March2010cover
THE
BULLETIN
Volume 78 | Issue 2
March  2010

Outsourcing Services in Higher Education: Consider the campus climate

David Milstone

If there were ever a year to expect higher education institutions to seek money-saving and revenue-enhancing initiatives, this would be it. We are just now seeing some hopeful speculation after a tumultuous time for home values and foreclosures, job losses and reductions, and reduced federal and state budgets. Increasing health costs have forced many campus budgets to expand because of their most expensive, yet arguably most valuable resource: their employees. Many colleges and universities are preparing for life with lower endowments, lower enrollments, and lower state support, and have been aggressively analyzing any and all possible opportunities to maintain their quality education and services.
 
Concerns over costs and productivity in higher education have continued to grow over the past three decades. For example, according to the 2002 New England Journal of Higher Education and Economic Development, in 1985, state appropriations accounted for 61 percent of revenues for public colleges and universities; in 1995, appropriations provided just 51 percent of revenues. At a recent town meeting, the University of Massachusetts–Dartmouth chancellor said the state appropriation to the University of Massachusetts campuses dropped from 72 percent in 1989 to 25 percent in 2009.
 
Faced with these realities, institutions have already cut services deemed to be available elsewhere or expendable. At the same time, numerous universities have increased their focus on retaining current students and enhancing their ability to attract students from new territories. Thus, there is a renewed interest in determining if external companies can be brought in to provide services at a lower cost and with a higher quality product. Areas such as recreational facilities, residential lounges, food courts, and unions have been carefully examined to determine their importance to the institution’s core mission. Even if college union services are not outsourced, we as campus community builders have a stake in this process given the ways in which outsourcing affects the university culture as a whole.

Prevalence of outsourcing on college campuses

“Outsourcing” (a synonym for “privatizing”) means that vendors outside the institution are exclusively handling services and functions that once were the domain of the institution’s staff. In increasing numbers since the 1980s, campuses have outsourced bookstores, food services, print services, health services, information technology, building planning and renovation, staff recruitment, and custodial services. They have also outsourced, to a lesser extent, security, housing, libraries, mail delivery, mental health services, the management of summer conferences, fundraising, admissions, retention planning, transportation, and alumni relations.
 
In the 1990s, the Carnegie Commission on Higher Education published a report recommending that academic institutions divest themselves of their peripheral activities and take fundamental responsibility for teaching, learning, and research. Their primary aim was not to save money, but rather to encourage colleges to pay more attention to their primary mission. In their attempt to become more efficient, however, some of colleges’ primary functions were in danger of being outsourced. In “Assessment for Student Affairs: A Guide for Practitioners,” M. Lee Upcraft and John H. Schuh observed that: “As resources decline and pressures for accountability increase, there is a natural tendency for an institution to reallocate resources to its academic priorities, allocations which are most often narrowly interpreted as support for the faculty, the classroom, the formal curriculum, and those support services that are clearly academic related, such as learning support centers and academic advising.”
 
A great debate occurs today on many campuses regarding the decision to outsource functions: What constitutes core versus non-core functions? Services and functions that students believe to be core to the academic mission of their institution may be at odds with areas faculty or staff believe to be core functions. Should the institution insource the non-core services because it knows its clientele and has the greatest incentive to offer high quality service? Alternatively, should the institution seek external specialists who can provide services more efficiently and often less expensively?
 
There are examples of institutions outsourcing core functions such as teaching, academic advising, and learning support centers, with many positive results. The University of Phoenix, a for-profit institution, has been successful in keeping its costs lower by contracting the use of library services from nearby institutions. Many institutions, particularly community colleges needing to respond to budget cuts, already heavily outsource teaching by hiring a large number of adjunct faculty members, who receive a per-course stipend with no benefits. If colleges are not careful, however, they can easily outsource functions that have a direct impact on what defines their specific community. In thinking about residence halls, for example, one might ask, “Are student residences hotels, or are they places where young men and women grow and learn? Are residence halls real estate assets or educational arenas? Are they a significant part of the educational experience tied into the learning outcomes expected of students?”
 
The American School and University’s Seventh Privatization/Contract Services Survey most recently examined outsourcing practices at more than 1,000 colleges in 2001. The survey indicated that 94 percent of colleges and universities outsourced at least one service, 34 percent outsourced five or more services, and 37 percent expected to increase their use of outsourcing over the next few years. Institutions with 10,000 or more students were more likely to plan to increase their use of outsourcing. Although the number of institutions outsourcing five or more services showed a decline from 54 percent in 1997 to 34 percent in 2001, the most frequently outsourced services demonstrated a significant increase in outsourcing as shown in Table 1.
 
