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##  Outsourcing in Higher Education. ERIC Digest.                                

WHAT IS OUTSOURCING AND WHAT ARE THE BENEFITS?
The decade of the               1990s was one of constraint for higher education. Declining student             enrollments, state budget cuts, decreased funding for research, and             increased pressure to limit tuition growth resulted in diminished               revenue sources for colleges and universities (Ender and Mooney,                1994). To remain competitive and to improve service in the face of              declining resources, higher education has increasingly turned to                several popular management approaches, including                                outsourcing (Jefferies, 1996). 
Outsourcing, also referred to as               contracting, is a form of privatization that refers to a                        university's decision to contract with an external organization to              provide a traditional campus function or service. The contractor                then either takes over the employees of the university, paying the              group according to its standards, or replaces the university                    employees with its own staff (Ender and Mooney, 1994). 
Outsourcing            assumes that if an institution cannot provide a service or product              at less cost than, and of equal quality to, an external provider,               then it should purchase the service or product from an external                 provider. Advocates of outsourcing argue that the private sector                provides service more efficiently and at lower cost than the public             sector, which is unmotivated by profit (Jefferies, 1996).  They                 point out that outsourcing to a contractor can reduce a college's or            university's labor and benefits costs, provide a single point of                accountability, and provide predictable costs; the resulting savings            allows the institution to focus more resources on its core                      educational operations -- teaching and research (Ender and Mooney,              1994). Colleges and universities are testing these theories,                    increasingly outsourcing more of their functions in an effort to                reduce costs, increase service efficiencies, and boost                          income (Jefferies, 1996). WHAT FUNCTIONS ARE BEING                            OUTSOURCED?Outsourcing has traditionally been used to operate               campus bookstores and dining services.  It has more recently become             a legitimate option for additional campus functions, including                  facilities operation, computer services, security, child care,                  residence halls, teaching hospitals, remedial classes, and even                 entire institutions (Goldstein, Kempner, Rush and Bookman, 1993;                Gilmer, 1997). 
To some observers, there seems to be an                        announcement every week about a college being among the first to                outsource an operation (van der Werf, 2000). For example, the                   University of Miami recently contracted with Strategic Distribution,            Inc., to acquire all materials required for repair, maintenance, and            operations at its main campus and medical center;  Chatham College              hired a contractor to run its library and hire most of the library              staff (van der Werf, 2000). PROBLEMS WITH OUTSOURCINGCritics              of outsourcing point out its human resource consequences.  Jobs may             be shifted from the college or university to the contractor                     performing the outsourced function, which may result in decreased               salaries or benefits (Gilmer, 1997). 
A recent experience at The               University of North Carolina is a case in point.  The University                planned to outsource its housekeeping staff; consultants expected               the contractors to pay the housekeeping staff less and to provide               fewer benefits than the University offered them.  The plan                      ultimately led to charges of racism since, in contrast to other                 University employees, the housekeeping staff was predominantly                  African-American (Gilmer, 1997). 
Other critics feel that contract             staff may have less loyalty to the university than if they were                 employed directly by the institution and express disappointment with            the resulting inadequate service by contractors. Inadequate service             by contractors can affect the campus community in myriad ways;                  uncomfortable teaching facilities, shortages of textbooks in the                campus bookstore, and lack of skilled technical staff to manage                 computer networks are just a few possibilities. 
Ender and                     Mooney (1994) suggest that the greatest barrier to outsourcing is               lost jobs and the resulting negative impact on institutional morale.            They offer a set of guidelines for mitigating the negative impact of            outsourcing: 
1) outsource management personnel only, 
2) downsize            the staff by attrition, 
3) involve employees in selecting the                 contractor, and 
4) re-bid the contract often. 
Filling senior                management positions with contract staff for a defined period of                time, they say, can eliminate conflict inherent in outsourcing an               entire operation.  Existing staff can remain with the university                while receiving training that may eventually enable them to move                into the outsourced management positions. OUTSOURCING SUCCESS                 STORIESAccording to Manuel Cunard, executive director of the                National Association of College Auxiliary Services, college                     outsourcing is growing so quickly that there has been very little               time to step back and determine its effectiveness (van der Werf,                2000). 
