“If you have to ask”: Ten sure-fire ways to lose money on research

May 18, 2011

Normally collegial discussions took a nasty turn after I suggested that most universities lose money on sponsored research.

Incredulous: “I don’t believe it. My department tacks a 50% surcharge to all my contracts; how can they lose money?”

Defensive: “Here are all the reasons that doing research is a good thing, so what’s your point?

Defensive with an edge: “Why are you attacking research?

Let’s be be clear about it:  if it’s your institution’s mission to conduct research, then spending money on research makes perfect sense.  In fact, it would be irresponsible to deliberately starve a critical institutional objective like research.

On the other hand, there are not all that many universities with an explicit research mission.  But there is an accelerating trend among  primarily bachelor’s and master’s universities to become — as I recently saw proclaimed in a paid ad — the next great research university. The university that paid for the ad has absolutely no chance to become the next great research university.  Taxpayers are not asking for it.  Faculty are not interested. Students and parents don’t get it either.

The administration and trustees think it’s a great idea.  Research universities  are wealthy.  Scientific research requires new facilities and more faculty members.  Research attracts better students. Best of all, federal dollars are used to underwrite new and ambitious goals. Goals that would be out of reach as state funding shrinks. As often as not, the desire to mount a major research program is driven by a mistaken belief that sponsored research income can make up for shrinking budgets. It’s a deliberate and unfair confounding of scholarship and sponsored research

If your university is pushing you to write grant proposals to generate operating funds, then alarm bells should be going off.  Scholarship does not require sponsored research. Chasing research grants is a money-losing proposition that can  rob funds from academic programs.  It’s an important part of the mission of a research university, but for almost everyone else, it’s a bad idea.  It’s a little like shopping on Rodeo Drive:  there’s nothing there that you need, and if you have to ask how much it costs, you can’t afford it.

How is it possible to lose money on sponsored research?  After all, professor salaries are already paid for.  The university recovers indirect costs. Graduate and undergraduate students work cheap.

A better question is how can anyone at all can possibly make money on sponsored research. Many companies try, but few succeed.  A company that makes its living chasing government contracts might charge its sponsors at a rate that is 2-3 times actual salaries. Even at those rates, it is a rare contractor that manages to make any money at all.

On the other hand, a typical university strains to charge twice direct labor costs.  Many fail at that, but the underlying cost structure — the real costs — of commercial and academic research organizations are basically identical.  There is a widespread  but absolutely false assumption that underlying academic research costs are lower  because universities have all those smart professors just waiting to charge their time to government contracts. The gap between what universities charge and what sponsors are willing to pay commercial outfits is the difference between making a profit and losing a lot of money. Just like intercollegiate athletics, sponsored research programs tend to lose money by the fistful.

Let me say up front that the data to support this conclusion are not easy to come by.  Accounting is opaque. Sponsors know a lot about what they spend, but relatively little about what their contractors spend.  It is in nobody’s interest to make the whole system transparent.  But my conversations with senior research officers at well-respected research universities, paint a remarkably consistent picture.  With very few exceptions, it takes $2.50 to bring in every dollar of research funding.

Fortunately, the arithmetic is easy to do.  If you know the right questions to ask, you can find out how much sponsored research is costing your institution. Here are ten sure-fire ways to lose money on sponsored research. You do not need all of them to get to a negative 2.5:1 margin.  If you are clever just a couple will get you there.

  1. Reduce senior personnel productivity by 50%: university budgets are by and large determined by teaching loads, a measure of productivity. It is common to adjust the teaching loads of research-active faculty. Sometimes normal teaching loads are reduced by 50% or more.  It is, some argue, table stakes, but a reduced teaching load is time donated to sponsored research because funding agencies rarely compensate universities for academic year support.
  2. Hire extra help to make up for lost productivity: Courses still have to be offered, so departments hire adjuncts and part-time faculty.
  3. Do not build Cost of Sales  into the contract price: The sales cycle for even routine proposals can be  months or years.  Time spent in proposal development converts to revenue at an extraordinarily small rate. In nontechnical fields and the humanities where research support is rare, the likelihood of a winning proposal is essentially zero.
  4. Engage in profligate spending to hire promising stars: Hiring packages for highly sought-after faculty members can easily reach many millions of dollars.  A sort of hiring bonus, there is little evidence that this kind of up-front investment is ever justified on financial grounds.
  5. Make unsolicited offers to share costs: Explicit cost-sharing requirements were eliminated years ago at most federal agencies.  Nevertheless, grant and contract proposals still offer to pay part of the cost of carrying out a project.
  6. Allow sponsors to opt-out of paying the indirect  cost of research: An increasingly common practice is to sponsor a research project with a “gift” to the university.  Gifts are not generally subject to overhead cost recovery, so a university that agrees to such an arrangement has implicitly decided to subsidize legal, management, utility, communication, and other expenses, and
  7. Accept the argument that indirect costs are too high: The  meme among federal and industrial sponsors is that indirect costs are gold-plating that must be limited. Rather than believe their own accounting of actual costs of conducting research, they argue that universities, should limit how much they charge back to the sponsor.
  8. Build a new laboratory to house a future project: Sponsors argue that it is the university’s responsibility to have competitive facilities.  But that new building is paid for with endowment funds or scarce state building allocations that might have gone toward new classrooms or upgraded teaching labs.
  9. Offer to charge what you think the sponsor will pay, not what the research will cost:  Money is so tight at some funding agencies that program managers are told to set a (small) limit on the size of grants and proposals independent of the work that will be actually be required.
  10. Defray some of the management costs of the sponsoring agency: It has become so common that it is hardly noticed.  University researchers troop into badly-lit conference rooms to help program officers “make the case” to their management.
The list goes on. It is so easy to turn a sponsored research contract into a long-term commitment to spend money for which there is no conceivable offsetting income stream that institutions routinely chop up the costs and distribute them to dozens of interlocking administrative units.  The explosion in the number of research institutions has all the elements of an economic bubble.
  • It is motivated by a gauzy notion that all colleges and universities are entitled to federal research funds..
  • It is fed in the early stages by accounting practices that make it easy to subsidize large expenditures.
  • It has the cooperation of funding agencies who know that the rate of growth is not sustainable.

