How to Outsource

What factors should institutions weigh as they consider outsourcing services?

July 21, 2015

NASHVILLE, Tenn. -- At what point does an institution outsource a service, and what are the benefits and risks of relying on an outside business?

Outsourcing is far from new, but as more and more colleges and universities subcontract an increasing number of services to try to save money and time, such questions are common for business officers and were the topic of discussion during a session of the National Association of College and University Business Officers annual meeting here on Monday.

Institutions looking to save or even make money, streamline services, or just provide better quality services might choose to outsource, from private companies, goods and services such as student bookstores, custodial services, facilities management, administrative functions, procurement and even student housing.

Yet when institutions choose to outsource, they have to be hawkish about the performance of a vendor, and closely monitor the savings partnerships bring an institution.

Issues related to culture and mission integrity -- can an outside company really serve a mission-driven university well? -- need to be taken seriously as institutions consider outsourcing, according to a panel of college and university chief financial officers discussing the practice Monday.

“The partner is really integrated into the university fairly deeply … they need to understand your institution’s culture” and prioritize it over their own, said Morgan Olsen, the CFO at Arizona State University. “A sign of success is that most of the university doesn’t realize that a service is being provided by a partner.”

Olsen admits that the “pressure” on financial teams “to really do better than we’re doing” drives universities to seek savings and has led to a surge in outsourcing at his institution. Arizona State outsources many of its core functions, including its endowment management and much of its student housing. It’s even considering outsourcing some of its research facilities.

It’s essential, panelists said, for there to be constant communication between a company and the college if a partnership is going to be successful.

At Chapman University, a private institution in California, partner companies meet with the chief operating officer Harold Hewitt every month and participate in planning retreats.

“They’re a voice at the table with regular, direct employees,” Hewitt said. “What we want is somebody who understands the very unique challenges that our university is facing.”

Before entering into a contract with an outside company, administrators also need to have a solid sense of their institution’s future direction; otherwise a college can lose track of its goals as it outsources a service. “You have to have a long-term capital plan, and you have to know the relative priorities of the capital plan before you can engage partners,” Hewitt continued.

Yet finding the right fit can be difficult.

Hewitt said Chapman was considering outsourcing its student housing, but in talking with vendors the college decided to scrap that idea. The reason was twofold: officials didn’t think a partnership would save enough money to justify a massive operational shift, and they also feared student dissatisfaction.

At a previous university where he was an administrator, Hewitt said student and employee discontent led the institution to fire a company contracted to run the student dining hall. Hewitt and his staff eventually hired a new contractor, but the problems with the initial outsourcer led some students and employees to lose trust in the university and its leaders.

“You do lose credibility … it takes time to recover,” Hewitt said. “If we had another bad experience, it would have been very difficult to unwind and unravel that.”

That’s why hawkish monitoring, especially with a new contractor, is essential when evaluating whether a service should continue to be outsourced. Often jobs and reputations are on the line.

“There’s some risk to the individual, the leader, that makes that decision to outsource. When something goes wrong [they are held] responsible,” said Don Germano, president of Follett Higher Education Group, a campus bookstore chain.

When Arizona State negotiates deals with outside vendors, the college makes sure there’s a clear exit strategy in case the partnership is a failure.

“We’re not afraid to say, ‘That was an interesting experience and it did not work out,’” said Olsen.

Yet when a contractor and a university or college work well together, it can be a real boon to the institution.

“You're looking for that relationship with a partner who can bring resources to bear, and that you can leverage to do things either at a level that you weren't capable of doing internally or in a time frame you couldn’t do institutionally,” said Steven Sayers, a senior associate vice president at the University of Cincinnati.


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