithms approach, looking at the decision trees rather than listening to the patient. There is nothing wrong with decision trees; they just don’t tell the whole story, and one does not begin with the trees and fit patients into them, but uses the trees as tools in diagnosis. The metaphor is most apt for higher education.

The business that is higher education is at its core a very easy one to understand. In order to  “run the college like a business”, one first needs to understand the nature of the business. The business of higher education is straightforward on its face if a bit more complicated when one digs. It is the business of higher education, says me: to provide students the opportunity to grow and develop intellectually, professionally, and socially; to challenge what is currently assumed to be known; to promote the development of “new” knowledge; and to promote the intellectual and social growth and development of societies.

In order to accomplish these goals, the higher education institution needs to  maintain fiscal solvency, defined slightly differently in for-profit than not-for-profit institutions. In not-for-profits, fiscal solvency means generating the means to sustain itself, living within its budgets, and securing funds to ensure its solvency over time. The danger is in not paying attention to budgets but in assuming lofty ideals without attending to the checkbook and savings account.

For-profit institutions have these responsibilities, plus there is the additional demand to deliver a reasonable (defined by the market) profit to its shareholders. The danger is in assuming their only reason for existence is to provide ever increasing profits to shareholders, thus confusing means and ends.

For both, students provide a fundamental means for accomplishing the ends, and the mechanism for ensuring fiscal solvency. Students are the core of the business, without which the industry and businesses within it cease to exist.

Higher education is an industry. Universities should be run like businesses. This means they should have missions, develop strategies to accomplish missions, and develop and grow resources (people, financial, process) to implement the strategies. They should  monitor (maybe even use appropriate metrics) the accomplishment of strategies, and change to meet new challenges.

In this industry, however, we should not begin with the supposition that “learning is a drag.”