A Commentary on the Corporatization of Higher Education
Jason G. Caudill
In recent years there has been considerable discussion in the field of higher education about applying corporate management models to the operation of colleges and universities. While many administrators see corporatization as a reasonable solution there are just as many who feel that it will compromise the mission and the success of institutions of higher education. The truth, as is often the case in polarizing debates, likely lies between the two extremes. By examining where higher education is at today and how business theories and methods interact with the needs of colleges and universities it is possible to highlight the positive and negative effects of corporatization.
The State of Higher Education
Higher education in the United States is currently operating in challenging times. Student populations are not only growing but changing, while at the same time faculty availability is decreasing along with state funding for public institutions. The challenges associated with these issues are associated with corporatization.
The shift in student and faculty populations is not only connected through an obvious association in the operation of an institution of higher education but also reflects the current generational shift occurring in the domestic population. It is somewhat obvious to the casual observer that many, if not most, of the senior faculty and administrators currently employed in higher education are approaching retirement. As with other sectors of the economy, the lion’s share of these positions are held, and have been held for some time, by members of the Baby Boom Generation, mostly born between the mid 1940s and mid 1960s. The result is a projected mass exodus of sorts from higher education in the next several years not only of faculty but of their skills and experiences. The first baby boomers will begin retiring at 65 years old in 2011; the total projected number of retirees from that generation is 77 million (Goodman, 2005). With so many talented people leaving the field there is a high need for quality replacements.
These replacements will, for the most part, come from what is termed Generation X, defined by the U.S. Census Bureau as those individuals born between 1965 and 1976. The interesting logistical aspect of this natural progression is that Generation X is a far smaller population than the Baby Boom Generation. The 2005 United States Census reported 49.1 million members of Generation X. Therefore, across all sectors of the economy there will be more upper-level positions than there are qualified candidates to fill them. Further, the mostly good economic conditions Generation X entered into once they reached working age found many of them had ample opportunity, and well-paid reasons, to pursue corporate employment rather than a comparatively lower paying career in education. Taken as a whole, there is simply not an ample population of Generation X professors and administrators to take over for the retiring Baby Boomers.
This leads to the next generation contributing to the changes in American higher education—the incoming undergraduates given the most common title of Generation Y. Defined by the U. S. Census Bureau as being born from 1977 to 1994 Generation Y is much larger than Generation X; reported in the 2005 United States Census as being 73.5 million, a difference of approximately 50% (49.695). Since the oldest members of Generation Y are now of college age campuses are seeing an influx of new students that has likely not been seen since the campus rush across the country following World War II, an estimated increase in undergraduate enrollment of 2.6 million students from 1995 to 2015 (Carnevale & Fry, 2000). The full impact of Generation Y has yet to be felt, but with such large numbers it is inevitable that they will be impacting and even shaping higher education for years to come. As is the case with all industries, there is likely to be a negative impact on higher education as large numbers of Baby Boomers retire and insufficient numbers of Generation X replacements are available; the lack of sufficient qualified labor is likely to stretch new faculty members too thin or leave necessary positions unfilled.
The combination of retiring Baby Boomers and increasing and number of Generation Y individuals who will pursue college degrees, referenced earlier, is feeding a system of too few qualified faculty and administrators versus far too many students. The generational issue, however, is not the only factor in this growing imbalance.
Colleges and universities not entirely populated by students who recently completed high school and moved on to college to continue their educations. Increasingly, nontraditional students are returning to finish degrees or are entering as new enrollees. Thus there is a substantial group of students who, due to work and family commitments, require a different set of services delivered at different times from the traditional undergraduates.
While these changing demographics and increasing demand would be more than enough of a challenge for any institution, many public institutions are dealing with another problem that seriously impacts their ability to address these issues. With increased demand for services comes an increased requirement for financial and physical resources; however, in most states, funding for higher education has been flat or even recessionary when compared to annual inflation for several years. This places a burden of payment on the students. Colleges and universities have a real need for capital that must be met from somewhere every year, so while it is critical to keep education affordable, it is also necessary to make fair tuition increases for students from year to year.
The combined effect of changes in the market in which institutions of higher education operate is to place colleges and universities in the unenviable position of literally having to do more with less; they have to educate a larger number of students on less per-student funding and with fewer faculty members per student. It is possible, through proper application of corporatization, to increase an institution’s operating efficiencies, an improvement that can both save much-needed financial resources and also better utilize scarce academic resources such as faulty. To do this, there are many aspects of corporate practice that can help. Some of those practices will be examined here.