Virtually everyone involved in university research knows that the bubble will burst.  A colleague just showed me an email from his program director at a large federal research agency.  It said that — regardless of what he proposed — the agency was going to impose a fixed dollar amount limit on the size of its grants. But in order to win a grant, he had to promise to do more.  His solution: promise to do the impossible in two years instead of three.  Just like the famous Sydney Harris cartoon,  a miracle is required after two years. At least there would be enough money to pay the bills while a new grant proposal was being written.

Disruptive Tech Congrats to Ashwin RT @a

April 8, 2011

Disruptive Tech Congrats to Ashwin RT @ashwinram: RT @openstudy Honored to get funded by @NextGenLC challeng… (cont) http://deck.ly/~TezsI

The Five Dumb(est) Ways that Universities Spend Money

April 6, 2011

I know a young woman who attends a very pricey public university that has plans to raise her tuition by another 25% next year.  It’s in one of those western states where the number of applicants far exceeds the number of available freshman openings.  You have to wonder what was going on in the alumni office when they were putting their quarterly newsletter together. It  proudly announced the latest institutional initiative, a million dollar branding campaign.

It would be one thing if it were a campaign to spread awareness of the university’s many great programs among prospective students.  It would even be all right to mount a a campaign to position the university as a driver of economic growth and social well-being for a balky state legislature.  But no, this was a branding campaign along the lines of  management book/landfill fodder classics like Why Johnny can’t Brand.  “It’s even worse,” said the father of the soon-to-be gold-plated sophomore.  His face was red and his hands were shaking as he shoved the alumni newsletter under my nose.

They are going to spend a million dollars — my dollars — on standard logos and common fonts.” No more nightmarish inconsistencies between physics and modern languages when it comes to business cards and PowerPoint presentations. And those press releases from the Athletic Director will now just have to rise or fall on their own merits. They won’t have serifs to hang onto.  Prospective employers will heave a sigh of relief knowing there has been no graphical hanky-panky in the registrar’s office when it comes to the forms on which student transcripts are printed.  Teams of litigators will have new weapons at their disposal as they fan out across the world to chase down the diploma mills that churn out thousands of knock-off degrees. As they cross the commencement stage, new graduates and their parents will be greatly comforted to know that every time their daughter is introduced from that day forward, the university’s branded,  descriptive tag line will have to be tacked onto the end, as in, “Meet Sally Smith who recently graduated from Western State University, the Mighty Blue Raiders, leading the force of change and innovation for the Rocky Mountains and beyond.”

OK, sorry.  I got caught up in the moment, but it struck me that a million dollar project to apply consumer product marketing tools  to a university that is raising tuition by 25%, closing academic departments, shutting down programs, and firing scores of staff was probably going to have some unintended repercussions. Marketing professionals would say it was not the best choice optics-wise. I remember thinking to myself: “This is maybe the dumbest use of university funds that I have ever seen.”

If you’ve seen my other posts (here and here for example) about college costs, you know that, optics-wise,  I am suspicious of any expenditure that does not add value to students. So I started to wonder about other really dumb ways that universities spend money.  I have a top five list.

  • An expensive “branding” campaign to standardize logos is at the top of the list.
  • Letting service units do research: Dormitories, IT facilities, bookstores, technology licensing, and public relations offices, are all service units. The problem is that mission creep results in an ever-expanding number of ever-expanding service units. No doubt inspired by institutional aspirations, they try to hire the best people.  Some of them have PhDs and academic career goals of their own, so they push very hard for a piece of the campus research pie. But, as we all know, university research seldom pays for itself. It is mission creep upon mission creep as service units with no academic mission whatsoever funnel resources into research programs.
  • Overhead forgiveness: Faculty members and research sponsors are equally suspicious of indirect costs on research contracts.  Professors see it as an unnecessary tax on their salaries, and sponsors confuse it with profit.  Both sides push to have it reduced or eliminated.  There are even federal agencies that make it a point to try to have it forgiven as they strong arm investigators into promising more and more for less and less.  Even full cost recovery does not pay the actual cost of research. Reducing or eliminating research overhead is an expense that robs the rest of the university, and is not a smart way to spend money.
  • Centralization: I once had a colleague — a fellow general manager — who effectively blocked any attempt to increase the size of his staff with “Where the f— do you think we are, General Motors?” It translated better back when General Motors was ranked number one in the Fortune 500, but it is nevertheless a good message today that administrative bloat is a dumb way to spend money.  The Spring 2008 issue of the UCLA faculty newsletter shows how bad it has become:

Over the past decade, the numbers of Administrators in the UC almost doubled, while the number of faculty increased by 25%. The sharpest growth took place among Executives and Senior Managers: 114%. Because Administrators command high salaries and benefits, any increase in their number higher than the expected growth rate for the University results in high costs: rough estimates of the costs of carrying extra administrators at UC range around $800M.

