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Week 12: Support Services and Special Units Large research universities do many things in addition to teaching and research. Auxiliary enterprises provide relatively unsubsidized services to the campus community and other constituencies on a user fee basis. These businesses include for example, residence halls, campus centers, parking, food services, laundry services, and bookstores. These services exist to help the university fulfill its mission but they operate in a marketplace mode that requires them to recover their costs. They almost all represent services that private enterprise could and sometimes does provide under contract. Increasingly, universities seek ways to outsource many of these services where a private business can deliver the same functions more efficiently and less expensively. The reasons for outsourcing are various. In some instances, universities outsource because their customers want services the university cannot provide in the form or at the price point desired. A classic case in this instance are food services. Today, in many universities, students prefer branded fast food to traditional university cafeteria fare. Universities discovered that students simply voted with their feet, spending more and more of their nutritional dollars at branded outlets such as McDonalds, Wendy's, or Taco Bell rather than at university sponsored generic food services. To keep the revenue, many universities contract with these vendors to provide the food service on campus in various ways. Even when maintaining traditional cafeteria style and general catering services, universities often prefer to contract out the service to commercial providers who can sometimes do it better for less. Bookstores are another example. What once was a unique service provided to the campus because community bookstores could not carry a full line of required instructional texts can now appear as a commodity service provided more efficiently by large firms. Chain bookstores have outlets in every community, and to gain university business these stores will provide every special service of the campus bookstore and usually at a discount. For these reasons, most universities recognized that they had little comparative advantage in this business and instead contracted with the large chains to provide the bookstore services on campus to serve students and faculty. Moreover, in today's marketplace, bookstores have significant revenue associated with merchandise unrelated to the academic mission: logo apparel, backpacks, computer gear, and the like. The book business for universities must respond to the same pressures as commercial book dealers, with Internet outlets such as Amazon.com providing highly competitive services at favorable prices, leaving the campus store to focus on the non-academic items of interest to students and visitors. This change reflects a market-based decision about the university's ability to compete. If the university cannot compete on price or quality, then it should outsource. Other services that are often outsourced are specialized maintenance of air conditioning and elevators; some forms of computing; and in some institutions even general building housekeeping and maintenance. Other services do not lend themselves as well to outsourcing. For example, institutions that manage residence halls, a major auxiliary in most research universities, often find that the demands of managing these specialized housing units for undergraduates, especially for first year students, requires direct supervision, and the expertise of student affairs personnel to manage student activities and to support the academic work that may take place in these halls. Nonetheless, privately managed residence facilities for students, usually above the first year level and especially for graduate students, continue to appear, either on campus or close by. Other enterprises are more closely related to the teaching and research missions of the university. Four of these have a special significance. Agriculture, for a land-grant university, represents one of the institution's signature products. By design, land-grant universities create programs and do research in support of the agricultural industry of their states. Some part of what the agricultural enterprise does falls directly into the general university research and teaching mission, and value budgeting evaluates and measures productivity and quality as it would for any other academic unit. Colleges of agriculture and veterinary medicine deliver degrees, teach courses, compete for grants, and in general operate like any other college. At the same time, the agricultural enterprise also delivers research and extension products directly related to the success of the industries it serves. In most states, this enterprise receives dollars directly from state government for the purpose of delivering research and extension, funds from private enterprise commodity groups, and also a variety of support directly from federal or local county sources. Separately funded units of this kind appear in a value budget much like a grant. That is, the university expects the non-academic agricultural activities supported by direct funding to produce a quality product for the agricultural industry of the state. The university's obligation is to ensure that it delivers this product, efficiently, and appropriately to the state or national constituencies that provide the funding, just as the institution ensures that other grants or contracts for research or services deliver the expected results. Agricultural research and extension appear as a special unit within a value budget, and the accountability for their success is primarily external to the university rather than internal through that budget. The university ensures that the program runs well and that it is responsive to its constituencies, the institution works hard to increase the funding for those activities, but the value budget treats this enterprise as a self-supporting activity responding to external marketplaces, and therefore not part of the regular reward and incentive structure. Over the last decades or so, the agricultural mission of the land-grant university has changed substantially. Where these units once provided general instruction on good agricultural techniques to family farmers, health and financial advice to farm families, and a variety of other support services oriented to the family farming economy, today's agricultural industry is much less based on individuals and more on corporate farming enterprises with extensive capital and management abilities of their own. As a result, many of the services that once were vital to the farm ecology have become much less so, and the constituency finds it harder to compete for the state dollars to support many traditional extension service activities. The major crop research programs that develop new varieties of standard products such as corn, wheat, rice, citrus, and livestock programs for cattle in some states, remain important and the industries will support these activities. This research creates value by increasing productivity, creating disease resistant varieties, identifying better ways of managing pollution and water control, and a host of other important topics. The shift to the focus on research and support of the major gate value crops and away from the individual support of farming families is often challenging to traditional land-grant programs and their supporters. But in the reduced financial circumstances of many states, these service programs have much less of a claim on state dollars than other social service programs delivered by other agencies. The second large enterprise involves clinical medicine. In some universities this also involves one or more teaching hospitals. In many instances, the university does not directly manage university hospitals that exist as affiliated but separate not-for-profit corporations with which the university maintains a variety of associations and contract-based relationships. The clinical enterprise involves primarily medicine, but also includes the activities of dentistry, nursing, other health professions, pharmacy, and