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Achieving New Efficiencies in Higher Education
Achieving New Efficiencies in Higher Education
2 | Achieving New Efficiencies in Higher Education
As operating costs escalate, funding and endowments erode, and tuition increases, colleges and universities are faced with the challenge: Do more with less. There is a growing concern about education costs—and value for the education dollar—from parents, taxpayers, and lawmakers. Broadly, students struggle to afford what colleges and universities cost now—let alone if prices continue to increase.
This struggle to control costs appears to have no simple solution. Research suggests that college leaders are caught in a dilemma between the costs of running their operations, the number of students they can educate, and upholding the quality of educational services. At the same time, many administrators realize that the gap between their organizations’ operating efficiencies and those of the average private-sector entity has come under greater scrutiny. As a longer-term fix, many college and university leaders are promoting a
College administrators and regents are rethinking their institutions’ administrative service models with an eye toward achieving high performance. Taking a page from business and government agency playbooks, they are moving toward shared services models for functions such as finance, HR, IT, student services and procurement. Their goal? To gain greater operational efficiencies and maximize service delivery quality, without sacrificing their institutional missions.
Shared services is gathering momentum as colleges and universities nationwide are exploring systematic structural approaches for containing costs that have begun to prove valuable in public services. This article explores the growing movement toward shared services within higher education, including how the model fits within the unique mission and attributes of the higher education environment.
shift toward thinking about higher education as a public good that should be more strongly supported.
Still other leaders are looking to break out of the dilemma by exploring how to reduce the costs of administrative operations while actually improving the quality of services provided. Increasingly, regents and senior administrators are starting to grasp the full potential of shared services as a tool for rethinking their operating models and achieving consistent, long-term performance improvements. (See sidebar, “Yale dramatically lowers costs and amplifies efficiency through shared services.”) However, key differences between higher education organizations and private-sector companies need to be acknowledged before this transformative model becomes a broadly viable option for colleges and universities.
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Yale dramatically lowers costs and amplifies efficiency through shared services
Yale University had significant operational challenges before launching its shared services activities. The school’s regents and administrators saw an opportunity to improve administrative functions and a need to continuously improve service levels and compliance in order to support future growth and respond to financial pressures.
In September 2007, Yale launched a five-year initiative to transform its back-office functions (HR, procurement, finance, and research administration) and information technology department. Working with Accenture and the Hackett Group, the school began the initiative by benchmarking best practices in back-office processes and systems, and diagnosing Yale’s application suite and IT capabilities. The results of these first phases were organized into a comprehensive program designed to standardize and improve service across the university.
Ultimately, the project is expected to lead to more efficient and effective administrative capacity, improvements in data accuracy, timeliness and availability, lower risk of future compliance or control issues, and customer-focused shared service approaches to administrative functions.
4 | Achieving New Efficiencies in Higher Education
Shared Services Defined2. Treats the users of shared services (for example, the departments or different campuses of a university) as customers who drive transactions.
3. Manages service delivery through clear service-level agreements that define the responsibilities of both the shared services organization and its customers, with metrics and costs for performance.
4. Operates within a performance-driven culture that uses metrics and feedback to analyze how well the business processes are functioning, all the way down to the individual level, to foster continuous improvement.
5. Takes ownership of the processes behind the services it provides, and monitors and enforces compliance with the process standards it sets.
Institutions currently establish their service levels in myriad ways: based on availability of school/unit funding, differences in mission, compliance requirements, cultural
Accenture describes shared services as the consolidation of administrative or business support functions (such as HR, finance, IT, student services, and procurement) from several departments into a single, standalone organizational entity that has one mission: to provide services as efficiently and effectively as possible.