Business Practices and Higher Education Needs
Achieving optimal efficiency with a limited set of resources is one of the leading strengths of business practice today. Since the quality revolution of the 1980s and the focus on efficiencies in the 1990s, lean enterprise management has gone from being an added benefit to being a necessity for most companies. With the diminishing resources and increased throughput—the number of students that need to be admitted, educated, and graduated—that colleges and universities are facing, the efficiency gains offered by lean management are highly attractive.
Lean enterprise management is, at its core, simply resource optimization. Every physical space, every unit of inventory, every shipment of raw material or finished product, and every individual in the organization is intended to be utilized for maximum efficiency. While simple in theory, lean management can be difficult in execution.
The process begins with extensive detailed planning of an operation. Lean processes are managed as exactly that, processes; they are not just a collection of individually functioning, individually managed activities.
This level of detail in planning is necessary, because in a lean system there is a bare minimum of surplus resources. If a flaw in the operation stops or even slows down one process station, then those stations depending on the output of the flawed station will quickly run out of materials and be unable to perform their work. This is most easily seen in a manufacturing environment where there are physical materials at different stages of completion flowing from one assembly station to another. If there is a flaw in one station it then impedes the progress of the next and subsequent stations. The same theory applies to the flow of information in an administrative environment. The advantage to this lean system, though, is that when properly configured and managed a lean environment can be incredibly productive with a minimum expense. The danger, however, as illustrated above is that even minor disruptions at any point in the system have the potential to cause major production delays.
For today’s institutions of higher education, the application of lean enterprise management may make the difference between having fully funded operations or needing to eliminate activities to survive. The increased level of operations and decreased levels of funding that many colleges and universities are experiencing leaves them with only two choices: downsize or become more efficient. By focusing on operating efficiencies, eliminating redundancies, and optimizing the allocation of available resources institutions can often maintain all of their activities at an equal, or often improved, level of service. The transition to lean management will likely not be an easy one, but properly executed it can be of immeasurable value to the institution.
Lean enterprise management, while certainly utilizing the management of external resources, is in many ways an internally focused activity; the organization is managing their work processes for optimal efficiency. An organization’s environment, however, consists of more than just those internal forces that are under the control of the organization. Competitors, and the market environment as a whole, have a considerable influence on how any organization can operate. The ability to analyze, interpret, and create strategy in response to the external environment is another strength of the corporate world that can be utilized by higher education.
Colleges and universities, particularly public institutions that are funded at least in part by public monies, are in a unique position of serving both a student population and their communities and regions as a whole. The development of individuals is obviously a critical responsibility for institutions of higher education. At the same time, however, institutions bear a fiduciary duty to deliver a return on the investments of society in the form of taxes that fund the institution; they must produce qualified graduates who are in a position to benefit society. How can both of these be accomplished? The complete answer to that question is beyond the scope of this discussion, but there are corporate practices that can contribute to success.
Corporations have considerable skills in the areas of market research and analysis. Outside of the practice of business, and to some extent even within it, the popular view of marketing is that it is a sales force, a business discipline dedicated to convincing customers to buy whatever the company is selling. This is not an accurate picture of the marketing function. What marketing really does for an organization is to research and assess the needs and demands of the organization’s customer base and often define exactly who the customers are, a process that can be surprisingly difficult to do well.
Because higher education has multiple customer groups to serve, marketing is just as critical for them as it is for a for-profit venture. What does it take to attract the best students and faculty? What does it take to bring recruiters to campus to hire graduates? What does it take to enhance the community around the institution? All these and more are questions that a proper application of marketing practices can answer, tailoring an institution’s offerings to best suit the demands of those who depend on the institution’s products.
So does good marketing automatically mean success in a given market? The answer is no. It is difficult to underestimate the importance to an organization of knowing the customer, but there is more to the competitive environment than just the customer. Working side by side with market analysis is competitive analysis, a practice that combines the skill sets of marketing, finance, and strategic management.
A business can not just look at themselves and their customers; they must also look at what other organizations are doing similar things to provide goods to similar customers. Organizations identified as doing so are generally classified as competitors. Once these competitive organizations have been identified, there is a process of analysis that will give the examining organization information not only on the competitor they are examining but also on the market as a whole.
Examining the practices of competitive organizations can provide information on how that organization does business and also on what practices may be more effective in the given market than what the examining organization is using. This analysis of competitor practices for possible adoption is often termed benchmarking, and it can provide valuable information to an institution. Balancing the examination of practices is an analysis of everything available on a competitive organization’s customer population and its financial status. Good practices are impressive, but in a corporate environment those practices, to be truly good ideas, must translate into market share and profits. This process can often work in reverse; a competitor may be recognized because of their customer acquisition and retention or their profitability, at which point their processes will be studied to determine how these successes have been achieved.
