EDUCATION TRIBUNE Tuesday, March 25, 2003, Chandigarh, India
Running universities on business lines
Dinesh K. Gupta
top-ranking administrator of a leading university of the world was upset over the gap between the budgeted needs and the funds sanctioned by the government and lamented that "for all practical purposes, no matter what label is applied to the methods of covering gap, the difference must be made up by increasing the work load (of faculty), the dropping programmes and people, and diluting the quality of work".




Running universities on business lines
Dinesh K. Gupta

A top-ranking administrator of a leading university of the world was upset over the gap between the budgeted needs and the funds sanctioned by the government and lamented that "for all practical purposes, no matter what label is applied to the methods of covering gap, the difference must be made up by increasing the work load (of faculty), the dropping programmes and people, and diluting the quality of work".

This happens to be the statement of Mr R.W. Fleming, the then president of The University of Michigan, USA, carried by the Spring 1971 issue of The University of Michigan Today when his university faced the problem of shrinking state funds way back in early 1970’s.

Similar is the case with Indian universities at the moment. Universities in India are struggling to face the changed economic reality punctuated with shrinking governmental grants and expectations for running universities from self-generated resources. In the wake of this pressure, sometimes universities take shortsighted, ad hoc decisions to cut expenses and increase revenues, which may not be in the long-run interests of the institutions of higher learning.

Educational planners are evaluating a number of options. However, a viable alternative that I foresee is to run universities on business lines. This is for the reason that the business history teaches us about successful creation of so many long living business enterprises whose economic power could be matched with the economic power of some of the big nations!

It is not being suggested that one should run a university as a business enterprise wedded to the philosophy of profit maximisation or wealthy maximisation. The philosophy of profit maximisation dictates that the sole existence of a business enterprise is for creation of profit and the same is to be maximised following the policies of maximisation of revenue and minimisation of costs.

Historically, it has been observed that this philosophy generally creates short-sightedness and drives the organisation to initiate certain actions, which result in profiteering. The philosophy of wealth maximisation is wedded to the notion that the owners of a business enterprise, i.e. the shareholders, have provided the capital to the business and their interest should be taken care of by maximising their wealth through the maximisation of the share price at the stock market.

However, both these philosophies may not be acceptable as we consider that the education is not meant to be run as a profit-focused business enterprise. A couple of judgements of the Supreme Court have also clarified that higher education should not be offered with an objective to make profit. And both of these philosophies do depend on profit.

The purpose of suggesting that universities should be run on ‘business lines’ is to bring business acumen in the decision-making processes of the institutions of higher learning. This will also enable to examine the ‘not-for-profit’ mould of universities in a different manner and facilitate in the generation of surplus so necessary for the long-run survival of education ventures. This perspective will create a mindset of managing the resources in a manner that the output gets measured and hence evaluated. As a result, financial discipline will get institutionalised in the system.

What is the cost of physical resources of a university?

How much is the historical cost of physical resources owned by a university? These resources include land, buildings, furniture and fixtures, laboratories equipped with expensive gadgets, computer laboratories having servers, computers, routers and peripherals, fleets of buses, cars and other vehicles etc. Can any university administrator answer this question? No.

This is so because universities do not handle their accounting systems on the basis of double-entry system. They are guided by the single-entry system of record-keeping, which is cash-based. You are given a grant by the government in cash and the same stands used, by the end of the financial year, in cash. The asset, which has been purchased in the process, gets out of focus in the maze of cash-based single-entry system. That is why one finds more emphasis on utilisation of grants during the financial year rather than the utilisation of the assets.

On an average, most universities remain ‘locked’ for roughly 165 days in a year. This calculation is based on five-day week system, two-month vacation in an academic year and roughly twenty gazetted holidays. It turns out to be roughly 50% of a year. It means that the assets worth crores of rupees remain unutilised and idle for half of the year. The issue of the optimal utilisation of resources for the rest of the year could also be questioned in the light of the fact that the assets are put to roughly eight-hour use out of 24 hours in a day.

Until or unless we know how much investment has gone into building the physical infrastructure of a university, we will not be in a position to monitor the performance of the system. The only alternative is to shift to double-entry system of record keeping, a system used by the business enterprises globally. In the process every university will have its revenue and expenditure account and a balance-sheet. The revenue and expenditure account will reflect the sources from which the revenue has been generated during the year and uses to which the revenue has been put, finally reflecting surplus or deficit.

How does a university prepare its budgets?

The budgeting process used by universities is historical by nature. We look at the last year budget and accordingly build the budget for the next year. This is the case with governmental budgeting process too. So universities also follow the same process and perspective. However, budget is an important tool used by the business world not only to grant sanction to spend funds, but also as a means to plan, motivate, evaluate performance and exercise control over people.

Such a budgeting exercise is driven by the future and not by the past. So the way the budget is used in universities and in the business, is poles apart. The yearly budget in a business enterprise emanates from a long-term budget called a programme. A programme could be for, say, five years.

A programme is linked to the objective(s) of the enterprise, which are to be achieved over a long period of time. The yearly budget becomes a link between the current state of affairs of a business enterprise and where it intends to be in the years to come. So the budget gets focused on the future and not to the past.