A shared services model has five key characteristics that make it quite different from decentralized, standardized or centralized approaches. The shared services organization:
1. Is a separate organizational unit, but linked to its customers through a governance model that involves customers in decision-making.
norms and other needs. A natural question generally raised is, “What administrative services are well-suited to a shared delivery model?” The typical concern is that most, if not all, services could be swept up in an enterprise initiative that prioritizes savings over service. However, rather than services being dictated from the “center” out, as in a centralized model, shared services design begins by engaging a broad base of school and department customers to define a common process for high-volume, routine administrative service requirements. The rationale is that when these high-volume, standardized processes are done at scale, shared services can perform them in a more efficient, repeatable way than an individual in a unit who performs them on an irregular, sometimes part-time basis. From this perspective, a shared services design achieves consensus upon what services are best suited for the unit to retain, and what services are best performed by a shared organizational unit.
FIGURE 1. Shared Services is a way of organizing service delivery to optimize the delivery of cost-effective, flexible, reliable services.
UnitUnit
• Autonomous departments
• Focus on responsiveness
• Different systems and non-standard processes
• Separate functional staff
• Schools/units run similarly
• Typically some common sub-systems
• Common processes
• Separate functional staff
• Single department, division or site which performs the function
• Focus on efficiency and control
• Typically some common sub-systems
• No service level agreements nor performance targets
• Separate organization but linked to customers through governance model
• Managed service delivery through clear service level agreements
• Customer driven transactions• Performance-driven culture
through measurement and feedback
• Process ownership end-to-end
Decentralized Standardized Centralized Shared Services
Unit Unit Unit
Unit UnitUnit
UnitUnit
CentralUnit
SharedServicesCenter
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Understandably, some service elements require unique knowledge of a college or auxiliary unit. For example, approvals, even for the most routine transactions, should remain a unit responsibility. The ability for the local unit to determine its own destiny and retain a skilled professional staff is essential to achieving the mission.
However, a major benefit of the shared services model is that it frees up scarce resources to allow departments to focus on their core mission and on their customers’ needs, while providing organizational flexibility to have the traditional administrative functions independent of front-line activities and structures. Additionally, the financial implications are considerable. Across many industries and organizations, Accenture finds that shared services can realize annual savings of 15 to 35 percent for in-scope functions. The use of standard systems, processes and procedures alone can generate up to 10 percent savings a year.1, 2
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Differences That Impact Shared Services in Higher Education
Rather, they should be viewed in light of their impact both on the business case behind shared services and the design of the shared services model (e.g., in performance metrics), as described in the sections that follow.
Mission before margin in higher education institutionsHigher education’s mission and noble aspirations suggest that cost efficiency will not always be the most decisive factor in operating decisions. Nevertheless, administrative cost savings that come from shared savings can be repurposed toward the academic mission, as well as student financials and attracting and retaining distinguished faculty. Moreover, standardizing on business processes can help unify schools and units with very different perspectives—to the benefit of faculty, staff and students alike.
Preserving the value of unique identities in higher education institutionsThe desire to hold true to the culture and identity of the university (as defined by academic programs, research, athletics, etc.) may result in faculty interacting with administrative functions in a more informal manner than may be common in the private sector. While the high level of rigor and shared accountability required for shared services to be successful may be uncomfortable for some shared services customers, our experience shows that the considerable potential benefits should sway the argument that standardization in processes is essential.
Six out of 10 Americans now think that colleges today operate more like businesses, focused more on the bottom line than on the educational experience of students.3 Higher education institutions are understandably sensitive to any perception that adoption of private-sector practices may impact their educational mission. Thus, the differences between how higher education organizations and companies approach shared services need to be acknowledged.
Three key differences include:
• Higher education institutions put mission before profit maximization more often.
• Higher education institutions typically have more decentralized and, at times, unique operating cultures across campuses or across departments.
• The independence and entrepreneurial nature of schools and researchers creates a perception that by surrendering a portion of administrative work, the culture of the school may somehow be put at risk.
These differences often cloud the ability of colleges and universities to move forward with shared services. Nevertheless, Accenture’s perspective is that the differences should not preclude the move to shared services.