The Center for the Study of Outsourcing and Privatization in Higher Education reported that external health-maintenance organizations provide health care to one in every eight colleges; companies like Barnes and Noble operate more than 40 percent of college bookstores; and Marriott, Sodexo, Aramark, and other corporations run more than 60 percent of college dining halls.
 
In American School and University’s Privatization/Contract Services Surveys, higher education institutions indicated that privatization of noneducational services allowed them to focus more on their core mission: educating students. As shown in Table 2, the top reasons why colleges turn to privatization slightly changed between 1997 and 2001.
 
In a survey conducted by the Outsourcing Institute in 1998, the top reasons businesses chose to outsource services were similar to those higher education institutions reported. These reasons were: to reduce and control operating costs, improve company focus, gain access to world-class capabilities, free up resources for other purposes, obtain resources not available internally, accelerate reengineering benefits, free themselves of a function that is difficult to manage or is out of control, share risks, make capital funds available, and create a cash infusion.

Risks associated with outsourcing

Outsourcing can be a great opportunity for those who embrace change, but an uncomfortable experience for those who fear change. Of considerable concern to many, according to the 2000 ERIC Digest “Outsourcing in Higher Education,” is the fact that the effectiveness of privatization and outsourcing is currently chronicled primarily through anecdotal evidence since few empirical investigations have been conducted. According to the October 1993 edition of Personnel Journal, potential outsourcers need to:

  • Be certain their goals for outsourcing are clear.
  • View outsourcing from short-term and long-term perspectives.
  • Consider who will oversee the outsourced function.
  • Decide what they want from the outsourcing partnership.
  • Define the expectations clearly in the contract.

Institutions need to view outsourcing as not just contracting services, but also as partnering and sharing the responsibility for managing the service delivery. According to Kenneth L. Ender and Kathleen A. Mooney in the Winter 1994 edition of Metropolitan Universities, “Partnerships fail primarily due to inadequate communication. Sometimes the expectations of performance goals are not clearly detailed (e.g. greater level of service, higher financial return) and other times the budgeted numbers are not realistically portrayed.”
 
Critics believe that potential downsides of outsourcing include loss of institutional control of the outsourced area, human resource problems, and campus exposure to additional risks such as bankruptcy or the sale of a company. They maintain that sometimes the firm performing an outsourced function is simply not able to do the job adequately, resulting in an institution’s need to disrupt the service by switching vendors. This occurred in 2001, when Western Kentucky University had to resume its health center operations after the company that had run the center for more than a year went out of business.
 
According to the Privatization Survey, the primary reasons listed by colleges for not outsourcing services and for bringing services back in-house were public approval and accountability. Other reasons colleges and universities reject privatization are the beliefs that it costs too much, causes problems with union contracts, and creates a lack of control with the quality of service. Many institutions are concerned that outsiders may define the identity of the institution. In the March 15, 2002 edition of The Chronicle of Higher Education, David Kirp said there is a danger of turning the university into too much of a business and in the process “outsourcing the soul of the institution.”
 
One of the hidden costs associated with outsourcing involves impact on employees. Outsourcing often creates a feeling of insecurity and commonly results in employees wondering if they will be next to lose their positions. Outsourcing can negatively affect organizations that already suffer from low levels of communication. A common trend among those professionals who risk having their functional areas outsourced is to feel devalued professionally. When an institution looks to outsource, employees wonder how the institution can believe that noncareer employees can perform to as high a standard as they have performed; they wonder if the institution understands how important their function is to the university’s overall mission.

Campus climate

Much of the literature on outsourcing focuses on examples of institutional services and functions that can easily be outsourced to private companies, prescribed methods that should be followed to increase the odds that the intended outcomes will be successful, and advantages and concerns associated with outsourcing. At the same time, little has been researched and written differentiating the forms of outsourcing in terms of their possible connection to campus culture and climate in higher education.
 
Campus climate is considered the institution’s “atmosphere” and focuses on the attitudes and behaviors of individuals that are likely to be influenced by change. Climate is often expressed in terms that are measured on a Likert scale such as degree of satisfaction or dissatisfaction. Campus culture describes the embedded values and persistent pattern of norms, values, beliefs, and assumptions that shape the behavior of individuals in an institution. Unfortunately, as William Tierney suggests in the February 1988 edition of the Journal of Higher Education, “Administrators tend to recognize their organization’s culture only when they have transgressed its bounds and severe conflicts or adverse relationships ensue.”
 
While a few researchers have suggested that outsourcing may negatively affect culture and climate, only William G. Crane’s 2000 study on “The Impact of Outsourcing on the Culture of the Independent Schools in New Jersey” and Chris L. Jefferies’ 1996 “The Privatization Debate: Examining the Decision to Outsource a Service” have focused on how campus climate or culture influences or is influenced by outsourcing.
 
