"Must we always teach our children with books? Let them look at mountains and the stars up above. ... They will then begin to think, and to think is the beginning of a real education."
– David Polis
Volume 75 | Issue 2
March 2007

From the President: The problem with privatization

Robert Mindrum

If you’re from Indiana (and don’t live under a rock), you’ve probably heard your fill recently about privatization, or “outsourcing” as it is often called. Whether it’s leasing the Indiana toll roads and state lottery or contracting out food service in our prisons, Gov. Mitch Daniels—a Republican with a no-nonsense, pro-business agenda—has made it clear that state entities should not provide services that the private sector could otherwise supply. Whether this is predicated on the assumption that public agencies couldn’t possibly be as efficient as their private sector counterparts, or whether it is simply a play for increased tax revenues, remains to be seen. However, for college unions that run their own food service—in Indiana or elsewhere—the stakes could not be higher.

Years ago, when college unions first began to contract out their food service operations, it was almost always because of one of two factors: the union was unable to operate food services profitably; and/or the union did not have the capital necessary to maintain and upgrade its food services. Private contractors, eager to get their feet in the door to academia, made offers that seemed too good to be true—and perhaps they were.

I can still remember the somewhat smug proclamations made by my college union colleagues back in the mid-1980s as they decided to contract out their food services. “No more red ink.” “A fresh new look, and some guaranteed net income.” “Goodbye personnel headaches, hello financial stability.” It was almost as if the rest of us were foolish for continuing to self-operate.

Now, two decades later, the tide seems to be turning. While some public-private food service partnerships are no doubt doing well, others are scrambling to put a brave face on their crumbling relationships. In some cases, lucrative contracts had to be renegotiated when the “foot in the door” approach did not yield additional business (such as the very profitable board contracts in the residence halls). In other cases, private contractors tried to squeeze too much profit out of food service operations, reducing hours to focus on the most profitable time periods, which then meant reduced traffic, which then led to further reductions in hours. In this vicious cycle of self-fulfilling prophecy, it is not only food service operations that get caught up in the downward spiral, but the rest of the college union organization as well.

Privatization advocates, including some union directors, would be quick to point out that such things as operating hours are contractual terms that are negotiated in good faith and must be honored. While that may well be the case, it begs the question, “or what happens?” And therein is the rub. Because in my opinion, once you contract out your food service operations, you have very little leverage if things start to go wrong. First, for you to be financially successful, your contract partner needs to be financially successful, and thus very few institutions will contest the changes that a contractor proposes to maintain or enhance profitability. Second, if you should decide that you are unhappy with your provider, you are looking at a long, arduous, and often expensive process if you wish to sever and re-bid the contract. And third, once you outsource, it is very difficult to go back to self-operation, because once the organizational infrastructure that supports food service operations is dismantled or reduced (e.g., event planning, business office, marketing, human resources, central production, etc.), there is simply no easy way to get back in business.

Anyone closely associated with the food service industry will tell you that it is one tough business. The hours are long, the competition is stiff, turnover is high, margins are low, and since everyone is an expert when it comes to food, you are only as good as your last meal. On the flip side, when done well, food service can be an incredible enhancement to a college or university. It can be a magnet for students, a valued benefit for faculty and staff, and a treasured tradition for alumni. In addition, the catering component can support and enhance a wide variety of functions critical to the success of the institution. So whom should we trust with these important responsibilities?

For me, the answer is obvious. A union operation that is serious about achieving its mission needs to maintain control of functions that are central to that mission. Does this mean that a union should manage each and every operation within its four walls? Clearly not. Few unions would contend that credit unions or travel agencies are central to their mission, and thus you see few unions trying to manage these kinds of operations. But just as food is a critical ingredient in creating a sense of community in your home or church, I would contend that food service is indeed central to the fundamental community-building role of a college union. For instance, when it is time to extend hours in support of new student orientation week each year, is there conflict? If you want to keep operations open late and offer free coffee during finals week, is this a problem? If one of your restaurants gets particularly busy on a given day, do you hesitate to move cross-trained employees from one operation to another to improve customer service? In a self-operated college union food service, the answer to all of these questions would clearly be “no.” But if students have issues with things like operating hours, prices, portions, or customer service, do we listen and respond? If the university needs a special catering event on short notice, do we assist? And if we are fortunate enough to have a particularly talented young manager, do we keep that person with us instead of sending him or her away to another account? In a self-operated college union, the answer to all of these questions would be “yes.”

Those who favor privatization may point to buying power and other economies of scale, to corporate training and other proprietary systems, and of course to the guarantee of positive net income as rejoinders to my argument. And to be fair, contract providers can take good care of university presidents and other VIPs, although too often in my opinion at the expense of the students, faculty, and staff. But if you analyze the contracts carefully, paying special attention to all the fine print and weighing all of the short- and long-term responsibilities of the university in the partnership, I believe a consistent truism will emerge: Private companies seek partnerships with colleges and universities for one reason and one reason only—to maximize return to their shareholders. They are not overly interested in student development, and they probably could not even define community building or cocurricular education. Neither are they much interested in such mundane things as the infrastructure necessary to support food service operations—little things like electrical, plumbing, heating, ventilation, and air-conditioning improvements. These things are expected to be provided by the college union, because they are seen as baseline expectations, just as they are when doing business in a shopping mall.

