Business (Managing Higher Ed)
Let It Go
- By Amy Milshtein
- June 1st, 2014
The advantages of outsourcing seem readily apparent. “Outsourcing preserves capital, debt capacity and human resources,” explains Jason Taylor, vice president of consulting services, Scion Group. “It also brings current expertise, speed and know-how to a project.” But with every pro there’s a con; giving up risk means giving up control — which may alienate students — ultimately creating an “us versus them” mentality. Still, outsourcing is enjoying a moment now with large, potentially game changing projects in the works. Will the schools succeed? Will the student body suffer? How can colleges and universities achieve balance?
All eyes are now on the University of Kentucky (UK) and their massive outsourced housing projects. Penny Cox, director, housing project implementation and new strategies, University of Kentucky, explains the need for new living quarters. “Forty-seven years, that’s the average age of our dorm rooms.” As expected, those rooms were in sad shape; small and old-fashioned, with bolted-down furniture and the nearest sink down the hall. The buildings also required about $700 million in deferred maintenance. With state budgets being cut and borrowing limits approaching the maximum, the school was in a bind. Take on more debt to refresh their offerings, or do nothing and lose their competitive edge to recruit and retain students.
Enter outsourcing. UK issued an RFP in October 2011, and last August 601 new beds came online. Described as some of the most advanced living and learning spaces in the country, these beds represent the first wave of many more to come. “In total we plan on outsourcing 5,733 new beds,” explains Cox.
UK chose Education Realty Trust, Inc., a publicly traded REIT (real estate investment trust) for the project because of its inherent transparency and their ability to bring 100 percent equity to the table. “There’s no loan or lien or any liability against the building,” says Cox. The school also retains the right to staff the building with their RAs. That’s an important caveat, according to Dr. David Milstone, associate vice chancellor for student affairs, University of Massachusetts Dartmouth, whose dissertation covered outsourcing and its relationship with the campus climate.
“Housing isn’t just a place to put beds. It’s an intentional and specific part of a school’s core mission,” he says. Dr. Milstone warns against institutions giving up too much control, or even broadcasting an outsourced relationship too widely. “It creates an ‘us versus them’ mentality. Even a little thing like a maintenance uniform that doesn’t have the school logo on it can make students think poorly of the whole department.”
UK takes this lesson to heart. Students are billed for their housing through the university, which then remits the money to EDR directly. EDR then gives a percentage back to the school to cover RA stipends, trash removal, landscape maintenance and Internet service. “The students deal directly with us,” says Cox.
Parking and More
Other game-changers include The Ohio State University, which just outsourced their parking department to the tune of an upfront payment of $483 million, and Texas A&M, who went all in, outsourcing dining, landscape management, custodial services and building maintenance services. In a memo published by The Eagle.com, Billy Hamilton, the A&M system’s executive vice chancellor and chief financial officer, calls the move “an unqualified success.”
While all eyes focus on these big three players, outsourcing comes in smaller packages too. Lynne Schaefer, vice president for finance and administration at University of Maryland Baltimore County (UMBC) outsources services like housekeeping, food service, routine grounds maintenance, HVAC controls and email. She’s learned a lot over the years.
“In the past most contracts were very prescriptive,” she says. This approach means a housekeeping contract might stipulate X number of workers per Y number of square feet, or a food service contract might demand X different flavors of ice cream and Y different varieties of cereal. “If you are going to use outside experts then rely on their expertise,” she says. “The prescriptive method didn’t allow for that.”
Instead, she urges moving to a descriptive contract. In this scenario the work evaluation is performance-based. For instance, instead of insisting that a building must be vacuumed every week and trash taken out every day, the contract demands that the building is held to specific housekeeping standards set by the APPA. Food service would be tied to student satisfaction, cleanliness and the ability to meet financial goals. A financial penalty for failure to meet agreed-upon standards is baked into the contract.
To help find the right provider, UMBC employed a third party to consider options and assess if the chosen organization is fulfilling the contract. This is particularly helpful for schools that have no outsourcing experience. Schaefer also suggests clear lines of responsibility within the university and the service provider. “We don’t leave anything up to chance,” she says. “I also suggest that the vendor have a dedicated person on campus that’s responsible for the contract.”
Bookstore staffing and operational costs can have a major impact on budgets. Students have available to them a variety of purchasing outlets and options, many online, that allow them to shop a much more varied landscape. These are some of the reasons that Barnes & Noble College has seen an increase in the number of colleges and universities seeking its expertise in the management of their previously self-operated bookstores.
Amy Taylor, project manager, New Store Openings, for Barnes & Noble College, understands. “I think we bring a lot of value to the campus,” she says. “We’re experienced in making the bookstore a great destination, rather than just a source for textbooks, and we have the knowledge to expand the offerings into all kinds of general merchandise and convenience products.”
In the University of Wisconsin (UW) system, a plan has recently been implemented to outsource the bookstores on 12 of the 14 of the UW two-year campuses and one four-year campus, UW-Superior, to the Nebraska Book Company. UW-Marathon Dean Keith Montgomery reports that they tried using co-op and non-profit bookstores, but were continuing to run a deficit, so options were reviewed before the decision to outsource was made.
Chancellor Renée Watcher indicates it was a tough decision, but “covering losses or trying to dig yourself out sometimes is not viable, and when you think about the buying power and the leverage these organizations have to deliver services cheaper to students with more options, the economy of scale makes a difference,” she told Mike Simonson of Wisconsin Public Radio.
And what about those outsourced workers? Dr. Milstone suggests integrating them as fully into campus life as possible. “Food servers and custodians are on the front line of student contact,” he argues. “They should be involved in university life.” That may mean allowing them to use services like the fitness center or attending events instead of just working them.
Dr. Milstone admits that finding the outsourcing balance is fraught. “It would be foolish not to do some outsourcing,” he states. “But you have to ask, at what cost? Am I selling the soul of the institution? You can’t outsource your core.”
OTHERS TO CONSIDER
Opportunities exist to outsource almost any operational function of a college or university. Here are just a few options available.
A number of institutions outsource the management of their IT services. These include, but are not limited to, 24/7 help desk and other support services, data center services via the Internet or the cloud, and even the position of chief information officer.
RECRUITMENT AND ADMISSIONS
Companies that provide recruitment and admissions/enrollment services can offer college and universities targeted campaigns with integrated communications (voice, digital and print) and can maintain personal contact with candidates throughout the process.
In March, according to the Washington Times, George Washington University (GW) indicated that it was enlisting an outside investment firm to manage the school’s $1.375 billion endowment fund. The report indicates that outsourcing the endowment oversight will cost six employees of the nine-person investment office their jobs. Two investment officials will remain and aid the outside management firm.
Last fall, the Community College of Allegheny County (CCAC) in Pennsylvania moved to outsource management of campus child care centers that had been operated by CCAC.
While not widespread yet, some colleges and universities are becoming more willing to try outsourced grading, sometimes hiring their own professional graders or an outside company that specializes in student evaluation. Some institutions are even sending grades overseas. This service is controlled with strict rubrics from professors, as graders are given guidelines for the work to be done.
FINANCIAL AID SERVICES
This article originally appeared in the June 2014 issue of College Planning & Management.