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U. of Michigan tries to save money on staff costs, but meets faculty opposition

Shared Services Backlash
November 21, 2013

Administrators at the University of Michigan had an idea: pluck 275 staffers out of their current offices scattered across campus, move them into a single building on the edge of town, increase their productivity and, voila, save $17 million.

So far, the plan has a hit a few snags.

For one thing, department chairs were kept in the dark about the effort and then given what faculty members have described as “gag orders” to prevent them from talking about it. Now professors and graduate students are speaking out publicly, and it’s clear they are unhappy about losing staff members with familiar faces from down the hall to an off-campus facility.

For another, the plan is no longer expected to save nearly as much as once hoped: just $2 million or $3 million in its first year and $5 to $6 million per year in the near term, according to a university spokesman.

That savings doesn’t factor in $1 million a year the university will pay to lease a new building to house the staff in one place. Or the $4 million the university expects to spend fixing up that building. Or the $11.7 million contract Michigan has with the consultant Accenture for advice about how to save money. All told, an effort to save money might barely break even in the short term, though officials expect savings to ramp up in the long term.

Michigan is just the latest campus to turn to “shared services,” a cost-saving approach being tried at an increasing number of colleges across the country, including the University of California at Berkeley, the University of Kansas, the University of Texas at Austin and Yale University.

The idea is simple. Instead of each academic department having its own staff to handle bookkeeping, departments should rely on a pool of staffers. The theory is each of the employees in the pool could specialize in quickly dealing with certain paperwork instead of trying to be jacks-of-all-trades in departments across campus. One staff member would get really good at travel reimbursements, for instance, while another focuses on payroll.

But it’s not unusual for the projects to meet some opposition.

“Did it go very well at the start?” said Ronn Kolbash, Yale’s assistant vice president of shared services. “No.”

But Kolbash, who worked on bringing shared services to Ohio state government, said the goal is for organizations to save money on processing paperwork so they have more money to spend on the things they exist to do.

“The State of Ohio doesn’t exist to pay bills,” he said.

The same goes for universities, which are -- it’s no secret -- facing budget crunches of their own.

“When attempting to address those budget deficits and make unfortunate but necessary cuts, one of the things you look at is, how do you preserve the mission of the university, the teaching and research and what we’ll call the practice of the university?” Kolbash said.

Michigan officials, who are trying to patch holes in their budget from a decline in state support, admit they got off to a rocky start with faculty members as they rolled out their shared services plan.

Nineteen department chairs in the College of Literature, Science and the Arts -- the largest college on campus -- wrote a Nov. 1 letter to senior administrators protesting an “air of secrecy” around the effort and raising concerns that longtime staffers, particularly lower-income women, would be hurt by the changes, either because of layoffs or pay cuts.

In response, senior Michigan officials wrote a Nov. 14 letter acknowledging they were “not sensitive or consultative enough in the planning and communication of this initiative.”

The senior officials, including Provost Martha Pollack, also promised that there would be no immediate layoffs and that staff members could likely be moved to the new shared services center without taking a pay cut.

Michigan professors said there are now ongoing talks with administrators that may be productive. But some faculty are still calling for a halt to the shared services center plan, which would require 275 staff members to move from their current offices in academic departments on campus to a 53,000-square foot building on the edge of Ann Arbor by next fall.

Several faculty members said the university is looking for a new president and it didn’t make sense to make such a big decision while campus leadership was in flux.

Alexandra Stern, a professor in the department of American culture, said some faculty are pushing for a 1- to 2-year moratorium or a complete halt to the shared services center. They also want time to come up with their own ideas to save money that don’t involve losing staffers to an off-campus center.

“Another thing that has emerged is a sense that faculty want to be much more involved in this decision-making and shared governance around these issues and definitely want to work with administration on ways of cost-cutting and being more efficient that are in line with our university’s core values,” she said.

In a telephone interview, a university spokesman, Rick Fitzgerald, left open the possibility the timeline could be pushed back.

