When the Board of Trustees Business and Finance Committee convenes this weekend, its members will be acutely aware of the steps that Duke’s peer institutions are taking to confront the challenge of a recession. Several of those schools have hired external consulting firms, just like a private company would do, to scrutinize management practices and identify ways to save money.
The trend-setter for this approach is located only eight miles down the road from Duke.
Holden Thorp, chancellor of the University of North Carolina at Chapel Hill, announced last Spring that he would use a gift from an anonymous donor to hire management consulting firm Bain & Company to help UNC cut about $150 million, or 7.9 percent, of its $1.9 billion operating budget. The donor specifically requested that UNC hire Bain.
“Public confidence in the way that universities are managed, is strained,” Thorp said in a video posted on UNC’s Web site after Bain completed its report in July. “I’m proud that Carolina has been ahead of the curve in addressing these concerns this year.”
Several weeks later, Bain started working on similar projects at Cornell University and the University of California, Berkeley. When Duke’s Board of Trustees last met in October, the growing trend was a focus of conversation for its Business and Finance Committee.
“We did discuss the possibility of bringing in an outside consultant,” professor of biomedical engineering Warren Grill, a faculty representative on the committee, said in an October interview. “I think it’s something we will consider going forward.”
But for now, the committee has opted to pursue a “ground up,” “grassroots strategic planning process” that will occur at the level of the University’s individual schools, Grills said.
“There’s going to have to be some shared pain at all levels,” he said.
The Duke Administrative Reform Team, created in February to identify ways to help the University trim $125 million from its budget over three years, will continue its own efforts to reduce costs. DART is headed by Provost Peter Lange and Executive Vice President Tallman Trask.
Trask said in an October interview that members of DART will rely on its existing experience in cost-containment measures to replicate the expertise that an outside company like Bain would provide. Trask noted that Vice President for Human Resources Kyle Cavanaugh worked in a similar capacity during his time at the University of Florida.
“It didn’t make sense to me that I’d pay millions of dollars when I had the in-house talent,” Trask said.
The services offered by a firm like Bain are indeed expensive. Berkeley’s Chancellor Robert Birgeneau has said that the school’s agreement with the company will cost Berkeley $3 million.
“If we could save $30, $40, $50 million for an investment of $3 million, I’d be estatic,” Birgeneau told The New York Times last month. “I’m a physicist, not an expert on organizational structures. But I believe we can be more efficient.”
At Cornell, Provost Kent Fuchs initially planned to conduct his own budget review aimed at cutting costs and trimming fat from the school’s bureaucratic structures.
“When I decided I wasn’t personally involved in a number of those areas, I realized we needed professional support,” he told The Cornell Daily Sun in August. Fuchs declined to comment for this story.
Although Duke has not contracted a similar service, both Trask and President Richard Brodhead have pointed to the same person who fills a role similar to that of an external consultant: Timothy Walsh, formerly of Huron Consulting Group and now an assistant vice president and controller for the University.
Walsh’s position involves controlling the flow of money through the budget, Trask said.
Brodhead called Huron a leader in higher education consulting, and Walsh said he worked with about a dozen public and private universities, including two peer private schools in the region, before coming to Duke five years ago.
Many higher education experts have identified administrative growth and bureaucratic bloat, particularly in places like student services, as one of the primary reasons for universities’ financial struggles.
Between 2002 and 2006, the level of educational spending for classroom instruction decreased across the board while spending in other areas such as student services, administration and maintenance increased, according to a January 2009 report by The Delta Project on Postsecondary Education Costs, Productivity and Accountability.
The issue goes beyond just student growth, Walsh said, noting that research spending has been a large area of expansion at Duke.
“The administration grows not just to support the students... research being one of the biggest factors,” he said. “The health system’s been growing like a weed for the past decade.”
Walsh also identified the proliferation of federal research regulations, which have forced universities to hire more employees and spend more on resources that ensure compliance with new mandates. Walsh added that Bain “totally missed that piece about research” in its UNC report.
Getting down to the implementation
Both Grill and Walsh said Duke can learn from Bain’s work at other schools, despite the fact that Berkeley and UNC are publicly funded.
“Universities are universities,” Walsh said. “We’ve dissected every word of the Bain study at Carolina.”
Public schools face pressure from taxpayers, but Duke still faces a large dose of what Walsh called “internal pressure,” largely from its deans and its donors.
But Duke administrators are confident they can do the same work as an outside consultant. Cooperation between the Trustees, the administration and the faculty have led to a successful cost-cutting formula so far, Grill said.
“We’ve applied the exact same methodology that a Bain or a Boston Consulting Group or a Huron would use,” Walsh said. “Our collaborative process, I believe, will be far better in achieving savings... simply because we know the place so much better.”
Walsh said DART and its contributors have far better internal knowledge of Duke, and will never enact cost-cutting measures that interfere with the University’s central educational mission. It can be easy for outsiders to identify places to cut costs when they are not responsible for the implementation of those cuts, Walsh said, noting that he will oversee Duke’s cost reduction measures through to completion.
“The implementation is the hard part,” he said. “UNC will have a very hard time implementing [some of Bain’s recommendations].”
Bain’s work at UNC and other schools has drawn skepticism from students, alumni and faculty members alike.
“They think the budget realignment process has been taken out of the hands of academic administrators who will be continuously conscious of the mission of the university and the needs of the academic faculty, and placed in the hands of consultants who are outsiders,” Lange said.
Walsh said he hopes the Trustees will continue to consider bringing in outside professionals, and he noted that the University frequently hires external consultants to examine specific departments. He said he expects the Board to discuss the option at all future meetings, and would welcome the help of external consultants if Trustees do decide to go that route.
“I’d be thrilled to have more resources,” he said.
Lindsey Rupp contributed reporting
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