September 4, 2009

Cornell President Justifies Symbiotic Planning Strategy

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As the University moves forward with the inevitable budget cuts, President David Skorton stands in a lonely position at the top. While task forces made up of faculty and staff work to suggest cuts from academic-related expenses, consultants from Bain & Co. will suggest cuts to non-academic expenses. Skorton must make sure that the two do not overlap during the process of the budget’s eventual alignment. The Sun sat down with Skorton yesterday afternoon to discuss some of the different facets of “Reimagining Cornell.”

The Sun: Why did the University choose Bain specifically, especially considering their dubious reputation in higher education?
David Skorton: There are two big universes of activity in running a university. One has to do with why we are there, and that is to teach, to learn, to discover and create, and in the case of a land grant, to do public service. That area is what’s visible in the University. It’s why we’re here. It’s why you decided to come here. You came here to get an education. All that stuff has nothing to do with Bain. Nothing.
Now the other universe in a university, which is the same at a university as it is at General Motors, it’s just how to run the back-room part of the university. You want us to run — and every faculty that worries about corporatization of higher ed wants us to run — IT so that the e-mail works all the time … You want us to run the e-mail all the time. You want the lights to go on when you flip the switch. And you don’t want to pay exorbitant rates for that. You want to buy things in such a way that … the University is not paying more than it should.
Those back-room functions are not the expertise of academics like me. I’m a doc and biomedical engineering researcher. … I know nothing about procurement or exactly how to run the operation that figures out debt, or how to calculate debt service and so on. So I understand my limitations.
Under conditions of equilibrium we do a pretty great job by hiring people who are professionals, non-academics in those areas. Look at a woman like Joanne DeStefano who is the chief financial officer for the University. She understands all of that stuff and she runs a very tight unit. Now, we’re not in equilibrium right now. We’ve got a budget that is wildly out of balance.
First thing we did was take care of $80 million of the problem. In one year, we went from $215 [million] to $135 [million] … by doing this across the board, sort of blunt, clumsy thing. That’s actually what we did. We just took money away from everyone. Five percent from everybody, ten percent from me, ten percent from the provost’s office, and so on. And now we’re down to a more difficult thing. And so on the academic side, we have the usual suspects, the people you will trust, making the plans. The provost — he’s going to involve deans, he’s going to involve senior faculty, people who have been around academics a long time, people you will trust and so on.
In the other universe — the back-room universe — I want the very best minds who have done this hundreds of thousands of times in all kinds of organizations, to come in and look at what we do. And they may say, you’re doing this really great, but you could save five or ten percent by doing this one thing different, maybe you think of not doing this one at all, maybe you should have somebody else do it, maybe this one you could combine forces with some other institution.
I want someone to come in and sort of help me for those non-academic functions — which really have little to do with why you came to a higher education institution. They’re really one of the most famous, best thought of groups and I did a lot of homework on them before we made a decision.
And I’ll be upfront with you, the back-room ideas, if there are really good ideas, some of them have come from this consulting group. And it’s my job to be the gatekeeper, to make sure that they don’t comment on things outside of their area of expertise. And the way we did that was by writing the scope of engagement … The first thing I said was we’re going to draw a boundary around what you’re going to do and what you’re not going to do. And you’re not going to do academics. You’re going to do the back-room part.
Sun: When you’re describing the situation you describe it as there being an academic side and a non-academic side that are not really related. Is there any type of overlap? One example is, let’s say Bain comes in and wants to streamline the University bookstore. If they say Cornell should not be buying books from a certain publisher, then we’ll save a lot of money. In that case, aren’t they infringing on the function of academia.
D.S.: That’s the real art of being a president of a university. I have to be able to extract the knowledge they bring in without letting them cross a line like that. So that’s the reason you pay somebody like me so much money and let me have a house to live in and stuff like that. Because I am an academic, a teacher and a doctor. And because I have been for 30 years. Those are the subtleties you cannot put in a contract. So there’s going to be many, many things like that.
Let’s talk about a real example. In procurement, we’re trying to decide how to buy computers for support staff or for people like me. I don’t do number crunching. I do less fancy stuff. I don’t have to do layouts. I don’t have to do formatting. I do e-mail and Internet. … So I don’t have to have any specific kind of computer. I’m a guy who has used a PC for a long time … and I don’t want to have to spend my time learning a whole new operating system if I didn’t have to. But if it turned out that it would be in the University’s interest to buy one type of computer … rather than an infinite number of choices, I would go along with it for the greater good because I don’t have any special needs. Now that[’s] the kind of thing I’m thinking about.
The answer to your question is why its going to take months, not weeks or days to get this over. There’s a lot of subtleties and a lot of damage that could be done if this is done clumsily.
I’m sure people will suggest things analogous to this … that we have to figure out the consequences of this. We have to ask the customers, you and me, we have to ask the people who are knowledgeable about it. We may want to go off campus quickly and ask someone who runs a book store at Princeton and see how they do it. It’s going to be a dance that’s going to be getting all these good raw ideas and bad raw ideas and throwing out the ones [that] are bad. Then the hard work starts.
I’m going to emphasize non-personnel savings first. I’m sure there will be more layoffs. Once we maximize those non-personnel savings, then we’ll have to see what’s going to be involved in reducing the workforce further. This is a good example because it shows all of these subtleties involved in making a decision that otherwise a backroom guru would just say ‘go ahead and do it.’ That’s not why they’re making decisions. That’s why they’re not even bringing decisions to me. They’re doing it through a planning process where it’s sifted and filtered through my most trusted provosts.