“I think at this point, the project is moving ahead -- at what pace is I think still up for discussion,” he said.

Fitzgerald said the university expected to save between $2 million and $3 million in the first year of the project and up to $6 million a year in the next years. He acknowledged that was down from earlier estimates. Just six months ago, the university and Accenture predicted savings of up to $17 million a year. (Accenture has since removed a news release touting the savings from its website.)

“As with any project like this, the savings become clearer as you move through the process and make the scope of the project,” Fitzgerald said.

As it tries to save money, the university also has new expenses.

“The idea that any opposition that we would have to a misguided restructuring plan could be dismissed as a bunch of fuddy-duddies hanging on to tradition is sort of absurd but goes ahead and sets the term of what the debate might be."
--Gabrielle Hecht, Michigan professor

Its board voted to spend just over $1 million a year on the new shared services center. It also plans to spend $4 million to upgrade the facility. 

Fitzgerald said Accenture is being paid $11.7 million over several years to work on shared services and other cost-saving efforts. The firm is drawing scrutiny on campus because of its fees and because of the declining projections for savings.

Michigan’s associate vice president for finance, Rowan Miranda, is a former executive partner at Accenture -- a fact that has also stoked faculty suspicions. Fitzgerald said Miranda recused himself from the contracting process.

The leasing, constructing and consulting costs are not included in the campus's projected savings, meaning Michigan could conceivably lose money in the first years of its cost-saving effort.

Results From Other Campuses

Actual savings from shared services efforts elsewhere are unclear, although several institutions estimate savings of several million dollars each year. The University System of New Hampshire, one of the first colleges to try shared services starting a decade ago, estimates savings of more than $6 million per year, for instance.

At Berkeley, officials are still in the midst of changes and don’t forecast savings until the beginning of the 2016 budget year. By 2020, the university is looking to save nearly $14 million a year, according to Andrew Szeri, the dean of Berkeley’s graduate division, who relayed his comments through a spokeswoman in an email.

Kolbash, at Yale, said the university had seen efficiency improvements since it opened its shared services center, but could not immediately say how much money had been saved.

The University of Texas at Austin’s College of Liberal Arts started its own shared services effort and is saving about $500,000 a year out of a staff budget of $12 million, said James Southerland Jr, the college’s associate dean for business affairs.

Southerland said the college had taken a different tack than Michigan is taking or Yale took. Instead of moving all of its staff from their current jobs to a central location in one swoop – an approach known among administrators as the “lift and shift” – the Texas college is giving staff time to decide whether they want to move to the center. If they don’t, they have been given until August 2015 to find a new job. If they do, the center is gradually hiring people.

“You don’t want to tell somebody, 'O.K., we hired you for this department but we’re now moving you to this department' – the culture in higher ed doesn’t lend itself to that,” Southerland said.

The University of Texas is taking on a broader shared services effort, though, which will look to eventually eliminate 500 of its 12,000 staff positions.

Gabrielle Hecht, a Michigan history professor, said faculty are concerned about how the debate over the changes may be framed as they continue to push back against the administration.

“The idea that any opposition that we would have to a misguided restructuring plan could be dismissed as a bunch of fuddy-duddies hanging on tradition is sort of absurd but goes ahead and sets the term of what the debate might be,” Hecht said.

She questioned whether centralized staff removed from their departments can really be more efficient than staff down the hall who can easily be reached and know the people they are working with as well as department-specific needs.

“It does not make any sense this would produce more efficient work,” Hecht said.

John Curry, managing director of the Huron Consulting Group, another higher ed consultant, said universities should move quite slowly.

“Anguish” – like that at Michigan – “is a function of how the problem was approached,” he said.

Administrators should make sure departments that need unique services are able to keep them in-house or still receive them from the shared services center.

But, ultimately, “In the end, our experience is, yes, you save money -- depending on how far you are willing to go,” Curry said.

 

 

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