ERIC Identifier: ED446726
Publication Date: 2000-00-00
Author: Wood, Patricia A.
Source: ERIC Clearinghouse on
Higher Education Washington DC.| BBB32577 _ George Washington Univ. Washington
DC. Graduate School of Education and Human Development.
Outsourcing in Higher Education. ERIC Digest.
The decade of the 1990s was one of constraint for higher education. Declining
student enrollments, state budget cuts, decreased funding for research, and
increased pressure to limit tuition growth resulted in diminished revenue
sources for colleges and universities (Ender and Mooney, 1994). To remain
competitive and to improve service in the face of declining resources, higher
education has increasingly turned to several popular management approaches,
including outsourcing (Jefferies, 1996).
Outsourcing, also referred to as contracting, is a form of privatization that
refers to a university's decision to contract with an external organization to
provide a traditional campus function or service. The contractor then either
takes over the employees of the university, paying the group according to its
standards, or replaces the university employees with its own staff (Ender and
Outsourcing assumes that if an institution cannot provide a service or
product at less cost than, and of equal quality to, an external provider, then
it should purchase the service or product from an external provider. Advocates
of outsourcing argue that the private sector provides service more efficiently
and at lower cost than the public sector, which is unmotivated by profit
(Jefferies, 1996). They point out that outsourcing to a contractor can reduce a
college's or university's labor and benefits costs, provide a single point of
accountability, and provide predictable costs; the resulting savings allows the
institution to focus more resources on its core educational operations --
teaching and research (Ender and Mooney, 1994). Colleges and universities are
testing these theories, increasingly outsourcing more of their functions in an
effort to reduce costs, increase service efficiencies, and boost income
WHAT FUNCTIONS ARE BEING OUTSOURCED?
traditionally been used to operate campus bookstores and dining services. It has
more recently become a legitimate option for additional campus functions,
including facilities operation, computer services, security, child care,
residence halls, teaching hospitals, remedial classes, and even entire
institutions (Goldstein, Kempner, Rush and Bookman, 1993; Gilmer, 1997).
To some observers, there seems to be an announcement every week about a
college being among the first to outsource an operation (van der Werf, 2000).
For example, the University of Miami recently contracted with Strategic
Distribution, Inc., to acquire all materials required for repair, maintenance,
and operations at its main campus and medical center; Chatham College hired a
contractor to run its library and hire most of the library staff (van der Werf,
PROBLEMS WITH OUTSOURCING
Critics of outsourcing point out
its human resource consequences. Jobs may be shifted from the college or
university to the contractor performing the outsourced function, which may
result in decreased salaries or benefits (Gilmer, 1997).
A recent experience at The University of North Carolina is a case in point.
The University planned to outsource its housekeeping staff; consultants expected
the contractors to pay the housekeeping staff less and to provide fewer benefits
than the University offered them. The plan ultimately led to charges of racism
since, in contrast to other University employees, the housekeeping staff was
predominantly African-American (Gilmer, 1997).
Other critics feel that contract staff may have less loyalty to the
university than if they were employed directly by the institution and express
disappointment with the resulting inadequate service by contractors. Inadequate
service by contractors can affect the campus community in myriad ways;
uncomfortable teaching facilities, shortages of textbooks in the campus
bookstore, and lack of skilled technical staff to manage computer networks are
just a few possibilities.
Ender and Mooney (1994) suggest that the greatest barrier to outsourcing is
lost jobs and the resulting negative impact on institutional morale. They offer
a set of guidelines for mitigating the negative impact of outsourcing:
1) outsource management personnel only,
downsize the staff by attrition,
involve employees in selecting the contractor, and
re-bid the contract often.
Filling senior management positions with contract staff for a defined period
of time, they say, can eliminate conflict inherent in outsourcing an entire
operation. Existing staff can remain with the university while receiving
training that may eventually enable them to move into the outsourced management
OUTSOURCING SUCCESS STORIES
According to Manuel Cunard,
executive director of the National Association of College Auxiliary Services,
college outsourcing is growing so quickly that there has been very little time
to step back and determine its effectiveness (van der Werf, 2000).
The privatization of college services is currently chronicled primarily
through anecdotal evidence, and campuses nationwide continue to debate the
merits of outsourcing (Gilmer, 1997).
Though research about outsourcing is scanty, anecdotal evidence does make it
clear that many institutions have found outsourcing to be an effective means of
reducing costs, assuring financial results, upgrading program quality, gaining
access to special expertise, increasing customer satisfaction, and obtaining
capital for facility improvements (Dillon, 1996).
George Mason University in Fairfax, Virginia and the University of Tennessee
at Knoxville are two institutions that have used outsourcing to advantage.
George Mason University is one of the nation's most aggressive contractors. The
University has contracts, totaling more than $30 million, for 50 campus services
and operations (Gilmer, 1997).
The University of Tennessee at Knoxville contracts for the installation of
blinds, carpet, ceilings, fences, and elevator maintenance. The University saves
an estimated $565,000 per year through outsourcing all of its custodial services
Some institutions have outsourced
campus functions only to realize that outsourcing was not the panacea they had
hoped it would be. Consistency and cost issues were key in Whitworth College's
decision to abandon outsourcing. The College virtually eliminated its
communications office in the late 1980s when it outsourced the office, reducing
its staff from seven to one. In 1992, a presidential task force reevaluated the
situation and the College returned to a centralized on-campus communications
shop. Lack of coordination was cited as the major problem with outsourcing, with
wide gaps in quality and cost the result. The administration ultimately realized
the importance of coordinated communications to the College's success since the
communications office was tied into fund raising, alumni relations, recruitment
and all other facets of campus life (Schreiber, 1994).
