Supply Excellence — Higher Education: Coping with costs through Spend Management

Higher Education: Coping with costs through Spend Management

July 29th, 2008 · by L. Jon Grogan · No Comments · best practices, sourcing, supply management

In his book, An Entrepreneurial University: The Transformation of Tufts, 1976-2002, Dr. Sol Gittleman, who served Tufts for nineteen years as its Provost, describes how tumultuous changes occurring in American society during his tenure affected the leadership of higher education in the United States. Squeezed on the one hand by a loss of revenue due to decreasing enrollments and shrinking endowments and on the other by mandatory and voluntary curriculum changes, capital improvement programs, and rising labor costs caused in part by the tenure system, many college presidents discovered that their previous careers as academics left them woefully unprepared for this “brave new world.”

Changes were happening everywhere. For the first time in history, for example, colleges were required to compete for students, especially the better ones who would be more likely to graduate and donate money to their alma maters. Also, the process of evaluating schools moved out of the high school counselor’s office and into the mainstream with the publication of US News & World Report Best Colleges. In response to these and other changes, governing boards turned to professional administrators and former corporate executives to help manage the business side of higher education, while deferring academic matters to scholars like Dr. Gittleman. The bifurcation of higher education into academic and business spheres created a situation which, to borrow a phrase from Dr. Gittleman, resembled “two scorpions in a bottle.”

Consistent with Dr. Gittleman’s analysis, a 2005 survey by the Chronicle of Higher Education revealed that college presidents are most concerned about issues which, “affect the bottom line in some way: rising tuition, increasing health-care costs, inadequate faculty salaries, and student retention.” Moreover, the study continued , “while presidents still have the most frequent contact with the provost, the chief financial officer and the director of development are next in line.” And, why not? Large universities are multi-billion businesses and even small colleges have budgets amounting to hundreds of millions of dollars. As state and federal funding continues to dry up and raising money through tuition increases and alumni donations becomes problematic, presidents and their administrators are looking for new ways to affect the bottom line.

One piece of the solution lies in corporate America and the spend management strategies they’ve employed to manage their money effectively. Higher education’s interest in spend management started as a trickle, but has developed into a steady stream of inquiries and questions, driven in large party by the increasing number of “corporate types” hired by colleges and universities to manage their business affairs.

But, what about academia’s unique culture? Wouldn’t the introduction of spend management applications and techniques into higher education create problems akin to using a stick to stir up the scorpions? John DiBiaggio, former President at Tufts said, “I don’t really believe that college and university presidents perceive themselves as the presidents of a corporation.” But, he added, “On the other hand they recognize that in these difficult financial times they have to behave in a more business like manner.“ DiBiaggio’s comments suggest spend management and academia can co-exist with the right leadership.

College presidents and administrators who are serious about introducing spend management to their institutions should follow three simple rules:

Integrate - Avoid the temptation to cobble together “best in class” applications. You will find that strategy never really works and it will take an inordinate amount of time and technical assistance to tie together the disparate systems across the disparate groups in the university. It is better to implement an integrated system that can be rolled out in stages to facilitate the change management process.
Educate - Do not neglect education and training; together they constitute the bedrock for continued success.
Question Authority - Do not be swayed by the pitch, “Work with us because we are specialists in your space.”. Translation; “We only know one way to do something.” Consider instead working with a spend management partner who has a broad and diverse resume which includes experience with different industries and organizational cultures. Closing your mind to other ways of thinking is not only short-sighted, it’s anti-intellectual.

Higher education is a new frontier for spend management. College presidents who possess persistence and vision will use the new tools to transform their procurement departments in much the same way that pedagogical and technological changes have transformed their schools of engineering.

L. Jon Grogan is Manager of Sourcing Services with Ariba. He is also a PhD candidate (ABD) in American History at Loyola University of Chicago.

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