The privatization of college services is currently                     chronicled primarily through anecdotal evidence, and campuses                   nationwide continue to debate the merits of outsourcing (Gilmer,                1997). 
Though research about outsourcing is scanty, anecdotal                 evidence does make it clear that many institutions have found                   outsourcing to be an effective means of reducing costs, assuring                financial results, upgrading program quality, gaining access to                 special expertise, increasing customer satisfaction, and obtaining              capital for facility improvements (Dillon, 1996). 
George Mason                University in Fairfax, Virginia and the University of Tennessee at              Knoxville are two institutions that have used outsourcing to                    advantage.  George Mason University is one of the nation's most                 aggressive contractors.  The University has contracts, totaling more            than $30 million, for 50 campus services and operations (Gilmer,                1997). 
The University of Tennessee at Knoxville contracts for the             installation of blinds, carpet, ceilings, fences, and elevator                  maintenance.  The University saves an estimated $565,000 per year               through outsourcing all of its custodial services (Gilmer,                      1997). RETHINKING OUTSOURCINGSome institutions have outsourced            campus functions only to realize that outsourcing was not the                   panacea they had hoped it would be.  Consistency and cost issues                were key in Whitworth College's decision to abandon outsourcing.                The College virtually eliminated its communications office in the               late 1980s when it outsourced the office, reducing its staff from               seven to one.  In 1992, a presidential task force reevaluated the               situation and the College returned to a centralized on-campus                   communications shop.  Lack of coordination was cited as the major               problem with outsourcing, with wide gaps in quality and cost the                result. The administration ultimately realized the importance of                coordinated communications to the College's success since the                   communications office was tied into fund raising, alumni relations,             recruitment and all other facets of campus life (Schreiber,                     1994). 
The University of Pennsylvania recently scaled back its                contract with the Trammel Crow Company for operations and                       maintenance of its campus buildings.  Professors at the University              say housekeeping functions never improved and roofs still leaked.               Penn and company officials agreed that the key flaw in the school's             outsourcing strategy was that Trammell Crow was asked to maintain               buildings in such bad repair that they were essentially                         unmaintainable (van der Werf, 2000) HOW WIDESPREAD IS                         OUTSOURCING?Statistics about outsourcing in higher education are            few, but the need for such data has been recognized. The National               Association of College Auxiliary Services has recently opened a                 center to try to track overall figures for outsourcing in higher                education (van der Werf, 2000). 
Gilmer (1997) reports that a 1996             survey by American School & University found that colleges and                  universities are increasingly turning to outsourcing. More than                 one-half expect to contract for more services in the coming years.              Only 5.9% of colleges and universities produce all services                     in-house; 62.4 % of colleges contract for four or fewer services;               31.7 % outsource five or more services.  The most popular outsourced            services include food (74.3%), vending (65.3%), bookstore                       operations (33.7%), custodial work (30.7%), and laundries (18.8%).              Recent figures also show that the building of on-campus housing by              private companies was a $500 million business in 1999, with no                  indication of a decrease in 2000 (van der Werf, 2000). HOW SHOULD             MANAGEMENT DECIDE WHETHER TO OUTSOURCE?Whether or not to                    outsource a function is not an institution's most important                     question.  Instead, management should examine the full array of                 options and select the operating and management approach best for               the institution. Focusing first on understanding how the functional             area in question is currently operated and examining all its                    strengths and weaknesses enables the institution to make a fully                informed choice. (Goldstein, Kempner, Rush and Bookman, 1993). A                core set of issues and questions must be explored when institutional            management is deciding whether to outsource any function.  Rush,                Kempner and Goldstein (1995) group these core "decision factors"                into six categories: 
1) Human Resources - How employees will be               affected. 
2) Financial - The direct and indirect cost to the                  institution. 
3) Service Quality - How each alternative will  meet             campus needs. 
4) Legal and Ethical Considerations - The level of              risk and potential liability posed by each option, any tax                      ramifications, any potential conflicts of interest. 
5) Mission and            Culture - The effects of choosing an option inconsistent with the               institution's culture and historical mission. 
6) Management                   Control and Efficiency - The likely effect of each option being                 considered on the institution's ability to control the direction and            priorities of the functional area. 