A 2005 study involving an institution referred to as NEU (for reasons of confidentiality) demonstrated a clear connection between some outsourced functions and campus climate. Several findings and recommendations from the research follow:

1. Climate is influenced by some campus services’ performance quality. Regardless of whether the campus function is performed by insourced (institutional employees) or outsourced staff, the performance must remain at or above the expected threshold, particularly when it involves a large amount of student contact. A student at NEU stated: “When I go to the [outsourced] health services, I need to know that they know as much as a doctor at the hospital.” The message to institutions is that outsourcing is not simply a “hire them and forget about them” proposition. The company performing an outsourced function must have clear and achievable goals and data that can be regularly measured by the university and company together. The institution must carefully decide if their level of control will be sufficient with an outsourced company if high service quality is expected. In such a case, the outsourced company must be positioned to receive feedback and be sufficiently nimble to change direction and increase quality before dissatisfaction reaches a level that negatively influences campus climate.

2. Students and administrators evaluate outsourced services more critically than insourced services.
 
From the start, there is often a negative element introduced when a company external to the institution is brought to campus. An administrator of the NEU study stated, “The hiring of a giant corporation negatively affects the activist student body (e.g., perception of price gauging and skimping on quality) and conflicts with the college feel that students expect. When they [food service providers] are not part of the family, the trust associated with their intentions can be an issue.” Company uniforms can create a separation that some students notice. People feel freer to be critical of the service because they are not criticizing the university; they are criticizing another group. An employee from an outsourced function stated: “When a problem exists, we feel like we can easily become a scapegoat or the black sheep that can be easily replaced. Being an external agency, we are easy fodder if things do not go well.” Students in the study mentioned that it would be better if the employees’ company logos included the name of the institution to show the linkage and the validation given to the outsourced company by the institution.
 
Outsourced services are normally functionally evaluated differently than insourced services. Outsourcing companies are likely to be annually or biannually evaluated according to the contract agreement. On the other hand, institutions rarely evaluate insourced services as a whole. Instead, individual employees are evaluated and held accountable to personal responsibility as opposed to departmental responsibility. As one administrator in the study confessed, “If I saw an outsourced employee behaving badly, like I did the other day, I would have no problem going to that person’s supervisor and sharing with them that what they had just done, in my view, was inappropriate. I don’t know that I would handle that in the same way if it were internal.”
 
The performance measures for outsourced companies should be consistent with those of insourced departments to make comparisons equitable. Staff and administrators should be encouraged to treat outsourced employees in the same manner as insourced employees when a problem exists. These established norms would create an environment in which all services could be more evenly judged.

3. Although campus constituents acknowledge that motivated employees will perform better, institutional support for employees of outsourced companies is differentiated from support for institutional employees.
 
For a variety of reasons, often employees of outsourced companies are unable or choose to not involve themselves in the “life of the campus” outside of their functional areas. In the study, employees of outsourced companies expressed frustration that they were not invited to participate on campus committees or use campus services as university employees do. They viewed it as a barrier to getting to better know students and the campus culture. Students in the study perceived that a primary difference between university employees and employees of outsourced companies is the level of involvement with the rest of the campus. One student said: “I think the insourced ones are more approachable because they’re here. You are more likely to see them around campus. I feel like employees who are insourced at least share some of the basic mission of the university.”
 
To foster connections between the outsourced function and the university, the university could extend some of its employee benefits to employees of outsourced companies such as use of the fitness center and discounted admission to on-campus performances. When employees of outsourced companies get to know students and the institutional culture, they are more likely to be seen as supportive of students, thus positively affecting the campus climate. This is particularly true for outsourced functions in which students have a great deal of interaction. Absent these actions, the larger the number of outsourced services a campus utilizes, the greater the possibility that the campus will risk, as stated earlier, “outsourcing the soul of the institution.”

4. Climate is more likely to be affected differently by different services (e.g., more influenced by food services than health services) based on the amount and quality of contact between students and the provider.
 
Most would agree that campus dining is significantly more visible to students than is, for example, health services. As a result, each influences campus climate to different degrees. An administrator in the study commented, “Food services is perhaps the most visible function on campus, and as such, is viewed as one of the most criticized.” Students view campus dining as the place to go for sustenance and often compare the service to their previous experiences with food, including their family kitchen. An administrator suggested, “It’s culture shock for most students to eat 20 meals a week in the same room.”
 
When students use the health services, on the other hand, their comparison base is likely to be their pediatrician or local hospital, and their expectations are for personal attention and professional expertise. Additionally, if an interaction with health service providers has positive results, students may remember being ill when they visited the service and feeling better soon after. For students who may not have had as positive an experience, the fact of not seeing the facility again for a period of time allows them to minimize the negative effect the interaction may have had.
 
