A Model for the Reinvented Higher Education System

A few years ago the term "reinvention" would not have been uttered in the same sentence with public policy. Yet, seemingly in only a few short months, this term is now in good currency in public policy debates.

Much of this attention has been brought on by Osborne and Gaebler's book, Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector and Barzelay and Armajani's book, Breaking Through Bureaucracy. People's interest in these approaches has been heightened by the Clinton administration's embrace of these concepts as well as local and state officials building on these ideas as they search for new ways to tackle their difficult challenges.

Even though "reinventing government" is a new concept, there is both substance and power in this family of ideas. Just as the principles of bureaucracy at the turn of the twentieth century were consistent with policy needs and societal development, the principles of reinvention¹ and enterprise management² gain their strength from their alignment with today's societal expectations and needs.

As colleagues of Osborne and Gaebler, we believe that enterprise management offers a useful "tool box" for higher education to employ in responding to twenty-first century challenges. Widespread evidence suggests a societal paradigm shift is occurring, yet all too higher education clings to its nineteenth-century tool box, intent on repairing the old bureaucratic system.

If higher education remains behind the times, it is not the people who are at fault, but the system. The only available tools are those that the current higher education paradigm envisions or permits. But, hammers and nails cannot build skyscrapers, and 100-year-old blueprints cannot build the institution of the future.

Today, many state legislatures are concerned about the quality of teaching. This shows itself when legislators pummel the academic community about productivity levels and request yet another faculty-productivity study. In response, campus administrators use available tools: they complete the requested study; they draft more rules about teaching loads; and they remind the academic community about the importance of teaching. In other words, these leaders use existing tools--and therein lies the problem.

As long as the toolbox contains only outmoded tools from the current paradigm, higher education leaders cannot address the deeper challenges facing their institutions. As someone once observed, when all you have got is a hammer, everything looks like a nail. To be effective in today's changing world, we need new tools for a new paradigm.

A twenty-first century paradigm, one we call the enterprise model, calls for three new items in the toolbox of enterprise management: focus on the customer,, accountability for outcomes, and more positive assumptions about student and employee motivation.

Many in higher education recoil at the word customer. They believe that education has a higher purpose than selling products like detergent or garage door openers. Nevertheless, we prefer and use the word customer because we believe it is an important reminder that higher education is in business to serve others, not to perpetuate itself or to make self-interested choices . Like the well known organizational theorist Peter Drucker, we believe that the purpose for organizations resides outside the organization.

Higher education today lacks focus on customers and their needs. It is still the rare institution which consults with students on the design of curriculum and thoroughly evaluates student's experiences in earning degrees. In fact there is an inherent assumption that we, the providers, are in the best position to decide what is best for students.

The first new tool, there fore, is the assumption that services are more likely to meet customer needs if customers can influence delivery. This does not mean that students should design the curriculum. They are not the experts; faculty members are. Today's outcry for higher education reform is, in part, the result of legitimate public concern about whose interests are really being served by decisions and policies-are those of the faculty, the institution or the student-customer? Making enterprises accountable to their customers alleviates this concern, both in perception and in reality.

Providing accountability for outcomes is the second tool for reaching institutions. In today's higher education paradigm, we look upwards within the organization for our accountability. We receive State appropriations , so we are accountable to the legislature. Department heads and disciplinary colleagues award grants and conduct peer review, so individual faculty look no further for approval.

In the enterprise paradigm , on the other hand, departments themselves are held accountable only for measurable results. It is not enough that a course is offered; student outcomes in the course must be evaluated, providing one more circular linkage to customer satisfaction. Accountability is driven by those served -- including students, parents, employers, and units both on and off campus.

