Outside In?

The benefits of outsourcing are clear. Hand over the reins to your bookstore or food service and pick up a bit of profit without any of the operating headaches. So as budgets continue to shrink colleges and universities may look to apply that outsourcing model to other aspects of campus operations. Yet outsourcing may not be the silver bullet that plugs budget holes and fills coffers back to the brim. What other campus operation could or should be outsourced and which ones probably do better staying in house?

“Areas that have the biggest targets on their chests are the ones that are the least efficient,” says Dr. Bob Hassmiller, CAE, chief executive officer, National Association of College Auxiliary Services. “Chief Business Officers look at the highest cost per student. If there’s anything to cut there, they will.” With state funds at a low point, federal money drying up, and endowments climbing back at a snail’s pace, administrations may look to outsource endowment management, legal services, print shops, and even beyond.

Endowment Management
“When we started endowment management in 2003 there was no one doing it, but it’s quite common now,” says Alice Handy, founder and president, co-CIO CCO, Investure. Investure manages the endowments of several schools — including Middlebury College, Smith College, and Barnard College — as well as other non-profit organizations. “At first we focused on smaller schools with endowments starting at $150M, now we manage $500M and up,” continues Handy.

What does a company like Investure provide a school? “The client gets a fully staffed investment office that takes advantage of everything the market has to offer,” explains Handy. Usually these duties would be handled by a board member who, in Handy’s words, “is just not thinking about the endowment all of the time.” Board and committee members also turn over periodically, and in the investment world, longevity is the key to success.

When Handy started the company in 2003, large endowments routinely outperformed smaller ones. At that time combining smaller endowments gave them the same power and performance as the larger ones. While performances have caught up, there are still other advantages to outsourcing. “Running a fully staffed endowment office costs about $4 to 5 million a year,” says Handy. “That’s expensive.”

Of course outsourcing endowment management has its downside. “You have to share the office with others, so you can’t have the full attention of the staff. Also, our investments aren’t customized. However, I claim that we offer the best ideas for all of our clients,” says Handy. “We are also hard to fire as you no longer own your assets. You would walk away with nothing. A company like ours is definitely a long-term idea.”

Legal Services
Legal departments are already a mix of in-house and outsourced resources. “We have a 700-member institution, and I’m not aware of anyone moving to outsource their entire legal department,” reports Karl Brevitz, director of legal resources, National Association of College and University Attorneys. Brevitz lists the advantages of a dedicated, in-house operation. “The counsel is there 24/7 and is familiar with most aspects of the institution,” he says. “They can handle a wide variety of the school’s legal needs without having to be constantly re-educated.”

However, there are still instances where outsourcing legal services are suitable and beneficial. “If there is a sophisticated immigration case or tax issue, it is probably appropriate to go outside your on-site counsel,” says Brevitz. “Anything particularly specialized is probably best handled outside.” And just like the rest of the school, budgets here have been frozen or cut while demand for legal services continues to grow. “Schools have many compliance issues that must be met,” concludes Brevitz.

Human Resources, Printing, and More
Human resources departments also represent another tricky area. “Payroll departments are easily outsourced, so that has become common,” says Dr. Jeff Pittman, vice president for student services, Regent University. “But the other HR duties like grievances and benefits are too complex, so it makes sense to have a dedicated, in-house staff for that.” Pittman sees the same in IT departments. “Maybe a special project will be outsourced, but for the most part schools are sticking with their on-campus group.”

Print shops may seem like a no-brainer to outsource, but once again, it may be more complicated than it looks. “Print shops aren’t funded by student dollars. We’re funded by internal transfers, so it’s hard to pinpoint how much printing costs,” says Ray Chambers, CEO, Chambers Management Group, a consultant who promotes efficiency and effectiveness in the operations of auxiliary and support services in education through administrative program assessments, instruction, organizational development, and advocacy. That’s not to say that some schools haven’t closed their internal print shops. Chambers reports that over the past few years many institutions — such as Arkansas State University, Texas A&M University, and the University of California, Berkeley — have all outsourced their print production. But Chambers questions that practice.

“There are so many reasons to keep printing in-house,” he says. “We guarantee that your school colors and brand will be right. Outside print shops may not be as careful. We also guarantee to safeguard sensitive information. Many times we receive entire documents containing confidential data. As part of the University, we are invested in protecting that data while an outside vendor may not care as much.”

The cost savings of outside printing may be overblown. In a white paper, Chambers quotes many sources questioning the value of the practice. For example, The University of Tennessee Center for Business and Economic Research’s report, “Outsourcing in State and Local Government: A Literature Review and a Report on Best Practices,” for the Nashville-Davidson County Metropolitan Government Office of Metropolitan Social Services finds, “In fact, only 9 percent of state budget directors estimated statewide savings in excess of 1 percent. It is also notable that even among agency heads, 45 percent reported cost savings of 1 percent or less” (2006, 23).

“Outsourcing is trendy. It’s a fad,” he insists in his white paper. “It’s become an industry, rather than a tool for improving performance. Sadly, some education leaders and public policy makers embrace outsourcing because they want to be seen as being in step with current management practices.”

Cutting Out the Middle Man… Entirely

One trendy outsourcing venue may do more than cut out the middle man. It may cut out every man. It’s called Shop 24, and it’s a completely automated convenience store located on the campus of California State University, Fullerton. Stocked with the top 200 selling items, this refrigerated vending machine sells everything from laundry detergent to fresh sandwiches. “It’s a way to offer goods without the cost of employees,” says Frank Mumford, executive director of auxiliary services. “Students find it entertaining and unique.”

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