The final piece of corporate practice that fits into higher education is in many ways connected directly to the topics already presented; business organizations, at least those that survive, are highly skilled at generating profits. In the business world profitability is the primary goal. In order to keep operating, and especially to attract investors and expand their operations, a company must generate revenues that exceed their expenses. While some short-term illiquidity can be accepted for the purpose of investing in opportunities that will benefit the company long-term, year in and year out a company has to make money. It is really this focus that drives the work in lean management, market research, and competitive analysis; this all helps a company to be more profitable.
In the field of higher education many people see the term profit as being a negative thing. Most colleges and universities are non-profit institutions; their purpose, and rightfully so, is to educate students. The part of the relationship that many people miss seems to be that non-profit does not mean non-revenue. An institution can, must, generate revenues to fund their operations and fulfill their goal of educating students. Is planning to only break even with a zero balance at the end of every academic year the best way to accomplish this? While opinions vary the corporate perspective is that no, it is not.
A higher education institution is not conducting its operations to generate profits that will be distributed to the investors in the institution, which makes it significantly different than the profit motives of a corporation. This does not, however, deny colleges and universities the right, and even the obligation, to have a goal of generating more funds than they expend. Private institutions do not just operate off of tuition and annual donations. Much of the money they receive in donations goes into an endowment fund which is invested to generate long-term returns to the institution. Through this mechanism the institution not only generates funds for operations, they also have money to reinvest in the endowment to grow their portfolio over time, thus providing more investment income for the organization.
Granted, public institutions will have much more strict limitations on the investment of their funds due to their status as government organizations, but that does not mean that profitable operations are not valuable. By focusing on having a positive net profit in most years, colleges and universities can make funds available for investment in new facilities, new programs, or maintain a reserve in the event of unforeseen problems.
There are many good practices in common use in the corporate world that are suitable for adoption by higher education. This is certainly not to say that higher education needs to move to a completely corporate model of operations, but neither is it wise to spurn everything corporate as a negative practice for the field. There are definite advantages and disadvantages that can be realized by incorporating different aspects of business theory and methodology.
Advantages and Problems of Corporatization in Higher Education
There are definite advantages to applying a certain level of corporatization to the higher education environment. This is particularly true for the functions of colleges and universities that closely parallel those of corporations. Functions such as facilities maintenance, information technology, financial management, and overall operating efficiencies are all things that the business world does well and that educational institutions could manage in much the same way.
What all of these functions have in common is that while they must be performed to maintain the educational environment they are not directly tied to instruction. As an example, a classroom must be maintained for a class to meet there, but the electricians, plumbers, and other trade specialists that make that maintenance happen do not directly interact with faculty or students in instruction. It is this separation from direct instructional contact that makes many of the functional areas of an institution workable on a corporate model.
The other side of this issue is the fact that many of the core functions of a higher education institution would be greatly damaged, if not destroyed, by the application of a corporate model. This primarily concerns the instructional environment and original research.
From a strictly corporate perspective, much of the instructional process is inherently inefficient. Students are required to complete extensive hours of coursework in disciplines that have no direct relationship to their intended professions. Not only does this slow the overall educational process and take time away from the disciplines that students are attending the institution to learn about, it requires institutions to maintain entire departments of faculty and support staff for subjects that the institution may have no interest in or dedication to excelling in. So why not eliminate these courses and departments and cut the process down to a more efficient corporate training model adopted from human resource management practice? Quite simply, because the sole purpose of higher education is not simply to learn what you need to know in your preferred discipline. While students need marketable skills from their degree programs they also need exposure to a variety of academic disciplines to build them as well-rounded, educated people.
Coupled closely with the mechanics of instruction is the issue of academic freedom. Corporations are not, as a rule, in the business of actively encouraging dissent among their employees. While not every instance of academic freedom in the classroom is one that will generate revolutionary action among students, there are a wide variety of topics that are inevitably the source for debates and conflict in the classroom or on a campus. From the corporate perspective, this is a bad thing; operations proceed best when unencumbered by arguments that in some cases even lead to petition circulation and demonstrations on company property. In the academic environment the exploration of these issues is critical to the development of individuals’ opinions and their very status as an educated member of society. Again, sometimes the benefits of a traditional educational process will outweigh the value of operating efficiencies.