The third powerful tool of the enterprise model is a more positive assumptions about student motivation and employee trust. In today's higher education paradigm, bureaucratic rules and procedures seek to ensure the orderly conduct of academic life. But students have busy lives with many demands. They recognize when increasing red tape needlessly complicates their experiences; and they are the first to know when requirements are built on lack of trust, serving providers rather than customers. The enterprise model assumes that students want high quality education and that they can be trusted to take responsibility for their actions. This view stands in contrast to the converse assumption that we cannot trust them.

In employment relationships, the current higher education paradigm is a contradictory mixture of bureaucratic and enterprise principles. Many support functions (e.g., travel expenditures, accounting, purchasing) are governed by expensive bureaucratic controls. Typically these functions are not designed to serve the real customer (in this case the faculty and staff) but to facilitate bookkeeping procedures. Implicit in many current practices is the message, "We don't trust you." But higher education relies on creativity, best nurtured in a climate of trust and high expectations.

The research enterprise has traditionally flourished because of a strong set works because of a strong set of entrepreneurial incentives (grants awards and peer recognition) has been coupled with a powerful feedback system (peer review).

Teaching has lacked comparable rewards and expectations. As a result, students, parents, employers and legislators are becoming extremely critical of higher education. Frequently this message takes the form that faculty are not productive. We believe strongly that faculty do want to perform and that they are highly energetic about their work. It is not accidental that American higher education is the envy of the world.

American higher education ahs earned this deserved respect in research and student access. But, admirable though these accomplishments are, they are no longer enough. If we want more emphasis on teaching and higher quality graduates, we must change the incentives and reward creativity and entrepreneurship wherever it occurs.

Experience has shown us that little changes when presidents and legislators give exhortations on the importance of teaching and then attempt to address these concerns with increased rules and regulations -- all part of the current paradigm. We believe instead that gaining a much deeper understanding of the expectations of our customers, revising the accountability structure, and changing our assumptions about faculty and staff motivation are tools that can yield a dramatically reshaped, more effective higher education system.

To respond to the rapidly changing needs of the twenty-first century, therefore, higher education must become mission-driven, customer-sensitive, enterprise- organized, and results-oriented. We must drop the assumption that we alone know what is best for the student. We must understand that reorganizing one or two parts of the traditional system will not deliver the needed results.

Only by creatively rethinking the entire system from the multiple perspectives of consumer, provider, and overseer will we be able to meet the educational demands of future generations and assure the vitality of American higher education.

THE FOCUS OF THIS PROPOSAL

While our focus is on the statewide, multi-campus, public higher education system, much is applicable (with some minor modification) to individual institutions or campuses, public or private.

Our proposal is in three sections: 1) a description of the reinvented higher education enterprise model; 2) an examination of how this model would function for; and 3) recommended set of strategies for implementation. A brief afterword anticipates the questions that may be asked about our proposal.

Our model for reinventing higher education "unbundles" the current system--separating its functions into a collection of public enterprises, each accountable to its own customers, as illustrated in Figure 1.

A public enterprise is a corporation with a public body as the major stockholder. Although the higher education enterprises we propose would be established by the state, and therefore would be public bodies, they would NOT receive a legislative appropriations. Their revenues would be earned through contracts for services. In all respects, they would behave like private corporations--hiring, signing contracts, receiving and expending resources. Most current employees of higher education institutions would become employees of these new enterprises, which would assume responsibility for employee contracts and benefits.

This type of public enterprise is not a new or revolutionary concept. In Canada, Crown Corporations have long existed as entities of the federal and provincial governments. In Minnesota, through the joint powers agreement, governmental bodies may join to form their own corporations.

Public enterprise is not stranger to higher education. Many highly effective, long established examples of enterprise management already exist. For example, many non-credit programs are "tubs on their own bottoms" that contract with faculty for instructional services. Research activities in our universities also typically embody enterprise principles; auxiliary services such as parking are quasi-independent enterprise organizations on many campuses. Our proposal builds on these successes by extending the concept of enterprise management system-wide.

Each enterprise is defined by the answers to three key questions:

· Who is the customer?

· What is the result or outcome to be produced?

