Thought Leadership Series: Budgeting For Innovation (Part 4)

August 28, 2023
This entry is part 4 of 4 in the series Budgeting For Innovation

Series Overview

Setting budgets is one of the most important responsibilities university leaders must shoulder. Budgets serve as the practical manifestation of a university’s mission and goals, so pursuing the process thoughtfully is critical to driving innovation the right way at any institution. There is a lot more to budgeting than the numbers on the page. Successful senior leaders recognize it is one of the primary instruments they can use to shape  change, both now and in the long-term across campus and beyond.

Recently, Vinay Ganti, Senior Vice President, Strategy at Noodle, sat down with Richard (Rick) Matasar. Rick’s career spans four decades, where he served in senior positions both in central administration (10 years) and as a law school dean (20 years).  Most recently he was the Senior Vice President of Strategic Initiatives and Institutional Effectiveness at Tulane University, and before that as the Vice President for University Enterprise Initiatives at New York University. His time as a law school Dean included stints at the Chicago-Kent College of Law (Illinois Institute of Technology), the University of Florida Fredric Levin College of Law, and New York Law School.

He brings to the table considerable experience developing revenue-generating programs, discovering new ways to do traditional programming, and leveraging existing assets.  Vinay and Rick discussed the state of universities and the need to evolve given our rapidly changing society. 

Today is the fourth in a five-part series that will provide a comprehensive approach to how to do budgeting in a way that promotes innovation and growth in higher education. In today’s article, we will focus on establishing the right organizational culture to promote budgeting. The full series will be as follows:

Part IV: Expenses and Priorities – Spend Strategically for the Long Term

This is the fourth in a five-part series of discussions with Richard Matasar, who understands the administration of universities and the steps that need to be taken for them to flourish. If you are new to this series, you may want to start with Part I, Part II, and Part III which focus on establishing a budgeting mindset that will drive innovation and growth, then the right culture across the organization to make it a reality, and how to look at revenue generation and risk the right way.

How would you make sure that you are spending your money wisely?

Most of us, in our personal spheres, have wrestled with the reality of managing our finances. At the heart of it, we protect our bare essentials—nourishment, home, travel, clothing, and daily costs. Sometimes, we find ourselves with a surplus—a chance to safeguard our future, care for our children, and even splurge on luxuries. However, mastering money management isn’t all spontaneity; it calls for strategic planning, budget discipline, and the ability to adapt to life’s unpredictability. 

Well-run universities practice similar disciplines. They do not expend funds without first developing a belief system about what is a necessary expenditure, what is desirable, what is a wish, and what is dispensable (but sometimes spent to placate others). Universities need a clear theory about what and when money should be spent. In my view, this requires a clear planning process. Leadership needs to work with schools and departments to establish necessities and desirable new expenditures. These should be described, recorded, and woven into a short-, medium-, and long-term vision for the future. Every item must be priced and added to a plan of how much additional revenue would be needed yearly to make it possible. This process can seem daunting if it relies heavily on luck, unexpected revenue, and divine intervention. However, it can instill hope and motivation if accompanied by a strategic plan to bridge the gap between your aspirations and the current reality.

‍What if the source of money to achieve the objectives is not immediately available?

First, look at philanthropy, grants from the government, or corporate partnership. These are especially valuable methods to jump-start recurring funds. Next, leaders should look at donor lists and consider ways of growing both annual and endowment support. If these are insufficient to provide stable long-term increased funds, the university must grow existing programs, look for new sources of qualified students, and establish new programs that will create recurring revenue sources. These approaches are reflected in better marketing to increase enrollment, recruitment of new students from community colleges, growing international student enrollments, and establishing new programs—whether in person or online. The most desirable approach is in new programming that will create long-term, growing, recurring income that generates more funds for the future. 

At the university level, the senior leadership must balance requests from schools and departments with initiatives sought by the board, president, and provost. This balancing provides the basis for a long-term strategic plan that should guide how money is allocated once it is generated. The plan lists the requests in prioritized order (with some exceptions) and makes that transparent. This plan also leads to a rational “tax rate” that the university can impose on individual schools to ensure that strategic priorities are met. Once the rules are clear to the community, senior leaders can allocate what new funds go to the schools and what is retained for central university priorities.  

In a well-functioning system, every school, department, and central university spending plan should govern how much is distributed and how much can be expended. Unfortunately, systems are never perfect and leaders often make bad decisions, such as deviating from long-term plans in favor of bright and shiny short-term needs. This may precipitate a dialogue about how something is not in the long-term interests of the school (and the university). That can temper how money is spent and prevent decisions that can undermine the mission of the university.