  • Entertain yourselves: We call it many things.  Networking. Teas. Receptions. Faculty meetings.  For most of the world, lunch means a five dollar sandwich from the cafeteria. At too many university gatherings, a catered buffet is the lure that induces professors to attend. Whatever we call it, the world sees it as a free lunch, and professors spend university funds to feed themselves at the drop of a hat. Long-time viewers of the NBC comedy series The Office know the drill.  If there’s a reason to entertain ourselves let’s do it:

Jan: You already had a party on May 5th for no reason.
Michael: No reason?! It was the 05 05 05 party…
Jan: And you had a luau….
Michael: …it happens once every billion years.
Jan: And a tsunami relief fundraiser which somehow lost a lot of money.
Michael: Okay, no, that was a FUN raiser. I think I made that very clear in the fliers, fun, F-U-N.
Jan: Okay, well, I don’t understand why anyone would have a tsunami FUN raiser, Michael. I mean, that doesn’t even make sense.

Paring the list down to five was not easy, and I am sure many of you have lists of your own.  What was number six? Well, Rutgers’ decision to pay Nicole “Snooki” Polizzi  (star of MTV reality show Jersey Shore), $10,000 more than the annual cost of attending the university was a real contender. It was $2,000 more than Nobel Prizewinning author Terri Morrison received.  It was a problem.  Optics-wise.

Big Animal Pictures

April 4, 2011

I’ve been spending more time with alumni.  Zvi Galil, the new dean of computing at Georgia Tech — my successor — has been on a national tour to get acquainted with recent graduates. I accompany him whenever I can to make introductions and to generally help smooth his transition.  Not that he needs it.  Zvi was dean of engineering at Columbia for many years and knows how to get alumni to talk honestly about their undergraduate experiences. We were having lunch with a group of recent graduates when I heard Zvi ask someone at the end of the table, “What’s the one thing you wish we had taught you?”

The answer came back immediately: “I wish I had learned how to make an effective PowerPoint™ presentation!”  If the answer had been “more math” or “better writing skills” I would have filed it away in my mental catalog of ways to tweak our degree programs. It’s a constant struggle in a requirement-laden technical curriculum — even one as flexible as our Threads program — to get enough liberal arts, basic science, and business credits into a four year program, so I was prepared to hear that these young engineers wanted to know more about American history, geology, or accounting. After all, I am a former dean.  I had heard it all before.

But PowerPoint? Everything came to a stop.  Zvi said, “PowerPoint!” It was an exclamation, not a question.  Here’s how the rest  of the conversation unfolded” “Look, the first thing I had to do was start making budget presentations. I had no idea how to make a winning argument.”  From the across the table: ” Yeah, we learned how to make technical presentations, but nobody warned us that we’d have to make our point to a boss who didn’t care about the technology.”  “It’s even worse where I work,” said a young woman. “Everybody in the room has a great technology to push.  I needed to know how to say why mine should be the winner.”  And so it went.  This was not a PowerPoint discussion.  We were talking about Big Animal Pictures. If you understand Big Animal Pictures, you understand  how to survive when worlds collide.

David Stockman directed Ronald Reagan’s Office of Management and Budget (OMB) from 1981 to 1985.  He was a technician.  A financial engineer. He had a Harvard MBA, and spent the early part of his career on Wall Street with Solomon Brothers and Blackstone. It was a checkered career, and if you take seriously the accounts in his memoir of the Reagan years, he never really understood that he was caught between colliding worlds. Which brings me to Big Animal Pictures.

Stockman was a conservative deficit hawk who thought his job was to restore fiscal sanity.  Reagan had beaten Jimmy Carter in part by painting the Democrats as financially irresponsible.  David Stockman’s job was to fix that, and that meant budget-cutting.  Defense Secretary Caspar Weinberger thought that Reagan had been elected to restore America’s military might. Weinberger’s job was to pump more money into defense budgets.  Stockman and Weinberger were on a collision course, and for a year they traded line-item edits to the federal budget. This was a technical duel. Stockman and Weinberger both had considerable quantitative skills. It was a bureaucratic game that Weinberger had learned to play when he worked for Reagan in California, but there was a deepening recession. In the end, it appeared that DoD would have to make do with the 5% increase that the White House was proposing. It was a spending increase that Stockman believed was unwise and unaffordable.

Weinberger’s proposal was 10%.  Stockman could barely contain himself. It set up a famous duel in the form of a budget briefing with Reagan playing the role of mediator. It was going to be a titanic debate.

Stockman showed up with charts, graphs and projections.  The stuff that the OMB Director is supposed to have at his fingertips. Weinberger came armed with a cartoon, and walked away with his budget request more or less intact.

Weinberger’s presentation was a drawing of three soldiers. On the left was a small, unarmed, cowering soldier — a victim of years of Democratic starvation. The  bespectacled soldier in the middle — who bore a striking resemblance to Stockman — was a little bigger, but carried only a tiny rifle. This was the army that David Stockman wanted to send to battle. The third solder was a  menacing fighting machine, complete with flak jacket and an M-90 machine gun. It was the soldier that Weinberger wanted to fund with his defense budget.  Weinberger won the budget debate with Big Animal Pictures.

