After several years researching the topic and obtaining firsthand experience running several respected business schools, I have prepared this three-part article on classical higher education institutions’ shortcomings, what new institutions might look like, and what this entails for investors. In the first article, I showed how traditional institutions’ curriculums, pedagogy, and technology are holding them back. In this second article, I dive into how the structure of traditional institutions drives up costs, thus preventing these organizations from correctly addressing the higher education market’s recent evolution. These arguments are further developed in my new book, The Business School of the Future.
Classical academic institutions tend to be expensive to operate. In turn, students’ tuitions are also rising, and conventional higher education has become expensive. While many public universities or colleges might still have relatively low tuition levels, the costs for public sector owners tends to rise dramatically. In the end, this is taxpayer money, so why are the costs so high? In my opinion, four main factors explain these excessively high costs.
The professors. Many conventional academic institutions have large full-time staffs of professors and other teaching/research staff members. These are typically experts in relatively well-defined, often narrow academic fields. Such professors tend to be ill-equipped to teach in fields outside their expertise. Thus, the teaching load tends to be rather low in general. In addition, with the tenure process for lifelong employment (or other such processes), it may be next to impossible to phase out professors who would no longer be active in relevant fields of expertise. Expenses for faculty members’ remunerations (salaries, pensions, and insurance) would thus be high, especially when taking into account the rather modest productivity of this group. Paradoxically, a shortage of qualified professors exists in many academic institutions. This calls for some “sharing” of professors among several institutions.
Expanding the model of making use of part-time professors might be an answer. We shall discuss this approach further next week, in part 3 of this series, “Toward an Educational Institution of the Future.” Furthermore, regarding costs:
The staff. Staff has mushroomed in many academic institutions. The support staff has grown in several areas, especially those that relate to the professors’ research and teaching, but also in providing student support, as well as administration in general (including human resources!). One of the reasons for escalating costs might be a reluctance to outsource. Rather, it seems to be the growing norm that the bulk of such administrative functions should preferably be in-sourced. The argument is often that these types of administrative support tasks are very specialized, requiring unique competences, so that they must be carried out by in-house staff.
My sense is that much might be done to streamline these functions. The use of IT support, coupled with multitasking staff people, might be one way. In the end, the strong decentralized nature of most conventional academic institutions seems to be at the root of this costly phenomenon (i.e., the “bottom-up” culture). A correspondingly weaker "top-down" culture might lead to a lacking willingness to curtail excessive decentralization and bring costs under control.
Antiquated offerings. As an illustrative example, consider the archetypal library. This campus building´s offering has strong historical traditions in many conventional academic institutions. It might be particularly difficult to undertake fundamental revisions or cuts here. However, IT-technology has had a major impact on libraries.
First of all, libraries may now largely consist of databases. Books and articles might then be obtained from a few central libraries, with no need to keep expensive collections of journals or books current at every business school or institution.
Second, much of the material that is published today is now in an electronic format. This is the case both for books as well as journal articles. Some of these types of materials are only accessible via the Internet or databases. Conventional large-scale libraries are not set up to deal with this development. Thus, many campuses consist of vastly too much "brick and mortar."
Of course, many other support functions are also changing. Let us add admissions, the administration of exams, catering/restaurant services, legal support, many aspects of the accounting function, and of the IT function likewise. We shall not discuss each of these in more detail. Many of the same trends that we have discussed regarding libraries are at play here, too.
Research. Research and teaching are, of course, two sides of the same coin, and are typically at the core of value creation at academic institutions. However, the balance between teaching and research has typically become lopsided in many instances. Specifically, professors may increasingly devote themselves mainly to research, while the bulk of the teaching is being carried out by lecturers or teaching assistants, typically without the same depth of skills as professors and often on temporary contracts. Today’s research projects also tend to be more complex than before, often with several researchers involved and often calling for expensive support, too (mainframes, laboratories, etc.). The result is that research budgets have tended to grow, at times entirely out of hand! Thus, another area of overhead cost has risen, adding to the already rapidly growing cost levels of universities. While the discovery of new insights through research is important indeed, it is doubtful whether the bulk of these research findings might find their way to the body of students at large.
Fortunately, positive developments in the conduct of research may also be observed. For instance, part-time faculty members, who may be working for the emerging universe of web-based educational institutions, might nevertheless be highly up to speed regarding the latest in their fields. Such know-how may have been fueled through involvements in various ad hoc research projects, say, funded by grants of various sorts, as well as from working in corporations. Furthermore, many of the new entrants in today’s web-based world of learning might be consulting firms that have expanded into web-based teaching. Moreover, many of these specialized firms possess cutting-edge knowledge, which is derived through their work with leading corporations. Such new entrants might come from consulting (McKinsey, BCG, etc.), from accounting (the Big Four), from executive search (Johansson Associates, Egon Zehnder, etc.), and so on. These institutions also tend to be on top of cutting-edge subjects. Classical institutions of higher education may find it hard to actually compete!
Another positive effect from research conducted in modern network-structured higher education institutions is the fact that research results are more likely to be effectively distributed and shared. Therefore, the likelihood of increased research efficiency is real!
Overall, the gravity point of research might be moving away from classical universities, without this shift weakening the upcoming scientific discoveries. Research institutes and for-profit consulting firms are filling the gap.
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