veterinary medicine. All of these colleges have faculty and staff who operate clinical services that provide care to patients and receive fees or reimbursements as a result. These fees go into practice plans, a form of external account much like a university foundation, that can receive and disburse funds in support of the clinical activities. The practice plans pay the cost of providing the services and return the surplus to the colleges involved to subsidize teaching and research. The test of success for these units lies in an external and often highly regulated and competitive marketplace for health care. Faculty physicians and other health care providers deliver these services and at the same time perform a variety of research and teaching functions. The quality of the service is regulated by an elaborate system of external reviews, and the university ensures that the financial operations remain positive. Clinical medicine can be a major generator of support for the academic and especially research programs of colleges of medicine and other health science colleges. Absent this subvention from the revenue generated by clinical activity, the research missions of these colleges would falter, decline, and in some cases disappear. Consequently the university pays close attention to the business issues associated with clinical medicine. This does not, however, impact the value budget because clinical medicine operates in the external marketplace and is a self-supporting enterprise, not an activity within the university's direct academic value budgeting. University teaching hospitals exist within varied arrangements with their collaborating medical schools, involve faculty, participate in the training of physicians and other medical practitioners, and operate within an elaborate structure of contracts, shared expenses, payments, and reimbursements that reflect the national context for clinical medicine. These relationships require high levels of expertise, careful management, and often produce exceptional value for their communities, their affiliated institutions, and their patients. Highly regulated by external agencies, universities benefit from their relationships with teaching hospitals, but the work of collaborating and operating academic medical centers and their related, affiliated, or owned hospitals is a major challenge. Intercollegiate athletics are also of considerable significance in most public and most private research universities. This enterprise serves a host of functions for the university. In America, big time intercollegiate sports have been a part of the invention of almost every major American comprehensive research university. Harvard, Yale, Princeton, Michigan, Berkeley, Stanford, Chicago, Illinois, all have grown and prospered as major research institutions within a context supported by big time intercollegiate sports, especially football. This relationship, in existence since the beginning of the twentieth century, derives from the complex funding model for American higher education. Absent federal higher education policy, funding, or control, colleges and universities in American required a mechanism to capture local and national alumni support over long periods of time. Sports proved to be one of the most effective mechanisms for accomplishing this. Whatever their value to the institution, intercollegiate sports are a very expensive business. At the top level of intercollegiate sports, the enterprise operates on a budget of around $100 million or more a year. This is about the range of a medium sized academic school or college. On a stand-alone basis, all but a few of the most successful college sports programs lose money. The institutions absorb this cost in much the same way a corporation absorbs advertising and public relations expenses. A few universities require sports to remain a self-supporting organization. In those cases, the sports enterprise may operate as a separate not-for-profit corporation, totally controlled by the university, that cannot receive any funding from the university except in highly visible and accountable ways. Success for such a program requires three things: high quality relatively scandal free management, a winning tradition, and a financially solvent budget. This is the university's responsibility. However, these programs also operate in separate financial space, and do not participate in the university's academic value budgeting. In the best of all possible worlds, their success is a function of the economy of college sports not the academic economy of the university. Fundraising is one of the research university's most important activities. Unlike almost every program, the fundraising enterprise exists to deliver a large surplus to the university. It's goal is to keep its costs low and its earnings high because everything it earns through gifts, endowments, and bequests returns to the university to support some activity. Fundraising organizations in universities appear in many forms. In private universities they simply represent another administrative unit of the institution whose mission is to raise money. In public universities, however, with many restrictions on sources and uses of funds, the fundraising unit usually appears as a separate not-for-profit foundation that exists to support the university but is not part of the bureaucratic or public activities of the institution. Foundations do four things: they solicit and receive gifts, they supervise the investment of the endowment to ensure an adequate return, they ensure that the university spends the gift proceeds as the donors direct, and they report back to the donors on the successful use of the gifts. Fundraising is an absolutely critical dimension of every college and university today, and the techniques and systems used in this operation have become increasingly sophisticated. While private universities have been much more engaged and have well developed programs this area over the years, in the last generation all major public research universities have developed capabilities rivaling all but the most seasoned private universities. These four activities represent major organizational enterprises that operate in conjunction with and in support of the research and teaching mission of the university. None of them exists for themselves; all have as their purpose the support or the projection of the teaching and research products of the institution. Other activities, however, also serve the institution's revenue needs. Research creates an endless stream of intellectual property from discoveries, inventions, and other intellectual products, some of which may have market value. The university has an obligation to put these results into the marketplace where they can enhance commerce and the nation's competitiveness and recover whatever value is possible to reinvest in further discoveries. This most visibly involves patents, licenses, and royalties. The university patents discoveries with a commercial potential and then licenses them to companies with the capacity to further develop the discoveries and turn them into products. When a product succeeds, a license fee or royalty returns to the university for reinvestment in the further development of research. Patent, license, and royalty income can create a significant source of marginal investment capital for most research universities, but the process of identifying commercially viable research results is much more complicated and much less reliable than we might imagine. Most research is not commercially viable, and many of the patents acquired and licenses that the university issues result in no income at all. The occasional very large and successful result from a drug or a medical invention can lead observers to imagine that this activity can serve as a core financial support for the institution. Instead, when something works and revenue appears, it is a very good thing, but the revenue from the commercialization of intellectual property is not reliable enough to support major university activities on a stable, ongoing basis. In managing these enterprises, institutions inevitably encounter a host of questions:
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