Stockman was appalled:

It was so intellectually disreputable, so demeaning, that I could hardly bring myself to believe that a Harvard educated cabinet officer could have brought this to the President of the United States. Did he think the White House was on Sesame Street?

Stockman and many analysts concluded that the episode revealed something deep about Reagan’s intellectual capacity. Maybe so, but I think it revealed more about Weinberger’s insight into what it takes to carry an argument when the opposing sides can each make a strong technical case for the correctness of their position: argue for the importance of the end result, not for the correctness of how you will achieve it. It is a classical colliding worlds strategy.

Michael Dell’s 1987 private placement memorandum for Dell Computer Corporation was a Big Animal Picture. Buying computers was a hassle when Dell started his dormitory-based business in 1984.  By 1987, PC’s Limited had sold $160M worth of computers based on a simple strategy: eliminate the middle man, get rid of inventories, and give customers a hassle-free way to buy inexpensive, powerful IBM-compatible computers.  In the midst of a stock market crash, Michael Dell managed to raise $21M based on a short document that ignored the conventional view that private placement business plans had to be highly technical:

Dell has sold over $160 million of computers and related equipment on an initial investment of $1,000. The Company has been profitable in each quarter of its existence, and sales have increased in each quarter since the Company’s inception.

Tacked onto the memorandum, almost as an afterthought were letters from customers — inquiries from people who were interested in buying computers from Michael Dell and testimonial from owners of his made-to-order PCs who wanted to buy more of them.  It was short (45 pages with the letters attached) and, aside from a few pro-forma financials to explain what would be done with the new money, it was almost entirely devoted to painting a picture of what success looked like to Michael Dell.

A copy of the original Dell memorandum wound up on my desk in late 1998.  At the time, my Bellcore department heads were struggling to define businesses that could either be spun out of the company or funded as internal startups. I was drowning in  highly technical market forecasts and details of patent disclosures. Each new spreadsheet screamed: “Idiot! Just look at this equation.  It’s obvious why our approach is better than everyone else’s.”  One afternoon, in exasperation,  I threw Michael Dell’s private placement memorandum on my conference table and said “Make me a presentation that looks like this.” The room got very quiet as they realized what was going on.  I was asking for Big Animal Pictures.

We started four businesses within 18 months.  Three were spun out  and made a modest amount of money for the company and the founders.  We ran one as an internal start-up. It did not do nearly so well. One of the key factors was that we could not duplicate Michael Dell’s Big Animal Picture.

This is not a lesson that engineers and scientists learn easily. In fact, when presented with overwhelming evidence that business decisions are seldom made on the basis of technical elegance and correctness, engineers retreat to the safer ground staked out by David Stockman: “Do you think we are on Sesame Street?” The answer is “Yes!”  Successful engineers and scientists know all about Big Animal Pictures.

Paul R.  Halmos was one of the great mathematicians of the 20th century. He studied the most abstract topics imaginable. One of his crowning achievements, for example, was to create an entire algebraic theory to describe mathematical logic, which was itself an abstract mathematical theory to explain symbolic logic. Symbolic logic was, in turn, an abstract explanation of the kind logic used by Aristotle, and Aristotle’s logic was the formalization of correct patterns of human  inference. Halmos did not deal in uncomplicated matters.

How did Paul Halmos counsel young mathematicians to present their work in public?

A public lecture should be simple and elementary; it should not be complicated and technical. If you believe you can act on this injunction (“Be Simple”) you can stop reading here, the rest of what I have to say is, in comparison, just a matter of minor detail.

The mistake, Paul Halmos noted in his essay How to talk Mathematics is thinking that a simple lecture talks down to the audience. It does not. Halmos (or PRH as he sometimes called himself) seems to have understood worlds in collision.   Of course, a simple lecture in PRH world might open with the phrase “…as far at Betti numbers go, it is just like what happens when you multiply polynomials,” so it’s a sliding scale.

No matter what you’re doing in the technical world, learning how Big Animal Pictures work is a valuable thing.  I sometimes sit on review panels to decide on research funding.  I recently advised a young scientist to use Big Animal Pictures.  She had five minutes to present her work and I knew that the competition would be strong.  Her first instinct was to jump into the technical meat of her research to give the reviewers a feeling for why her approach was better than other approaches. My advice was to not do that.  I wanted her to literally give a BAP presentation that would inform the panel about the importance of her research and why they should care about it.  I later found out that other colleagues had given her identical advice, which she apparently followed with great success.

And it doesn’t matter which of the colliding worlds you are on.  BAPs are always a good idea. My colleague Wenke Lee was recently called upon to give a presentation on the state of computer security research to a  group of mathematicians.  It was all about how powerful mathematics can be used to exploit security flaws and vulnerabilities. Wenke resisted the temptation to dive into the technical details of botnet attacks.  It is, after all, a subject he knows well and he probably would have had fun demonstrating his prowess. But here is how Wenke began his lecture.

He went on for another twenty minutes, but he really didn’t need to. Everyone got the point in the first thirty seconds.

“You dropped it! You pick it up!”

February 2, 2011

There was a stir a couple of months ago when I pointed out that university research is by and large a money-losing proposition.  There are some ways to fix that, but, in the end, it all boils down to an institution’s mission.  Most universities expect professors to engage in scholarly activities, but externally sponsored research is a different proposition.