But is a college union a shopping mall? I certainly hope not, because what is the mission of a shopping mall? To build community within the mall? To develop and enhance the education of its customers through experiential learning? I don’t think so.

So perhaps it does come down to the issue of mission and how we pursue it. I truly believe that the core mission of college unions is to develop community, and yet I question whether we as college union professionals really understand the importance of a function like food service in building that community. Maybe one of the reasons we struggle in articulating how community building works is because it is usually accomplished indirectly. Never have I heard anyone say “come on, we’re going to do some community building tonight.” More commonly, it takes place through a program or service that brings people together—like food service. And when we relinquish that function to people who do not share our basic mission, it seems to me that the eventual outcome is all too predictable.

Once a college union goes down the privatization road, it is difficult to know where, when, or how to stop. Food service is an easy target, because it is a tough, low-margin business and must be carefully managed to maintain itself profitably. Bookstores generally go next, because the competition is fierce due to the higher profit margins, and at some point, it’s just “easier” to count on a check every month than it is to manage a complex operation in a highly competitive marketplace. Hotel operations, while relatively rare in college unions, are also becoming targets, because they have high profit margins, they require periodic capital investment to keep current, and there is some perceived advantage to having a branded, corporate “flag” as opposed to a more provincial university identity. And don’t forget about service functions, like custodial and maintenance, which are certainly possibilities for privatization.

Following the privatization trend to its extreme conclusion, and beyond the tenant-landlord arrangements that already exist in many college unions (e.g., credit unions, travel agencies), there really isn’t much left at the end of the day other than the student development/student activity function. And even in this arena, I see evidence of companies that are creating “private residence halls,” complete with resident assistants and residential life activities.

So from the standpoint of core competencies, what does the privatization trend say about the skills necessary to become a college union director in the future? Perhaps it is simply a person who can administer contracts and who can oversee student activities and student development. For those in our field who have never really warmed up to business functions, and who have always contended that the “real deal” is student development, this may even be good news. But I would say that this model makes about as much sense as attaching a psychological counseling center to a K-Mart. Sooner or later, the student development functions would be moved elsewhere, and you would be left with … well, a shopping mall.

Another approach would be to acknowledge that self-operated business functions in a college union can add significant value to the educational experience. In this context, operating hours are not simply a matter of maximizing profit, but are understood as vital to supporting campus life. Student employment is not just a way to get the hamburgers flipped, but is seen as yet another form of experiential student development. Food concepts are not chosen simply on the basis of their relative profit margins, but to reflect and support ethnic diversity on campus. If this sounds like some sort of socialist approach to operating a business, think again. It is, rather, a reflection of the fact that providing food service at a college or university should not be considered a generic commodity—like providing electricity, steam, or water. And even within the context of professional food service providers, I would contend that you cannot take a service model that works in a factory, a corporate office building, or a prison and assume that it will meet the needs of a college or university.

In his recent book “The Innovator’s Solution—Creating and Sustaining Successful Growth,” Harvard Business School management guru Clayton Christensen (2003) provides interesting new theories on how businesses can sustain their profitability over time. In addressing the question of “Integrate [in our context, self-operate] or Outsource?” he recommends that companies seek to identify which value-added activities are those in which future competence needs to be mastered and kept inside. In situations where the product or service consistently meets or exceeds the expectations of its customers (regardless of who provides it), it does become an almost generic commodity, and outsourcing can then be an attractive option. But where there is variability in the quality of the product or service from a customer perspective, then an internal or “proprietary” model should be considered, as it may provide a distinct advantage in meeting the needs of the customer.

I think it’s clear that today’s students are sophisticated and discriminating consumers, and they see nothing “generic” about their food and beverage choices. On the contrary, students have come to exemplify the power of branding, as clearly demonstrated by the current “Starbucks phenomenon.” So when I talk of “self-operated food service” I am most certainly not referring to the days of cafeteria lines and dieticians in white coats. Today, the “value-added” of self-operation for a college union food service is that we, who should be in the best position to know our market, are making the choices about what should and should not be offered, and when, and at what price. We now have the ability to determine the cost-benefit of operating our own “in-house” brand versus licensing a corporate brand, but to manage the operation in either case. And increasingly we see institutions whose portfolios of food service operations are hybrids, including both self-operated and licensed brands. I believe those institutions are enjoying the best of both worlds and are realizing the synergy that can occur when all facets of the college union operation are managed by personnel who have the same mission.

There is a paradox that we live with as college union professionals: We can’t afford to run our businesses without regard to student development, but neither can we afford to provide student development without financial support from our businesses. Rather than see business and student development as mutually exclusive functions that require distinctly different kinds of staff members, I believe we need to recruit, hire, and train staff members who understand both sides of this paradox, but who never forget the real reason that college unions exist. That is why ACUI volunteers have worked so diligently to identify the following core competencies for our profession: Communication, Facilities Management, Fiscal Management, Human Resource Development, Intercultural Proficiency, Leadership, Marketing, Management, Planning, Student Learning, and Technology. And it is why I believe all of these competencies (and not just contract administration and student development) are critical to the future success of the college union profession.