The implications of decentralized operating cultures across campuses and departmentsGovernance policies and practices within higher education institutions tend to be more complex than is typical in business. Likewise, deeply rooted organizational histories are factors that have become more influential than operational efficiencies. For example, whereas an industrial company’s divisional vice president is highly unlikely to intervene in the design of office space, it is not unheard of for senior academics to be vocal about such matters.
These circumstances seem to be magnified at big public schools. Whereas most private colleges and universities tend to have a single campus, large public schools (such as the University of Michigan and University of Illinois, for example) often have sprawling urban campuses, as well as multiple campuses that, in general, are widely dispersed geographically. Each campus tends to have its own operational practices and procedures, making the idea of a single, system-wide procurement authority seem idealistic.
There can be significant consequences to this dispersion of operations. In a recent client benchmarking study, Accenture discovered that the costs of one large state university system’s finance function, as a percentage of the overall operating budget, were 52 percent higher than those of a cross-section of peer group public and private-sector organizations of similar size and complexity. Further, our experience indicates that, in general, the larger, more complex, and more dispersed the institution, the stronger the case for shared services from the potential of reducing costs—and the more a shared services initiative requires its own business rules.
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Basic Principles Behind the Shared Services Model
• Benefits estimate: Because shared services focuses upon how a service is performed, much of the benefits are derived from labor changes. Automating tasks, reducing exceptions that are typically arbitrated by middle managers, and increasing the ratio of transaction processors to managers are all contributors to the benefits estimate.
However, some benefits become achievable simply because a commonality in service and staffing has occurred. For example, future efforts to optimize processes are easier if they are performed across the enterprise in a common way, terminating in a central location.
• Investment: In Accenture’s experience, project success is greatly increased by making a significant commitment to full-time involvement of the university team members in building the processes and organization of the new shared service center.
The other implementation cost that can be underappreciated is the transition of the institution workforce. Training, recruiting to the center, and, if necessary, severance costs are all significant elements of a project budget.
• Implementation timeline: In Accenture’s experience, higher education institutions tend to express a preference for a longer implementation timeline. This could be attributed to the higher education culture, which typically observes a consensus-based decision-making process.
To balance the demands of the higher education calendar with the rigors of an implementation project, Accenture has found that smaller implementation teams that have broader responsibility for tasks (e.g., process design through training) and that have the same individuals touching each significant project element, reduces integration risks.
College and university executives who have effectively undertaken shared services gain an understanding of the common principles behind what it takes to make these transformations successful in higher education.
Focus on the benefits beyond cost savingsAs colleges and universities become more familiar with shared services, they increasingly recognize the benefits the model can have beyond cost-cutting. Ultimately, one of the biggest benefits is the ability to put money back into the education and research missions of the university. For example, at the University of Colorado-Colorado Springs, Chancellor Shockley-Zalabak reported noticeable gains in job satisfaction and lower attrition among those who had been engaged in the college’s shared services initiative.
Build a case for shared servicesBy providing context to key decision makers and allowing impacted stakeholders to own pieces of the change process, the business case is critical to guiding a successful transformation. Shared service business cases typically include the following key components:
• Workforce transition: Workforce transition is typically the greatest source of misunderstanding for a shared service project. This misunderstanding stems from many sources:
- “Fractionalization of effort:” The decentralized nature of administrative services in higher education can lead to staff performing seemingly unrelated, routine tasks, such as paying bills and processing orders. By measuring this work effort across a suite of administrative services and bundling these services together to transition them to a processing center, Accenture has been able to identify transition plans that provide valuable outcomes for the school or business unit, elevating their focus on school-specific research, academic or patient-centric visions.
- Resistance to change: The higher education culture is based in part on tenure and long-standing service to a higher mission of the advancement of learning. Therefore, context for the broader university constituents is valuable when evaluating how transition to a shared services environment can be achieved. First, shared services implementation projects are typically longer term, which gives staff advance notice that change is coming. Second, in Accenture’s experience only 10-20 percent of staff that performs processes suited for shared services is typically affected. The bulk of the administrative team may see changes in how work is done, but not in their work location or in their employment status. Third, today’s demographic indicates a trend of significant retirements in the near future, making shared services a potential response.