The number of research universities–that is, universities whose missions explicitly incorporate research, knowledge creation and economic impact–is quite small.  Even among AAU schools–a club that styles itself as the premier  association of universities “distinguishing themselves by the breadth and depth of their research programs”–sponsored research is an afterthought for many.  The bottom line is that for most colleges and universities research is mission creep. Sponsored research is driven in part by a mistaken belief that research funds are an effective way of supplementing operating budgets.

But it is not the only upside-down belief system at work in American universities.  There is a persistent argument in higher education circles that intercollegiate athletics is somehow good for a university. Big-time college football and basketball are unquestionably great entertainment.  There is simply no other way to explain a jam-packed 100,000 seat football stadium in middle of an otherwise deserted prairie. It is spectacle that translates well to television, too.

So it is not surprising that there are millions of enthusiastic supporters of collegiate athletics–fans proudly flying the colors of the local team from the antennas of their SUVs–who know literally nothing else about the institutions on which they lavish so much praise and attention.  They may not be alumni, parents, or students, but they are nevertheless  invested in the fortunes of their teams. They may not be able to name a single academic program offered by their favorite school, but they know the pedigrees, strengths, and weaknesses of every assistant coach.  It is the main reason that most university presidents think that intercollegiate athletics is a positive force for the university. The common phrase among presidents is that it is a “front porch” that “only expands the potential donor base and does not compete with academic fund raising.”

If that were true, it would be great for all.  The public gets to invest in higher education. The schools get a new source of revenue and the opportunity to advertise their academic programs to a new and otherwise unreachable audience. Applications go up.  Scholarships pour in. Everyone wins.  The problem is that university presidents know differently. The president of a major research university once showed me an email message he had just received from an alumnus:

…I don’t care about academics at all. And I don’t want you spend any of my money on it. The ONLY thing I care about is winning football games. And if you can’t get that right, I am not going to give you another penny.

It was not an unusual letter, and it depressed him. But I don’t think he read the same significance into it that I did. College athletics and the business of running a university are not synergistic.  Failure in athletics has an enormous negative financial impact on the university, but then so does success.

On October 7, 1916, John Heisman coached Georgia Tech to a 222-0 route of Cumberland College. Neither team made a first down. Tech scored on every possession.  Cumberland gained a total of 22 yards. The Cumberland players were mainly ringers from local farms and factories who–because Cumberland had disbanded its football program– were recruited specifically to play this game. The pounding must have been fierce. Late in the game the Cumberland quarterback fumbled the ball, and it landed in front of a Cumberland lineman. The quarterback yelled, “Pick up the ball!” The lineman yelled back, “You dropped it. Pick it up yourself!”

There is cosmic significance to both the game and the panic-laced exchange between the doomed Cumberland players.  Intercollegiate athletics is set up to insure lop-sided outcomes.  Not necessarily on the playing field, but on university ledgers. College sports is also a financial game where there are lots of fumbles, but it is in no one’s best interests to pounce on them. If you are not on the winning team–and there are not many of those–you are going to take a financial shellacking. And even if you are on the winning team, it may not turn out so well for you.

It has been known for a long time that the financial model underpinning major college sports is crumbling. A 2009 report of the Knight Commission concluded that

It is clear that the question for many presidents…is not whether the current model is sustainable but given the forces at work, how long it can be sustained.

Some powerhouse programs do indeed make money. Georgia Tech runs one of the most profitable football programs in the country. Despite spending $1,250 per student, its football program turned a $9.35 million profit last year, but Tech is operating in rarefied atmosphere.  A recent report of the NCAA on revenues and expenses for Division I intercollegiate athletic programs shows why. Only about half of the 119 bowl-eligible football programs make any money at all. With so many media agreements with so many conferences, covering so many holiday bowl games, this seems impossible, but it is nevertheless true.

The major bowl games—the so-called Bowl Championship Series games– generate tons of money, and that money is spread around to the other schools in the conference.  So are the losses.  And there is a lot of red ink among the 34 post season bowl games. Bloomberg News recently reported on the “You pick it up!” outcome for the Big East Conference:

Rutgers University celebrated its 8-4 record last football season with a trip to the St. Petersburg Bowl in Florida. Big East Conference schools got stuck with a $740,000 bill.

The Big East revenue sharing agreement also spreads bowl losses from South Florida ($428,000) and Connecticut ($430,000) across the remaining schools according to a formula that conference does not make public.

But that still leaves 60-70 football programs that operate in the black, and those programs—like Georgia Tech’s—surely generate enough money to help cash-strapped university budgets,  don’t they?

They don’t even come close. Net income from major sports does not go toward engineering scholarships or new language labs. It helps to offset other athletics expenses. According to the NCAA, 88% of the programs at bowl-eligible schools lose money.  The median loss in 2009 was $10 million.  The NCAA also noted an alarming trend. The number of profitable programs shrank from 25 in 2008 to 14 in 2009 and the revenue gap between profitable and unprofitable programs grew.

The University of Florida operates one of the most successful intercollegiate athletics programs in the country.  Those programs collectively lost $5.4 million in 2008-2009. Where do those losses go? Universities hate to use the work “subsidy” but that is exactly what happens in big-time college sports. The losses are subsidized by other sources of revenue, and, as I pointed out in my last post, American institutions have no new sources of revenue.