· What incentives should be in place to ensure that the customer receives the most value for the price being charged?

By unbundling higher education activities, the scope of each enterprise can be more narrowly focused. As a result, administrators can develop effective incentives tailored to their individual enterprise's objectives.

In the current paradigm, policy makers in higher education must carefully balance a host of competing, often contradictory objectives. For example, is student desire to have senior faculty in the classroom more critical than the institution's research reputation, which also relies on senior faculty to generate grants and contracts? Just as the public suspects, the interests of those closest to the decision-making authority (that is faculty and staff) usually prevail, sometimes resulting in disservice to the customers.

In the enterprise model, there is a much higher level of systematic accountability. Public scrutiny is not obstructed; it is enhanced.

In this model, customers determine the service mix, the prices, and the definition of quality, meaning that legislators or system governing boards no longer need to guess at supply/demand questions, resource allocation, pricing, or quality standards that tend to become quickly obsolete. Nor will they have to untie the Gordian knot of competing demands that now constrain the higher education system.

Because customer satisfaction will directly affect revenues in the new system, the bottom line will be providing value to customers. This kind of clear, uncomplicated funding structure guarantees transparent, immediate consequences for success or failure. Public accountability at last becomes authentic.

THE REINVENTED SYSTEM: A FAMILY OF HIGHER EDUCATION ENTERPRISES

Our model for unbundling higher education is best described as a family of public corporations operating under the broad guidance of the Higher Education Policy Board. A system overview is presented in Figure 2, with each enterprise shown separately. The diagram highlights the relationship between the customers and providers.

THE HIGHER EDUCATION POLICY BOARD

This board of system overseers is appointed by the governor or state legislature, or elected by the citizenry. It sets policies, develops incentive systems, reviews the performance of each of the enterprises, and is ultimately responsible for the quality and cost-effectiveness of the state's higher education services. It does not, however, develop specific policies and procedures for the other public enterprises comprising the system. This board ensures that students receive effective services, but does not dictate how enterprises achieve that level of service.

Depending on the scope of responsibilities invested in this board by the legislature, it could also set state financial- aid policy and determine the level of state support each student will receive. Such decisions also could be made by the legislature itself and then executed by this broad.

THE LEARNING CONNECTION

The Learning Connection has two highly integrated responsibilities: assisting students in making choices about their educational options, and evaluating the annual performance of each educational program in the system.

The former is accomplished by assessing student skills and competencies, by maintaining keen awareness of changing marketplace demands, and by housing extensive information on the nature and quality of programs offered throughout the system.

These services are subsidized by sliding-scale fees to students based on their ability to pay, or by state allocations based on volume and quality of service.

To offer effective student counseling, the Learning Connection needs comprehensive, timely data on program effectiveness. Collecting that data means analyzing the changing expectations of employers and feeding that information back to both students and enterprises. The Learning Connection is paid for these evaluations by The Higher Education Policy Board, which also uses these data to gauge the overall effectiveness of the system.

The Learning Connection might have an additional, powerful responsibility--certifying student outcomes. For example, upon completion of the general education requirements, The Learning Connection could assess each student's ability across certain basic skills. As an ancillary service, this enterprise could also provide focused skill assessment ofgraduates for clusters of private corporations.

THE LEARNING BANK

This bank maintains the postsecondary educational account of all citizens in the state. All financial aid (including federal, state, and private awards) is deposited here to be drawn upon by individual students .Student eligibility for grants, work, and loans continue to rely on the same policies in effect today. The Learning Bank also deposits in its account the state support for each student. For example, in Minnesota the state directly supports 60 percent of the student's public higher education cost through its biennial allocations to institutions.

In this new model, students draw on their accounts (activated upon enrollment in an accredited post-secondary program) as bills come due. They pay the Educational Enterprise in which they are enrolled with a combination of tuition, financial aid, and state appropriation, depending on state and federal policies.