Further, each and every activity is anticipated in detail and the possible cost of activities is also envisioned. This exercise is then revised frequently in order to take care of the changes occurring in the business environment of the enterprise as you know that in the globalised business setting the realities undergo a change at a fast pace. This process of building budget is called Activity-Based Budgeting. However, what is the mechanism of budgeting in a university? The budget of a department is normally prepared by the office assistant of the department.

It does not mean that the office assistant should not participate in this exercise. I am for the inclusion of each and every constituent of the system in the exercise of building budget. However, in order to provide the realism of the present and perspective of the future to the budgeting, it is necessary that top management gets deeply involved in this exercise.

In the process of handling this tool as a short-term device, we lose all potential benefits of a sound budgeting exercise. Our only focus remains how to exhaust the budget by the end of the financial year.

What is the value of human capital of a university?

The most important asset of a university is skilled and trained faculty. This is the resource that distinguishes one university from another. In the corporate world we have started employing people whose exclusive responsibility happens to be the management of human capital.

Let us reflect on the issue of optimal utilisation of this most important asset of a university. In order to answer this question one needs information about the investment made in building of this asset and the quantum of return being generated by the same. Unfortunately we do not have information regarding both these variables.

As highlighted earlier, universities do not quantify even the investment made in the physical resources, which happen to be tangible resources. The question of quantifying the intellectual or social wealth created in the form of human capital is beyond the comprehension of the present state of mindset of the university administrators, as it happens to be an intangible resource.

Under the circumstances, universities are finding it difficult to create an impression that they are vibrant and live knowledge generating and sharing institutions.

Recently, the University Grants Commission asked for proposals from all the institutions of higher learning to seek funds under the Tenth Five-Year-Plan. Most of the institutions must have submitted detailed proposals asking for grants running in crores. In order to understand the perspective of fund seekers, the UGC should initiate a study to analyse their mind-set by closely observing the different heads under which they sought the grants. Most institutions must have asked for huge funds to add physical infrastructure in the form of real estate. This seem to be the mindset of a pre-web, and pre-napster era universities. A university with a modern outlook should focus primarily on the processes and modalities of upgrading the skill-and knowledge-base of its human resources so that it could create a world class faculty and then take a deep dive in the global business of providing world-class education.

The University Grants Commission should also change its perspective regarding funding. If universities know that they will get grants only for novel projects, then they will stop submitting proposals that focus solely on creation of physical infrastructure.

The proposed mind-set requires a long-term vision and strategic focus on the part of universities. It is this focus, which is going to guide all the short-run decisions of a university.

What type of performance evaluation system exists in a university?

It must cost more than Rs 8 lakh per annum to a university in order to maintain a senior faculty member. This is a rough estimate of cost, which includes gross salary, a university house, medical facility available to me and dependent members of my family, a good office having modern equipment of communication and teaching and a host of subsidised facilities.

Those who work in universities will agree that there is neither any powerful positive reinforcement for quality research, effective teaching and other associated activities, nor is there any strong negative reinforcement if one does not perform one’s duties efficiently and effectively. The pace of work is so slow and comfortable that some of those who do not want to bear the pressure of private sector assignments prefer to shift to teaching!

What should be done to change the current mindset, which takes very many things for granted and is not bothered about the output? Change the performance evaluation system functional in universities. The performance evaluation system should be such that it takes universities nearer to the realities of the market. Saying so I do not want to say that the market should determine what is to happen within the boundaries of universities. Rather by taking universities closer to the market should result in a situation where universities are so sensitive to the requirements of the market that they are looked up with high degree of expectations by the market. It means that universities will determine which way the requirements of the market are to be carried.

Take the case of University of Renn of France. The university is surrounded by the offices of top-ranking world players in the area of semi-conductor and telecommunication technology. Name any company — Nokia, Sony, Ericsson, and Motorola — all maintain close association with the university and would like to buy the innovations brought out by the research labs of the university.

It means that the corporate world finds that the research being conducted by the university is relevant and practical. So create a culture in the Indian universities to get engaged in the world-class research and then price the same in the market at a premium.

Focus on the customer

Take the case of type of courses, which I offer, to my students. There is a normal complaint against universities that they are slow to revise the syllabi of their courses. This inertia on the part of universities emanates from the fact that there is no incentive to update or introduce a new course. Once performance is evaluated on the basis of the number of students who opt for my courses, it presupposes that the students have a wide range of courses to choose. Then the students will also evaluate the use of the skills and knowledge gained from a particular course at the marketplace. It means that the possibility of placement of a student becomes the direct outcome of a teaching programme.

Depending upon the quality of the courses being offered, the students will pick up some courses. This may seem to be ridiculous. However, there is no other alternative in a competitive environment. We will have to make our educational system responsive to the requirements of the market.

There are more than 1000 business schools in this country. Still the corporate world is not getting quality people to manage business. The reason is that whatever is being taught in the classrooms of business schools is largely of no use to the corporate world.

Who is to be held responsible for this? The educational institutions, of course.

Once faculty is made responsible for revenue generation, there will be sweeping changes in the lifeless corridors of universities. You will find a stream of new courses being offered to the students at the beginning of academic session. Further, the existing courses will be updated automatically. This variable of the performance evaluation system will also force the teachers working in those departments, which traditionally have been considered to be the departments not ensuring job to the students, to struggle to reorient themselves and change the focus of their courses.

The writer is a Professor in the University Business School of Panjab University, Chandigarh.





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