Some of those subsidies are tied up in not very obvious ways with university balance sheets. Building costs, for example, tend to be lumped together in capital fund raising campaigns. It is a conceit that -–however convenient—has a big impact on academic programs and students. A professor interviewed by the Knight Commission asked the obvious question:

What’s the justification for a public university directing sixty percent of its capital expenditures over an entire decade toward a non-academic auxiliary unit whose annual budget is only eight percent of the entire university?

The financial reporting for athletics is as opaque as it is for research.  The NCAA is aware of this and had been pushing hard for standard accounting practices, but that would make life difficult for those institutions that want to spin the wheel, hoping for a jackpot.

I was browsing college basketball games last weekend, when I stumbled onto a public service announcement from one of those 119  FBS schools. It was an ad touting a new $50 million basketball complex bearing the name of a prominent local family. I sat up.  “I know that name!” The donor had been courted for a new academic building just a few years before.  Not only was there going to be another $50 million spin of the wheel, it had come at the expense of an academic program. Some front porch.

What’s for Lunch?

January 21, 2011

Awhile ago, I mentioned India’s plan to create 27,000 new colleges and universities over the next decade.  Well, guess what?  I was wrong.  The number is now 35,600. Here’s what I said a year ago about Education Minister Sibal’s plan to expand India’s capacity in higher education:

What does this have to do with American colleges and universities? Just as low-cost, high value service industries have migrated to India, the higher education market in the US will also start to buy more educational services there as well.

So I was immediately drawn to yesterday’s Business Week article about California’s intention to make a quick lunch of its seed corn by cutting university spending $1.4B and the likely effect that snack will have on job growth and tax revenue.

Particularly striking to me was VC Robert Ackerman’s reaction to the massive and rapid expansion of higher education in Asia:

Right now, if I were the Chinese university system, I’d be running ads showing up on UC websites, recruiting students to universities in Beijing and Shanghai.

Now I am not a big fan of the proposition that value in higher education can be measured in dollars spent–if American institutions made better use of their budgets, then the resulting efficiencies would actually increase capacity–but there is little doubt that wholesale dismantling of universities across the country is a very bad idea.

We are shrinking university capacity at a time when India, China, Singapore and many other countries are  increasing theirs. India  alone will create 600 new research universities. China is increasing its capacity in research universities while the  U.S. has created one new research university this century: UC Merced.  Since Merced is part of the California system, its prospects are dimmer by the moment. Only a handful of new universities of any kind have been created in the U.S. since 1960, a period in which college enrollments have quadrupled.

Why is falling capacity so important? Because the worldwide market is growing, and we are systematically reducing our share of that market when economic competitors are  moving in the opposite direction. I leave it as  a homework exercise to determine what happens when an enterprise loses market share in a growing market.

Buon appetito!

Show me the value!

January 19, 2011

There has been a lot of discussion surrounding my post about Ephemeralization of American Universities.  One of the solutions I advocate is concentrating resources where they matter most — and for most universities that is not in the first two years when increasingly commoditized, high quality content is available to replace ineffective bricks and mortar in-person classroom experiences. Many of my colleagues have argued that the classroom experience is not only pedagogically superior, it is what students value. That was an argument that always rang hollow to me.  It did not match my experience and many of colleagues agreed.

But my anecdotal reporting of experiences has limitations.  A new book by Richard Arum and Josipa Roksa puts some weight behind the proposition that during the first two years of college students learn little.  That does not mean the first two years has no value, but as the Ephemeralization pill experiment suggests, the value is much more likely to be social than academic.

Here’s how Jacques Steinberg describes it in his New York Times blog:

This is going to be a topic that generates a lot of heat.  Behind it all is the question: why are we spending such a large part of the higher ed dollar on that part of the college experience that returns the least value?

Three Ideas

December 30, 2010

It’s one of my favorites. Tom Wolfe’s  June 8, 1970 New York Magazine article “Radical Chic: The Party at Lenny’s” is a dazzling piece of writing that never fails to alternatively enrage and inspire as layer by painful layer the dangers of “integrating new politics with tried and true social motifs…” are laid bare.  More than an essay, it’s a universal metaphor.

Everyone from the Black Panther anarchists who were guests in the Bernstein house (but apparently thought that his was the BERN-STEEN residence)  to Peter Duchin’s wife Charay (who bubbled “I’ve never met a Panther before–this is a first for me!”) comes away excoriated and diminished. Including Tom Wolfe.

My favorite passage is the brief exchange between Leonard Bernstein and Panther field marshal Don Cox:

“You can’t blueprint the future,” says Cox. “You mean you’re just going to wing it?” says Lenny.

It’s that way with every revolution, I suspect.  Events are set in motion. If they are dangerous enough, they attract attention and sometimes even smug support from fashionistas who cannot quite believe that outcomes are uncertain. Edupunk is like that. It’s an idea that sounds dangerous but somehow containable.  Flying close to that flame might actually be fun.

At least that’s what University of Virginia president Teresa Sullivan probably had in mind when

In a bow to the “Edupunks,” Sullivan explained that Virginia is incorporating student habits into its pedagogy.

“Radical Chic” came immediately to mind when she explained that a bow can be as cheap and impersonal as a $500 check at Lenny’s dinner party.   It’s  not exactly the  Jeffersonian embrace that you might expect from an institution like Virginia:

“flash seminars” alert students to an edgy topic — no examples of how edgy — that will be discussed in a professor’s living room. To raise the hype level, only the first 25 students who show up are allowed to participate in this non-credit-bearing activity.