The Learning Bank operates state-wide. This means that individual campuses do not maintain extensive financial aid systems nor do they compute state allocation requests on enrollment-driven formulae .

The Learning Bank works like a voucher system, encouraging student choice across a wide variety of institutions. Students can take their full educational support, as set by state policy, to the Educational Enterprise of their choice. State policy might permit only public institutions to draw on accounts from The Learning Bank; alternatively, some states might even decide it is in their best interest to permit citizens to use their educational account at any accredited institution, public or private.

A secondary function of The Learning Bank could be to encourage savings for education. The state could provide incentives (matching funds, tax advantages) to parents and relatives who want to open an account for a child. The Learning Bank, in the business exclusively of assisting students and families plan and pay for their education, would see it in their best interests to stimulate personal savings for higher education.

EDUCATIONAL ENTERPRISES

From the student's perspective, Educational Enterprises are the counterpart of today's colleges and universities. Each enterprise is chartered by The Higher Education Policy Board to provide degree programs and instructional services.

Each enterprise could have a distinct educational mission and environment. Some might emphasize traditional undergraduate experience, while others focus on the arts or on science and technology. To fulfill its unique mission, each enterprise purchases instructional services, rents facilities, and contracts for academic support among both public and private vendors.

One advantage of their diversification would be that no one enterprise would have to include the whole range of educational options; providing more flexibility to recombine and repackage the state's higher education services as student needs change.

TEACHING ENTERPRISES

Teaching Enterprises are collections of faculty members organized to provide instruction and services to one or more educational enterprises. The focus of each might be a discipline, problem, or field of interest. For example, an organization may narrowly define itself by a single discipline such as biochemistry, or it might encompass a group of disciplines like fine arts, or focus on a specific problem such as water.

Alternatively, these enterprises might be defined by a particular pedagogical style. For example, a group of faculty might come together around active learning or computer mediated instruction. Another enterprise might be organized according to its customer base. For instance, one teaching enterprise might specialize in providing instructional services to the deaf.

The structure of each teaching enterprise could vary--some might be public corporations, private organizations, or even single individuals. A single organization might also serve more than one educational enterprise. Certification criteria for such enterprises would be set by the Higher Education Policy Board.

Educational Enterprises contract with these organizations to provide instructional services. For smooth transition to the enterprise model, existing employment contracts in public colleges and universities would be transferred. Faculty could be tenured in the organizations if members believed that was a necessary safeguard against intrusions into academic freedom. Each enterprise would set its own teaching, research, and other policies. Although they can have formal collective bargaining agreements, it seems unlikely they would need them.

The creation of separate Teaching Enterprises is a fundamental change in the organization of higher education and would result in an important advantage: the clarification and disentanglement of competing objectives in the bureaucratic system.

This change would give each enterprise greater freedom to set incentive structures tailored to specific objectives and to the needs of their particular customers. For example, if an Educational Enterprise wanted more senior faculty to teach introductory courses, it could change its incentives to it is advantageous to the Teaching Enterprises to assign senior faculty to introductory courses. If a few senior faculty members do not want to teach introductory courses, they would not be forced to do so; however, the incentives offered by the Educational Enterprise may not be as rewarding.

The fiscal health of both Teaching Enterprises and Educational Enterprises will rely on satisfying customers, as well as on satisfying one another. However, each entity would have the freedom and incentive to generate revenue from other sources. For example, a biology faculty member might contract to assist the State Department of Natural Resources, offer after-school labs for junior high students, seek federal research grants, or offer scholarly expertise to a nearby private liberal arts college. Marketplace pressures will lead teaching enterprises to deploy their faculty in service areas where they're most skilled, thereby delivering higher quality service and maximizing revenue.

With a wide variety of separate teaching enterprises, each campus no longer needs to reinvent the wheel for its own institution. Administrators of each educational enterprise now have the flexibility to select those instructional resources that best meet the specific instructional needs of the population being served.