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The Bane of Bureaucracy

A private consultantís investigation of UNC-Chapel Hill is a model for the reform of higher education business practices.

By Jay Schalin

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August 03, 2009

Sometimes it’s not enough to have just a new broom when you want to sweep things clean. Sometimes, you need a fresh perspective from outsiders and a strong chancellor who is willing to stand up to faculty opposition.

It came as no surprise when a private team of consultants discovered that UNC-Chapel Hill is overloaded with bureaucracy and inefficiency. Some of the more egregious inefficiencies uncovered by Bain & Company, a Boston-based business consulting firm, have been widely publicized: the organization chart is ten layers deep in some areas, and that over half the supervisors have fewer than four subordinates.

It was a bit of a surprise that the consultants were on the campus in the first place, however. The project started when an anonymous donor attached some unusual strings to his or her gift—insisting upon a comprehensive investigation of the business practices of much of the campus. That investigation had to be performed by Bain, and only Bain.

The anonymity of the donor and the idea of outsiders from private industry poking their noses into campus affairs brought an outcry by some members of the campus community. But Chancellor Holden Thorp supported Bain in the face of the opposition. Many chancellors might be hesitant to open up their campus operations to such intense scrutiny by those outside the education establishment, but Thorp welcomed it.

In doing so, he might have started something worthwhile. This kind of outside investigation by consultants who are familiar with the business environment should become a model for public institutions of higher education. Just as it did at Chapel Hill, the process will require money and the backing of the top administrators; Bain’s expertise does not come cheap (the amount the donor paid for the study has not been revealed), and political opposition is likely on college campuses, which are often insulated from differing points of view. But UNC’s return on investment from the Bain report is very likely to be large, and an alternative perspective can be enlightening when it comes to longstanding bureaucracies.

Private industry focuses on the bottom line, and therefore looks to lower costs wherever possible. Public entities like state universities, on the other hand, have no such constraint. Indeed, government entities tend to grow without reason unless there are deliberate efforts to stem the bureaucracy’s advance. UNC-Chapel Hill is no exception—from 2004 to 2008, the university’s administration costs grew 70 percent faster than instructional costs (6.6 percent growth vs. 3.9 percent).

Using outside consultants is not new to the UNC system. When Erskine Bowles took over as president, he brought in accounting giant Ernst & Young to review some system-wide practices. But the Bain report goes into much more detail concerning the operation of a university.

Much of the report deals with ways to improve efficiency by centralizing and combining functions that have become fragmented and are now wasteful and redundant. At the least, tens of millions of dollars in inefficiencies have been uncovered, at a time when every dollar counts. Because of the economic downturn, the university already cut ten percent from its projected operating budget for the 2009-10 school year—roughly $60 million—without any input from Bain. Thorp said that job losses so far have been roughly 86 positions.

Not all of Bain’s recommendations will be turned into policy—the report presented the college with alternatives, not mandates etched in stone—and not all of the proposed savings can be realized. Thorp is now leading a campus task force to decide which of the report’s proposals to adopt.

The report said that because there are too many supervisors and levels of command, the ultimate decision-makers are often too far removed from the problems, and the workers are “too disconnected from strategy and decisions” and are therefore not “empowered.” One employee is quoted as saying “I find that bureaucracy…prevents us from doing what we should be doing.”

One area where big savings are projected is the procurement of goods and services—as much as $40 to $45 million per year (the school made $431 million in purchases in the 2008-9 school year). This is because many departments and other small units perform their own purchasing on a small scale. If the procurement function for many such groups was combine or “clustered,” they could buy in bulk at more favorable prices from preferred vendors.

Another problem is that many processes are not fully automated, so that employees continue to use paper documents, a time-consuming process, instead of capturing data electronically. In other cases, processes have evolved in an unwieldy fashion so that employees must “work around” previous fixes to problems.

Some of the potential savings require initial investments. For instance, Bain says UNC-Chapel Hill’s power plant operation, can save $700,000 to $1 million annually in coal purchases by getting bigger deliveries at one time. However, this will require an initial investment of $3-4 million dollars to upgrade the facilities to handle the bigger shipments.

Bain said that reducing consumption of energy by 18 percent by 2015 could result in annual savings of $10-15 million. This would require an enormous investment in upgrading laboratories and control systems—between $100 million and $150 million. But the school has already begun a campaign to lower energy consumption on a human scale—by cutting back on air conditioning and encouraging workers to turn out lights.

And the actual savings from the report are likely to be less than anticipated. The report cautions that UNC might only be able to capture 40 to 60 percent of the savings from the implemented recommendations. But even that would mean substantial savings, with improvements in processes that will be beneficial for years to come.

One potential area of concern involves a policy recommendation that goes beyond mere efficiency. Bain’s suggestion that the school pursue more grants for research from private industry is very much in line with UNC’s existing policies, according to Tony Waldrop, the vice chancellor for research and economic development. Chapel Hill is 27th among universities for federal research dollars, but only 84th in privately funded industry research.

While it might seem that there is little downside to attracting more research dollars, making the pursuit of industry dollars a primary focus has considerable potential for unintended consequences. One is that, as private research assumes a greater share of a public university’s income flow, priorities change to reflect that shift. Therefore, as the university becomes less dependent on tuition and legislative appropriations, the institution might become less attuned to the needs of students and taxpayers.

But taxpayers assume they are subsidizing education, not industry research. Most people believe that the central mission of the university system is education, and, in the case of state universities, they are the rightful owners.

Even with a few such potential trouble spots, a lot of good will come from inspections by observers from beyond the insular walls of academia. Despite the secrecy involving the donor, it is transparency in action. Other universities are very likely to have the same sort of bureaucracy and inefficiency built into their systems as Chapel Hill. Perhaps Bain should be turned loose on them as well. Or at the very least, other schools should look to this report for comparison with their own operations.

In fact, it would be interesting to see the same approach applied to the school’s academic mission—having outsiders examine the curriculum for irrelevant, ineffective, or overtly political course content.

 


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