A colleague of mine put an even finer point on the comparison:

“bow”,”hype level”, professor’s “living rooms”, “edgy topics”– the academy domesticates  the “bizarre acts” of flash behavior, clueless to its naffness.

It should come as no surprise to those of you who saw last week’s announcement or have been following the plans that Richard Barke, Bill Rouse and I have for an open seminar on “Transforming Academia” at Georgia Tech’s Tennenbaum Institute that that I am winding up the year thinking about big ideas in higher education.

In fact, right after Georgia Tech announced the creation of a Center for 21st Century Universities (C21U), I started getting phone calls and email. “What’s the point?” one writer said. “Won’t universities change over the next 40 years or so?”  “What’s your vision for the 21st Century?” asked one reporter. “Here’s an idea that you have to look at,” said a colleague.  “It will change everything.”  The whole point of C21U is that over a hundred years, everything will change, and–from our vantage point at the start of the century–we have no way of knowing which ideas matter.

There is one thing that history teaches us: the ideas we think are important and radical  and chic today have almost nothing to do with how things turn out. I thought it was fascinating that the first questions I got about C21U were the ones that Arthur Miller and Barbara Walters were asking at the Lenny’s the night that Cox, Miller, and the other “funky, natural, scraggly, wild…” representatives of a new order stepped into polite society.

Would a turn-of-the-last-century gathering of influencers actually recognize the ideas that would shape higher education over the next hundred years? The New Year is an occasion for lists, so here’s one: What are the three ideas that shaped higher education–for better or worse– in the 20th Century?

Why only three? After all, higher education went through massive changes from 1901 to 2000.  But I would argue that these changes were consequences of three big ideas.

  1. The University as a Factory: The first massive increase in funding for higher education came from John D. Rockefeller and Andrew Carnegie. They transformed American universities, but the great philanthropists were also industrialists.  They demanded that the chaos and debris of 19th century experimentation be swept away and replaced by fiscal and administrative discipline. The chaos was tamed, but the price was the creation of an institution that took in raw materials of a measurable grade and under the watchful eyes of managers and boards of directors produced graduates of a certain intellectual size and shape. Everything from standardized admissions testing, an obsession with measuring inputs, and a focus on classroom efficiencies to the layers of bureaucracy for administering an unwieldy system of accreditation stems from the demand of  philanthropic foundations that universities operate with factory-like discipline.
  2. The National Science Foundation: Before Vannevar Bush convinced Roosevelt and Truman to create a  taxpayer-supported, national version of the Carnegie Foundation, sponsored research played essentially no role in university operations. Over the next sixty years, the rate of  federal spending on university research rose nearly three times faster than the economy as a whole. NSF led the first explosion in federal funding, and it cause a shift in values at the nation’s universities that forever coupled scholarship with sponsored research.  The very idea of a research university was transformed in the process, and it soon engulfed the social sciences and the humanities in a new  multi-billion dollar industry that–in addition to the elite research universities–now reaches into the thousands of regional and community colleges whose missions have expanded to include research.
  3. The Multiversity: It was legendary University of California president Clark Kerr who observed in his 1963 lectures at Harvard that universities were no longer single communities, but had become the sometimes inconsistent homes to stakeholders who did not always share the same goals but needed to be supported and nurtured if the university in the 2oth century was to play the same national role that railroads did in the 19th century. Graduate and undergraduate education had to survive and prosper with medical and other professional schools, athletics, the arts and others. The idea of a multiversity coincided with the second great influx of money into higher education. Some say it was instrumental in the decline of the great public universities and the creeping missions of all institutions. At least in was the cause for abandoning forever the idea that money spent in the nation’s colleges and universities should end up in the classroom.

Nobody would have recognized these as the great ideas of the coming decades.  There would have been no Edupunk thrill in rubbing elbows with the bureaucrats who defined the “Carnegie unit ” or a future MIT dean who believed that scientific talent was a national treasure. The great institutions were as likely to be state universities–which were still small and wealthy–as private colleges.  Not one of the public universities on Raymond Hugh’s 1925 list of top 20 research universities is at the top of the  current U.S. News and World Report ranking of graduate programs. They were displaced by universities that did not even exist in 1901.

Before pulling out their checkbooks to support the new politics of higher education,  radical chic party guests would have wanted to know what the plan was. Clark Kerr would have told Lenny, “You can’t blueprint the future.”

Lenny would have been incredulous: “You mean you’re just going to wing it?”

Georgia Tech to Found Center for 21st Century Universities | College of Computing

December 22, 2010

Georgia Tech to Found Center for 21st Century Universities | College of Computing.


December 7, 2010

The technical presentations were over and a distinguished panel of inventors had given the audience some take-away messages, when Bob Lucky began his trademarked summary of the 2010 Marconi Prize ceremony. There were already empty seats as some of  the locals started heading for the SRI visitors lot when I was roused from a cookie-induced, end-of-conference stupor.  I had heard someone up front call my name.

Bob announced to everyone who was left in the room, “Rich DeMillo is writing a book on the subject.  Rich, how do you know when innovation has occurred?” There’s a mental “passive-to-active” switch that needs to be tripped in situations like this, so it took me a second or so to respond.  In the meanwhile, I said something witty to fill in the time.  “Thanks a lot, Bob,” as I recall. But it was obvious what the answer should be.