From a research perspective, a corporate research and development model would do irreparable harm to original research and academic inquiry. The primary purpose of research in business is to develop a new product, process, or knowledge base that will help the company generate profits. This is not to say that every research project has to be successful, and in fact it is often the failed projects that give researchers the information they need to launch a successful follow-up project. The end result, however, is intended to be a profitable venture for the company.
In academic research the primary concern of the project is to generate new knowledge in the field. While a productive use of that knowledge is ideal, simply the knowledge itself is of value. At times there are even major research projects whose intention is to never generate any money at all but to develop a product that will help people at a low enough cost to be affordable. The current MIT laptop project, designed to deliver low-cost laptop computers using open source software to third world students, is a prime example. Would this type of research be supported in a corporate model? Probably not. From a purely corporate perspective, every research project should have either a potential commercial application, or at the very least, a considerable amount of grant funding attached to it so that the institution could profit from the activity.
Yes, some of the activities undertaken by colleges and universities could be done more efficiently, to everyone’s benefit. These activities could include the management and operation of facilities, financial management, and the management and operation of information technology resources, among others. The most expedient way to accomplish this is to apply efficient models of operation to the functional areas in need of improvement, and as a rule, the most efficient models available are those of the business world. The caveat to this is that some of the things that are unique to education as a discipline are simply incompatible with a corporate model of operation. Research is one example; it may be necessary and perfectly acceptable for multiple failures to occur over a long period of time before the knowledge gained from those failures results in a successful outcome, or at times failure, the proof that something doesn’t work, is a successful outcome in and of itself. This is not a commonly accepted practice in a for-profit corporate environment, and yet it is at the very heart of academia. Also important in the academic environment but not necessarily in the corporate world is the focus on providing individuals with multiple chances to succeed. As an educational institution a college or university has a certain responsibility to provide students with every reasonable opportunity to learn from their mistakes and successfully complete their education; this is not to say that academic rigor is not vital to a program, simply that students likely need and receive more chances to prove themselves and learn how to navigate their environment. There are doubtless other examples at every level of the educational environment that can apply to examples of both good and bad areas in which to apply business practices for optimal results, but this short list should provide a good groundwork for practitioners to understand that some aspects of education should not, perhaps can not, be optimized for efficiency without damaging their purpose.
While it is impossible to predict what will happen in the future it can be reasonably forecast that demands on institutions will continue to increase as state funding continues to decrease. Increasing enrollment, increasing retirement of serving professors, lower numbers of qualified faculty to replace those retiring, and the changing demographics of the student body all contribute to the difficult operating environment that higher education may soon face. Those professors and administrators who adamantly refuse to adopt corporatization may soon be facing harsh realities about the practicality of existing administrative models in the current educational environment. Positive changes could include more efficient administrative operations and better, more responsive services to students but, improperly applied, negatives could be a decrease or elimination of research and free thinking. Corporatization may change the way an institution functions day to day operations may become more automated, offices may be rearranged or moved, some functions may even be outsourced and in-house departments eliminated, but it does not necessarily spell an end to traditional education. Concurrently, those advocates of a total corporate model of higher education are equally far from the practical truth.
The truth lies somewhere in the middle. To successfully function in today’s environment as well as the future’s environment for higher education some of the ideas being successfully employed in the business world should be adopted in at least some aspects of educational operations.
Education is a unique industry and as such must be uniquely managed to best serve students and the community; therefore operations should be optimized in order to deliver the best possible service to the growing number of students even under changing and demanding conditions. By focusing on efficient processes while maintaining a focus on the traditional functions of higher education a greater number of students can receive the education that they need and deserve.
Carnevale, A. & Fry, R. (2000). Crossing the Great Divide: Can We Achieve Equity When Generation Y Goes to College? Leadership 2000 Series. Educational Testing Services, Communication Services, Rosedale Road, Mail Stop 50-B, Princeton, NJ 08541. Retrieved Thursday, September 13, 2007 from: www.ecs.org...
Goodman, J. (2005). Baby Boomer Retirement: The Nightmare in Our Future. Testimony Before the House Ways & Means Committee. Presented on Thursday, May 19, 2005. Retrieved Thursday, September 13, 2007 from: http://www.teamncpa.org/files/PDF/news/SS%20Testimony%205-19-05.pdf.
Neubourne, E. (1999). Generation Y. Business Week. February 15, 1999. Retrieved August 29, 2007 from: http://www.businessweek.com/1999/99_07/b3616001.htm.
United States Census Bureau. (2005). Statistical Abstract of the United States. Retrieved Monday, September 24, 2007 from: http://www.census.gov/prod/www/statistical-abstract.html.
Academic Exchange Extra invites reader response to any writings in this issue--especially articles advancing the scholarly debate of issues raised.