The University of Pennsylvania recently scaled back its contract with the
Trammel Crow Company for operations and maintenance of its campus buildings.
Professors at the University say housekeeping functions never improved and roofs
still leaked. Penn and company officials agreed that the key flaw in the
school's outsourcing strategy was that Trammell Crow was asked to maintain
buildings in such bad repair that they were essentially unmaintainable (van der
HOW WIDESPREAD IS OUTSOURCING?
Statistics about outsourcing
in higher education are few, but the need for such data has been recognized. The
National Association of College Auxiliary Services has recently opened a center
to try to track overall figures for outsourcing in higher education (van der
Gilmer (1997) reports that a 1996 survey by American School & University
found that colleges and universities are increasingly turning to outsourcing.
More than one-half expect to contract for more services in the coming years.
Only 5.9% of colleges and universities produce all services in-house; 62.4 % of
colleges contract for four or fewer services; 31.7 % outsource five or more
services. The most popular outsourced services include food (74.3%), vending
(65.3%), bookstore operations (33.7%), custodial work (30.7%), and laundries
(18.8%). Recent figures also show that the building of on-campus housing by
private companies was a $500 million business in 1999, with no indication of a
decrease in 2000 (van der Werf, 2000).
HOW SHOULD MANAGEMENT DECIDE WHETHER TO OUTSOURCE?
or not to outsource a function is not an institution's most important question.
Instead, management should examine the full array of options and select the
operating and management approach best for the institution. Focusing first on
understanding how the functional area in question is currently operated and
examining all its strengths and weaknesses enables the institution to make a
fully informed choice. (Goldstein, Kempner, Rush and Bookman, 1993). A core set
of issues and questions must be explored when institutional management is
deciding whether to outsource any function. Rush, Kempner and Goldstein (1995)
group these core "decision factors" into six categories:
Human Resources - How employees will be affected.
Financial - The direct and indirect cost to the institution.
Service Quality - How each alternative will meet campus needs.
Legal and Ethical Considerations - The level of risk and potential liability
posed by each option, any tax ramifications, any potential conflicts of
Mission and Culture - The effects of choosing an option inconsistent with the
institution's culture and historical mission.
Management Control and Efficiency - The likely effect of each option being
considered on the institution's ability to control the direction and priorities
of the functional area.
The relative importance of these six decision factors will vary with the
institution and among functional areas. However, regardless of the institution's
size, location or affiliation, and no matter what functional area is under
consideration, campus decision makers need to use a structured methodology when
making the decision to outsource. Rush, Kempner and Goldstein (1995) also offer
a ten-phase methodology for outsourcing which focuses on the following actions:
1: Identify Key Participants
2: Develop an Analytical Framework
3: Assess the Current Environment
4: Identify Customer Requirements
5: Develop an Operational Design
6: Identify Possible Alternatives
(Peterson's Contract Services for Higher Education (1995) provides
information on various types of contract and outsourcing services available to
colleges and universities.)
7: Review Legal, Ethical, and Community Considerations
8: Compare Proposed Operating Alternatives
9: Select the Preferred Alternative
10: Establish a Continuous Improvement and Assessment Process
The growing use of outsourcing in higher
education reflects a general acceptance by campus administrators that it will
reduce costs while continuing to provide essential university services
Successfully outsourcing a function requires careful, comprehensive
evaluation and planning by management. The answer to whether or not to outsource
is what best serves the institution--not only what is most cost efficient, but
also what will provide the most consistency, timeliness and overall quality in
meeting the college's or university's goals (Schreiber, 1994).
Ender, K.L. and Mooney, K.A. (1994). From
Outsourcing to Alliances: Strategies for Sharing Leadership and Exploiting
Resources at Metropolitan Universities. Metropolitan Universities: An
International Forum, v5 n3 p51-60.
Dillon, W.L. (1996). The People Side of Privatization: Study Examines
Employee Perceptions of Conversion Process. Business Officer, v29 n7 p31-34.
Gilmer, S.W. (1997). The Winds of Privatization: A Typology for Understanding
the Phenomenon in Public Higher Education. Paper presented at the annual meeting
of the Association for the Study of Higher Education (22nd, Albuquerque, NM,
November 6-9, 1997)
Goldstein, P.J., Kempner, D.E., Rush, S.C. and Bookman, M. (1993). Contract
Management of Self- Operation: A Decision-Making Guide for Higher Education.
Alexandria, VA: The Association of Higher Education Facilities Officers.
Jefferies, C.L. (1996). The Privatization Debate: Examining the Decision to
Outsource a Service. Business Officer, v29 n7 p26-30.
Peterson's Contract Services for Higher Education. The Directory of Outsource
Service Vendors for Colleges and Universities (1995). Princeton, NJ: Peterson's.
Rush, S.C., Kempner, D.E. and Goldstein, P.J. (1995). Contract Management: A
Process Approach to Making the Decision. In Peterson's Contract Services for
Higher Education. Princeton, NJ: 1995, p. 5-9.
Schreiber, W. (1994). A Shop Divided. Currents, v20 n3 p8-12 Mar 1994. van
der Werf, M. (2000). How the U. of Pennsylvania Learned that Outsourcing is no
Panacea. The Chronicle of Higher Education, April 7, 2000.