Every speaker had said it, and most of them were Marconi Prize recipients themselves.  I have said it many times here: invention without  impact doesn’t count as innovation. And this was a conference devoted to impact on telecommunications.
  • John Cioffi had described the insight that  inserting modems on both ends of a normal telephone lines allowed you to bypass switches and get direct access to the Internet. It was the key innovation in the development of  DSL .
  • In addition to telling the story of how he and  Whit Diffie invented public key cryptography, Marty Hellman talked about the “Who am I to do this?” moments of self-doubt that all inventors experience.
  • Federico Faggin made it pretty clear that the real invention in creating the first integrated circuit (the Fairchild 3708) with self-aligning silicon gates was not having the idea, but actually making it work.
  • Adobe Systems co-founder John Warnock–who shared the Marconi prize with Charles Geschke, the other Adobe founder–said that it often boils down to one person: “Apple without Jobs cannot innovate,” he said.

It had also been a day of sharing stories about Guglielmo Marconi. According to Warnock, Marconi could not stand John Ambrose Fleming, the inventor of the vacuum tube diode, whom Marconi had hired to design Marconi Company’s power plant.  In fact, Marconi was trying to  figure out a way to fire Fleming.  Marconi’s grandson, journalist Michael Braga, was there as well,  so there were also intimate and sometimes surprising family stories.

But everyone had said that you can tell when innovation has happened by its effect on people. In the world of industrial innovation, the impact that matters is economic, so I shot back to Lucky, “Wealth creation!” It was something I believed in deeply and I knew Bob felt the same way. I had worked directly for him at Bellcore.  In Bellcore’s research labs just publishing another journal paper didn’t count for much: everyone was held accountable for translating their ideas into inventions that would matter to the company, its customers, or their customers.

Lucky has a way of nodding when he is processing information, but it’s not necessarily because he is agreeing with you.  Sometimes it takes a little while to find out what his verdict really is. After few seconds of nodding he repeated: “wealth creation.”  I had given the right answer. I really had not intended that to be the closing line of the meeting, but it was. It was true, but it wasn’t the most creative insight of the day. Almost immediately, I thought of a much better answer to Bob’s question, but it was too late.  The SRI auditorium was emptying out.  The moment had passed.

Here’s what I really should have said:

You’ll  know that you have innovated when there are LIARS!

It was a term that John Cioffi had thrown into the discussion at the start of the day.  A L.I.A.R. is a Large Institutional Autocratic Resister.  John had said that you knew when an innovation was real when LIARs said it was their idea. Faggin had said that bringing something important into the world generates resistance.  You have to plan for it in advance. Hellman had talked about the wisdom of foolishness.

Fiber optics pioneer and winner of the 2008 prize, David Payne, said two things that were especially insightful.

  • If you innovate, someone will make a lot of money and someone will lose a lot of money
  • Innovation thrives on being different.  A manager wants efficiency and conformity

In fact, everyone had talked about the biggest impediment to innovation: large established organizations.  John Warnock and his colleagues at Xerox PARC had been charged with creating the office of the future.  They succeeded beyond anyone’s wildest dreams.  PARC created color displays, mice, networks, word processors and email. But Xerox was obsessed with the quality of the printed page, so LIARs dug in their heels. They would not adopt PostScript until all Xerox printers could use it, for example.  In other words, it was never going to be adopted.

LIARs are everywhere.  It’s even worse in academia. A couple of years ago, I was an ed-tech panelist at a large trade show when a vendor of software for higher education told me that in his industry university faculty members are called CAVEmen: “Colleagues Against Virtually Everything.” I wasn’t quite sure how to take that.

Pat Crecine died a few years ago. He was the innovative Georgia Tech president who was instrumental in bringing the 1996 Olympic Games to Atlanta. Crecine recognized the future impact of computing on science, engineering, and technology and created the College of Computing where I was employed as dean from 2002 to 2009. When it was created in 1990 it was only the second such school in the world.

Crecine reshaped Georgia Tech and the LIARS had to lay low while he did it.  He was just too effective at changing large institutions. But it caught up with him. He was unceremoniously booted out a few years later.  It was a devastating personal blow to Crecine, and I don’t think he ever really recovered. At his memorial, former Atlanta Mayor and U.N. Ambassador Andrew Young said of Pat: “He was always right, and he always got everyone mad.”

A few weeks ago, I reminded Andrew Young of this remark, and he said that it was a role that Martin Luther King had given him.  He was supposed to be the irritant that kept them focused on a change agenda.

He said also that it was Jimmy Carter’s concept that political innovation is the result of three ten-day cycles.  First, everyone who is going to have to give something up, gets their forces aligned to kill a new idea, predicting that it would mean the end of civilization as we know it.  That lasts about ten days.

For the next ten days they grudgingly disect the plan, acknowledging that parts of it  actually make things better but that overall it will be a disaster.

The final ten days is spent taking as much credit as posssible for the plan, with a special effort to make it clear that the original idea was something completely different and remains truly awful.

I had drinks in Menlo Park  with Chuck House a few days before Thanksgiving, and we eventually got around to trading stories about Hewlett-Packard innovators we had known and worked with. Chuck is working on a case study of an intense, disruptive,  strategic refocusing of the company that occurred when it was about one tenth its current size.  I said I didn’t think it would be possible today, that there is very likely a law that limits innovation of that kind.

I brought up the idea of  LIARs and he started laughing immediately. Stamping out LIARs was one of the reason Dave Packard and Bill Hewlett tried to keep business units small: the biggest impediment to innovation is large established organizations.