The relative importance of                 these six decision factors will vary with the institution and among             functional areas.  However, regardless of the institution's size,               location or affiliation, and no matter what functional area is under            consideration, campus decision makers need to use a structured                  methodology when making the decision to outsource.  Rush, Kempner               and Goldstein (1995) also offer a ten-phase methodology for                     outsourcing which focuses on the following actions: 
Phase 1:                  Identify Key Participants 
Phase 2: Develop an Analytical                      Framework 
Phase 3: Assess the Current Environment 
Phase 4:                  Identify Customer Requirements 
Phase 5: Develop an Operational                Design 
Phase 6: Identify Possible Alternatives 
(Peterson's                  Contract Services for Higher Education (1995) provides information              on various types of contract and outsourcing services available to              colleges and universities.) 
Phase 7: Review Legal, Ethical, and               Community Considerations 
Phase 8: Compare Proposed Operating                  Alternatives 
Phase 9: Select the Preferred Alternative 
Phase 10:            Establish a Continuous Improvement and Assessment                               Process CONCLUSIONSThe growing use of outsourcing in higher               education reflects a general acceptance by campus administrators                that it will reduce costs while continuing to provide essential                 university services (Jefferies, 1996). 
Successfully outsourcing a             function requires careful, comprehensive evaluation and planning by             management. The answer to whether or not to outsource is what best              serves the institution--not only what is most cost efficient, but               also what will provide the most consistency, timeliness and overall             quality in meeting the college's or university's goals (Schreiber,              1994). REFERENCESEnder, K.L. and Mooney, K.A. (1994). From                Outsourcing to Alliances: Strategies for Sharing Leadership and                 Exploiting Resources at Metropolitan Universities. Metropolitan                 Universities: An International Forum, v5 n3 p51-60. 
Dillon,                   W.L. (1996). The People Side of Privatization: Study Examines                   Employee Perceptions of Conversion Process.  Business Officer, v29              n7 p31-34. 
Gilmer, S.W. (1997). The Winds of Privatization: A                 Typology for Understanding the Phenomenon in Public Higher                      Education. Paper presented at the annual meeting of the Association             for the Study of Higher Education (22nd, Albuquerque, NM, November              6-9, 1997) 
Goldstein, P.J., Kempner, D.E., Rush, S.C. and Bookman,            M. (1993). Contract Management of Self- Operation: A Decision-Making            Guide for Higher Education.  Alexandria, VA: The Association of                 Higher Education Facilities Officers. 
Jefferies, C.L. (1996).  The            Privatization Debate:  Examining the Decision to Outsource a                    Service.  Business Officer, v29 n7 p26-30. 
Peterson's Contract                Services for Higher Education. The Directory of Outsource Service               Vendors for Colleges and Universities (1995). Princeton, NJ:                    Peterson's. 
Rush, S.C., Kempner, D.E. and Goldstein, P.J. (1995).             Contract Management: A Process Approach to Making the Decision. In              Peterson's Contract Services for Higher Education. Princeton, NJ:               1995,  p. 5-9. 
Schreiber, W. (1994). A Shop Divided. Currents, v20            n3 p8-12 Mar 1994. van der Werf, M. (2000). How the U. of                       Pennsylvania Learned  that Outsourcing is no Panacea.  The Chronicle            of Higher Education, April 7, 2000. 
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This publication was partially                   prepared with funding from the Office of Educational Research and               Improvement, U.S. Department of Education, under contract no.                   RR-93-00-0036. The opinions expressed here do not necessarily                   reflect the positions,or policies of OERI or the department.                    Permission is granted to copy and distribute this ERIC-HE Digest.            **Title:** Outsourcing in Higher Education. ERIC Digest.                                **Note:** Prepared in cooperation with Jossey-Bass Publishers.                         **Document Type:** Information Analyses---ERIC Information Analysis Products (IAPs) (071); Information Analyses---ERIC Digests (Selected) in Full Text (073); **Target Audience:** Practitioners, Teachers                                                      **Available From:** ERIC Clearinghouse on Higher Education, One Dupont Circle, Suite                630, Washington, DC 20036-1183. Tel: 800-956-7739 (Toll Free).               **Descriptors:**  Contracts, Higher Education,  Privatization,  School Business                  Relationship                                                                 **Identifiers:** ERIC Digests                                                                 
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