Some university functions are known to be more susceptible to student criticism (food, facilities, housing, financial aid) and some are more connected to students on a daily basis. These are important considerations when deciding the desirability of outsourcing. The more likely the function is to affect campus climate, the more support and attention will be needed to help the function be successful, particularly if outsourced.

5. Campus constituents consistently place the highest value on outsourced functions meeting students’ basic service needs as opposed to their educational needs.
There is an existing belief that one reason outsourcing fails is due to the outsourced service providers’ inability to understand the university’s educational climate. In the NEU study, all institutional constituents agreed that meeting students’ basic service needs should be the highest priority. One administrator stated: “Students have an overwhelming need to have the basic services met. I think they care more about whether the food is hot than whether the nutrition information is sitting next to the food. It’s probably a Maslow [Hierarchy of Needs] thing; they get their basic needs met first, then they worry about the rest of it.”
 
If the function being outsourced includes an educational component, it is important to be aware that the provider will primarily be evaluated (by campus constituencies) on its ability to perform its primary function. While true for insourced as well as outsourced functions, the institution needs to help the outsourced company understand exactly how it will be evaluated, to avoid the provider trying to be all things to all people, and thereby inadvertently placing less energy on meeting the students’ primary needs associated with the service.    

Implications

Today, most institutions display a concise and easy-to-remember version of their mission and values statements. These abbreviated espoused values do not serve to help their intended outsourcing partners understand the organization’s deeper culture. As result, the contractual agreements between the institution and outsourced agency become the primary document in which specific knowledge can be gained about the expectations and values pertinent to their new outsourcing relationship. The contracts between outsourced companies and the institution often contain language detailing the financial and legal expectations of each party. Some also include a commitment to receiving customer feedback such as, “Using student surveys and student, faculty, and staff feedback sessions, we will achieve the best in-class food service.” With the knowledge that many students view companies external to the institution as focused primarily on money rather than people, it is important that the institution enhances the communication and feedback regarding services with outsourcing companies and gives a human face to the leadership of the outsourced function.
 
The contracts between NEU and each of the outsourced parent companies state that the institution “has the right to approve the management personnel assigned to the account and may require replacement of any management personnel because of operating difficulties that are attributable to them.” This is an extremely important component of the outsourcing agreement at NEU as related to campus climate. In food service, problems once existed and the students’ and administrators’ evaluations indicated that the service was not meeting the desired performance standards. As a result, the service manager was changed and the new manager was able to resolve many of the existing problems. Like any department, the leadership is important to the department’s productivity. For these outsourced departments, the ability for the institution to influence a change allowed it to positively affect the campus climate for students and employees.
 
At one point, NEU staffed health services with institutional employees. After a decision was made to outsource the function, the climate surrounding this change was positively addressed by attending to employee morale (an important component of campus climate). The literature regarding outsourcing identifies (institutional) employee morale as one of the primary concerns associated with outsourcing. Often, when university employees hear that their function will be outsourced, they believe that their positions are at risk or being replaced with external employees. The decision was made during the outsourcing of health services, jointly by the institution and the outsourcing parent company, to retain the existing employees. This action resulted in high morale for staff across the campus and also negated any sense of loss by students who had become accustomed to seeing a specific practitioner.
 
Aggregating the information and research from this study, and information from the literature regarding outsourcing, the conclusion is that campus climate is perceived to be affected by outsourcing in many ways. Specifically, climate is perceived to be affected:

  • When the outsourced service impacts students’ lives in a way they perceive to be meaningful.
  • When the performance meets or does not meet the expected and established standards.
  • When there is or is not a positive and supportive relationship developed between the employees of outsourced companies and the students.
  • When the employees of outsourced companies feel or do not feel supported by and committed to the institution.
  • When the balance of meeting students’ basic needs and developmental needs is or is not congruent with the balance that students desire.

Climate is also affected when these factors are considered with respect to insourced services, but with at least three important differences:

  • Outsourced services are not on an even playing field in terms of public scrutiny; they are often portrayed as money-driven as opposed to people-driven, are evaluated more holistically, and are perceived as outside the “family.”
  • The institution maintains less control with respect to effecting change with outsourced services than insourced services due to the ultimate authority for outsourced services being external to the institution.
  • There are often lower expectations for employees of outsourced companies to connect with students and employees outside of their service areas and fewer institutionally sanctioned opportunities to do so.

Outsourcing is not conclusively helpful or harmful to campus climate. However, the decision to enter into an outsourcing agreement warrants a great deal of attention beyond assessing the possible financial savings. College union professionals may be weighing these issues departmentally, as part of a campus-wide team, or simply as members of a campus community where some services are outsourced. By understanding the potential positive and negative effects of outsourcing to their operation and climate, organizations can better determine the best fit between the institution’s intended goals and options such as outsourcing as viable strategies toward meeting those goals.