Can consultants save universities?

The question at hand has been floating around since the Global Financial Crisis of 2009, when universities in the United States began hiring management consultants to review their operations and help them cut spending amidst the economic downturn.

Bain & Company scored a $3 million contract with the University of North Carolina in 2009. It found that the university could save more than $150 million per year. Cornell University and the University of California, Berkeley also hired consultants. In each case, consultants were careful to examine business functions only, and stayed away from core academic issues such as course loads and tenure.

This year, Deloitte is being paid $3 million to do a system-wide efficiency study of three Iowan public universities.

There are general themes running through the recommendations borne from these studies. Bain’s key findings for UNC summarise the issue: “UNC has a complex [organisational] structure…Multiple layers of management can exacerbate complexity. Complexity and related operating issues lead to inefficiency”.

Similarly, the report on Berkeley states: “The organic growth of our operations over decades has led to many redundancies, complexities, and inefficiencies which will be challenging to unwind…Local optimisation…has unintentionally undermined pan-university effectiveness”.

What this means is that universities are decentralised institutions; faculties often implement their own administrative procedures, which has led to great inefficiency across the board.

Last year in Victoria, management consultants charged a total of $17 million in fees as university business plans struggled to meet federal funding cuts.

The annual reports of Victoria’s universities tabled in parliament in early April this year show that the University of Melbourne paid $6.5 million to Booz & Company for their services. Meanwhile PwC earned $1.95 million advising La Trobe on its restructure, and another $4.4 million from work done for RMIT ($964,600), Deakin ($601,900) and Monash ($878,500). KPMG also earned $1.6 million from Monash ($905,000) and RMIT ($711,000).

All this information can be found online in the respective universities’ annual reports. The University of Melbourne also lists all consultants engaged by the university in its annual report.

Naturally, there are both pros and cons to hiring consultants.

The benefits most commonly mentioned are that, while universities do not aim to maximise profits, they still share many features with large businesses – they have to manage a budget, hire people, oversee properties, compete with other education providers, and keep on top of technological developments.

In the words of former UNC chancellor Holden Thorp, consultants also provide a “new perspective”. Although many of the recommendations made to universities make intuitive sense, Thorp claimed that without the report “it would have been far harder…to know just how to address the problem areas”.

But the cons are also obvious.

As a matter of spending, should universities be engaging consultants? The University of Melbourne paid $6.5 million to Booz, slightly under its ‘core’ surplus of $7.2 million (after taking out discretionary investment income, endowments and infrastructure grants). On the other hand, a $6.5 million contract may deliver $70 million in cost savings. Additionally, universities seem like they have money to spare with most university surpluses being boosted by increasing international student revenue.

Another issue is whether changing university management compromises academic quality and course offerings. Though consultants usually stay away from reviewing universities’ academic operations (as opposed to their business operations) the two are not always mutually exclusive.

For example, after consulting with Bain, UNC decided to strip funding for its Institute of Outdoor Drama after being advised that it should rein in some of its 100 centres and institutes – many of which have their own finance, IT and HR departments.

Academic courses may also be stripped as faculties are dissolved or merged into other existing faculties.

Furthermore, there are concerns that by cutting administrative staff, professional staff may have to take on more administrative duties. The National Tertiary Education Union is concerned that Melbourne’s Business Improvement Program (which presumably led to the announcement of plans to cut 540 administrative jobs) will end up placing a greater burden on academics. NTEU also claims that while ISIS (Integrated Student Information System – an online management system mostly used by staff at the university) is supposedly more automated, it has seen academics have to do a lot more work.

So, should universities hire consultants? Are they worth it? Do you think the university should consult more with students when making these changes?