Sun: Last year a very blunt approach was taken to the cuts.
D.S.: I’m the one who did it, it was blunt and clumsy.
Sun: This five percent across the board approach allowed for some vital assets of the University to fall victim because they were not necessarily serving a specific college or department. For example, the English for Academic Purposes program, which taught graduate students before being cut in the spring, may have been one of these things. Do you think this approach let things slip through the cracks due to the decentralized approach the University took to the cuts?
D.S.: Honestly, it’s a rare organization that can’t tighten its belt by five percent. It’s a rare personal budget, it’s a rare university budget. If the budget was just five percent, believe me we wouldn’t be bringing in consultants. We would just say take five percent we will figure it out. It’s not a great thing to do in general, to just do across-the-board cuts. But we still have more budget to balance. That’s the whole point of the strategic planning process. It would make sense to have a trans-campus view.
That’s the reason we are not going from those individual reports to a decision on what to do. That’s the reason we are having this trans-campus planning, that’s the reason it’s going to take until the spring of next year.
Sun: Moving away from the pessimistic news of cuts, is the University looking at steps toward recovery? In the past few months, the value of Harvard’s publicly traded equity portfolio has almost doubled. We haven’t heard about endowment growth. Is anything going on with that?
D.S.: In September of last year, almost a year ago, the investment committee — the trustees who work with our professionals — began recognizing that our economy was really seriously going downhill and that the market was having trouble, and they began to change the asset allocation to put us at less risk. One thing that was really preempted, quite smart, was that they saw ahead — both the professionals and trustees who are professional investors on their own, saw that things were getting bad [and said] let’s start pulling back on some of the higher risk things and put things in more cash-like instruments and so on.
There have been many, many, many investment committee meetings, and I have decided to be involved in every one of those now. I don’t know much about that world at all, but I’ve been reading books. They’re doing exactly what you’re talking about. They are figuring out ways to maximize the growth of the endowment and investment earnings as the market comes back, however, without putting us at extraordinary risk of going further down in terms of the size of the endowment. We have a little different situation in terms of the pressure on the activity. … Harvard, for example, has about 40 percent of their operating budget [from] endowment earnings. Some of the colleges are over 60 percent. Here, it’s 12 percent of the whole campus, and ten percent on the whole University.
We want to do the right thing, but I am more thinking about the long-term consequences. In terms of our ability to immediately pay the salaries and deliver the things that the students deserve, it’s not as dependent on the raise and rapidity of the rise of the endowment; and I actually don’t know exactly, if you compare the asset allocation from three or months ago to today [how things have changed.]
The second thing that’s happening is we’re thinking about other ways that revenue can be enhanced through the University, that is not at the expense of student experience. One thing that we can do is enlarge the student body, because you know there were 34,000 applications for the 3,200 spots. I think it’s unbelievable. So we are offering admission to a tiny fraction of the people who apply — it’s less than 20 percent. So there is obviously a really big temptation to make the student body a lot bigger. A third of our budget is tuition, and so if we increase the student body by 10 percent or 20 percent, it would be a huge, huge revenue increase.
The reason we haven’t done that, the reason you haven’t seen an enormous increase in student body, is that it would change, in my mind, the student experience. We have a committee examining the trade-offs in very slightly expanding the size of the student body in different specific areas. We have to talk to students. We have to talk about the living-learning environment.
Mostly in this crisis, we are not trying to manage the University on the revenue side. I think it would materially change the nature of the place, it would change the Cornell ethos. You don’t want to change that because it’s a really fabulous place. We are trying to emphasize more the expenditure reduction side than the revenue increase, and on both sides not to step over these lines.
Sun: Where do rankings fit into the whole cutting process? You mention increasing the class size, which is something that U.S. News and World Reports considers in their annual college rankings. And although many of the ranking could be considered precarious, they are there and people take them seriously. So how much effort is being put into preserving the rankings?
D.S.: You’ll never hear me trashing the rankings because to pretend the rankings don’t matter is silly. People love rankings, absolutely they do. The rankings I look at the most are the ones based on hard data, like how much money the faculty brings in, research grants, how much do we cost the students, how much financial aid do we do.
When you look at the way U.S News and World Report does their rankings, they go from things that are very important like reputational things, which I think is about 25 percent, all the way down to things that are about 3 to 5 percent, like what proportion of alumni give money. So what I do is I have a simple litmus test. I think about — and I did this when I was president at Iowa — what is the nature of this place, and would it be changed by trying to maximize that part of it. So for example, would it be fine for us to have a higher level of alumni giving? Absolutely, I’m going to try to have a higher level of alumni giving.
At the other end of the spectrum is selectivity. If we wanted to go up in the rankings we could say, let’s make it harder to get in here. I personally think that it would be against the Cornell ethos and I’ve taken it off the table. There are other things between those two extremes, that we are thinking about how to deal with. For example, in some of the graduate U.S. News and World Report rankings, there are some questions that deal with how much money is brought in in research grants, and there are some ways we could improve our support of the faculty getting research grants, and I think in that case, probably it would go in the direction of the Cornell ethos and doing better in the rankings, but I want to be sure about that because the money for that would have to come from somewhere else. I think it would be great to be in the top 10, but not at the expense of changing the values of Cornell.