The spending process should be in the context of ensuring that good initiatives are funded first, though not at the same level for every program. Prioritizing the level of funding reflects senior leaders making value judgments. The president, the provost, and the board must ultimately make these decisions because they are responsible for executing the university’s highest priorities. However, those decisions are unlikely to be successful without input from across the university. Each school and department should contribute feedback and argue for its own priorities, but in the end, be willing to acquiesce in rational prioritization promoted by university leaders after a rigorous planning process. 

How can we counterbalance the prioritization process at a university that has “superstar” schools?

Prestige comes and goes. It’s hard to build and it’s hard to lose. Once you lose it, it’s hard to regain. As an example, law schools were cash cows for many years and almost all private universities regarded the law school as a net contributing unit. It would be hard to find a law school dean who believed it was fair for the university to demand anything from the law school, or to hold them to rules imposed on others. It was an attitude of, “That’s my money. That’s my decision.” 

Law schools operated that way for many until the 2008 Financial Crisis occurred. It literally decreased law school enrollments by one-third and, in some cases, by over 50%. This turned them from profit centers to institutions that were begging for resources. Universities today see law schools, at best, as a marginal financial contributor to the university. At worst, universities see them as a unit that must be subsidized. And law schools learned that what was taken from them in the past was now being taken from others to support them. 

What can go up, can go down. A university should be able to support, in the long run, the ebbs and flows of those units that have done well in the past and are now suffering, as well as units that were struggling and are now growing. That ebb and flow within the university is part of the “tax” on the “better off” or more financially successful schools.

One can see this ebb and flow through the lens of federalism. The university is the central government. Each of the schools is a state. There are rules governing relations. For example, all of the schools, like states, should respect other schools (states)—what lawyers call the full faith and credit clause. If a school has a good reason to do something, the dean of other schools should be respectful of that. It is a kind of horizontal respect within the university vertical. 

Like the relationship between the federal and state governments, schools (like states) should be able to experiment, try new things, and have their own priorities, even if they do not exactly track the university’s (federal government) preferences. But, like state and federal relations, universities must establish some inviolate rules that cannot be avoided by schools—the equivalent of the supremacy clause. For example, a dean cannot decide unilaterally on DE&I policies or salaries. Further, a school cannot decide to spend money on bad initiatives that will not benefit the university. The central administration can dictate the behavior of the schools much like the federal government can invoke the Supremacy Clause to constrain states. The university and schools must enunciate which rules are supreme and which ones are negotiable. The process needs to occur to manage in a system where there are high levels of independence on behalf of units and high levels of dependence on central services. 

‍What would you recommend as the order of operations for an incoming provost in the first 90–100 days? 

The first step is to determine what the president and the board care about, and how much independence the provost will have to move in a new direction or directions. If the president and the provost are not aligned, it will undermine any initiatives the provost is taking. The CFO needs to be part of the discussions, as well as the senior leadership team. The top priority is to have alignment about the priorities among the leadership. 

The next 90 days is a listening tour; but the provost is not just listening, but learning how people feel about these matters and possibly other issues that have not yet surfaced. Among the other issues could be possible fights, easy initiatives, impossible dreams, and cooperative faculty. It’s not just listening, it’s active listening. 

The provost then needs to determine if there is a spending plan. If not, that is a major red flag. It is crucial that someone be the advocate for the creation of a spending plan. The provost and the CFO (or whoever it is that creates the long-term strategic plan) need to have a separate discussion about what should be accomplished and what tools are needed to succeed. 

Naturally, most faculties would prefer their schools to be smaller. It’s more fun for them to have fewer students. However, this is not productive for the university’s growth. Remaining a small institution in a world where others are growing will lead competitors to steal students, faculty, and reputation. 

A university needs to be competitive in an environment where it takes advantage of its academics, geography, and unique resources. It also needs to be willing to think about how to grow existing programs and close others that are draining resources (unless there is a substantive reason to subsidize them). That conversation is essential before discussing funding. This then leads to a dialogue about the endowment, student enrollment, and other potential funding sources. That is the conversation that the provost needs to have at the senior level about how to produce the initial dollars to start funding all of the proposed initiatives. This is a much easier conversation if the university has a surplus than if it is presently running a deficit. In that situation, the first contributions need to reduce the deficit, or senior leadership needs to agree to continue to maintain the deficit. Thus it’s very important to establish the “front-end” conversation before talking to the deans. If you don’t have that plan, you won’t succeed. 

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This entry is part 4 of 4 in the series Budgeting For Innovation

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