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Garner strong executive supportAs an approach for restructuring and reform, shared services require the unconditional support of senior officials to provide support in times of uncertainty. Executive sponsorship gives weight to the changes being asked of people at all levels of the organization.
Build strong governance that includes customer representation A strong governance structure provides the team implementing shared services with the parameters for flexibly responding to the changes that will inevitably happen when a large group of stakeholders is engaged. When creating a standalone organization within an enterprise or across enterprises and jurisdictions, a credible governance structure is one that gives the customer a voice, while balancing service requests with the objectives established during the creation of the shared service center.
Communicate to alleviate concernThe move to shared services brings with it concerns about the unknown. The leaders at higher education institutions need to proactively address these concerns, and educate those affected about what is true and what is false. Consistency in messaging across the organization is a critical success factor. Messages must be about more than what’s coming next; they must emphasize why the change is happening and how it is being approached.
While success may be founded in these principles, what is also clear is that there is no “one-size-fits-all” approach to shared services in higher education. Managed properly, a shared services project involves systems that measure service to drive accountability and continuous improvement. Furthermore, it must be supported by a strong institutional mission and a clear vision of long-term goals, in terms of cost savings, higher productivity, improved customer service, a more disciplined approach to cost management and greater employee engagement.
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ConclusionHigher education institutions feeling the pressure of strained finances should never be distracted from their true missions. The challenges associated with meeting immediate budgetary shortfalls through contentious tuition increases or programmatic cutbacks diminish the potential for long-term success and continued organizational growth. The shared services model can contribute to a stronger financial footing, a greater ability for higher educational institutions to meet their missions and, ultimately, new efficiencies.
While the model is only just beginning to make headway in the world of academia, already it has built a convincing and growing track record of its efficacy in reducing costs, developing new cohesion within universities, and refocusing attention on colleges’ and universities’ fundamental purpose of quality education and research.
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About the authorsDavid Metnick is a senior executive in Accenture’s Management Consulting practice, specializing in education, non-profit and public sector clients. He has advised more than 20 government, education, healthcare and industry clients in designing and developing administrative transformation, human resources, talent and organization, and shared services strategies and solutions.
[email protected] Greg Condell is a senior manager in Accenture’s Management Consulting practice. He has spent the past several years working with higher education and public sector clients in shared services and finance process improvements. Greg’s client work spans business case development, implementation planning and delivery. A former chief financial officer, he is a licensed CPA in Illinois and holds an MBA from the University of Chicago with a concentration in finance and strategy.
[email protected] Mark Howard is a senior manager in Accenture’s Management Consulting practice. He has spent the past several years supporting universities on a wide variety of transformational work, including enterprise resource planning implementations, chart of accounts redesigns, broad administrative services process and organization redesign, business case development, and shared services planning and implementation.
About AccentureAccenture is a global management consulting, technology services and outsourcing company, with approximately 275,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com.
References1 “Achieving High Performance through Shared Services: Lessons from the Masters,” Accenture, 2009, www.accenture.com/ Global/Consulting/Finance_and_Performance_ Mgmt/Finance_Operations/R_and_I/Achieving-Masters.htm
2 “Driving High Performance in Government: Maximizing the Value of Public-Sector Shared Services,” Accenture, January 2005, www.accenture.com/NR/rdonlyres/ 0E50798A-97B0-4400-9519-460B09E80E7E/ 0/driving.pdf
3 “Squeeze Play 2010: Continued Public Anxiety on Cost, Harsher Judgments on How Colleges Are Run,” National Center for Public Policy and Higher Education and Public Agenda, Feb 2010, www.highereducation.org/reports/ squeeze_play_10/index.shtml
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