In April 2012 President Bill Powers convened the Committee on Business Productivity, consisting of 13 accomplished business leaders, to review UT's operations and to make recommendations on increasing our efficiency and effectiveness. The Committee submitted its report to the president in January 2013.
On January 29, 2013 President Powers introduced the report to the campus and discussed its implications.
Good morning. And thank you all for being here today.
As we all know, we're going through very tough economic times, in the State, in higher education, and here at UT. We've just been through a protracted recession that has tightened state funds for our university, state funds that were already at historic lows as a share of our budget. The recession has constricted our investment income, and it has made development a greater challenge. And certainly, it has affected families trying to send their children to college. The Texas economy is doing a lot better now, and certainly it has done better than the rest of the country. But we still see dramatic effects on our campus. We still have to be very creative on how we use our resources to move the University ahead.
I'm so proud of this campus for the way it's responded to these challenges. We've made huge changes. Let's remember that we've already cut $47 million a year out of our budget. It's been painful, but we've done it. But as I've often said, the work of reform is never done. As people in my faith say, we are "reformed and always reforming." So we must always continue to look for ways to save money.
Why do this? One reason of course is to keep a UT degree as affordable as possible for our students and their families. But another is to free up resources to continue on our path to become the best public university in America. This time it's not just to balance the budget; it's so we can develop the long-term resources to invest in our core missions of teaching and research to move the University forward.
The Commission of 125 gave us a broad-brush picture of where the University needs to go academically. That work is ongoing, and we've made a tremendous amount of progress, especially in reforming the undergraduate experience and in strengthening academic departments. But we can't do that work unless we free up resources to continue to support it.
In 2007, I convened the President's Policy Advisory Committee, consisting of faculty, staff, students, and administrators, to benchmark UT against other great American research universities. I asked them to focus on key things we need to do to be the very best public university in America. The results were not surprising. We lag behind our competition in faculty salaries and support, we lag behind in graduate student support, we lag behind in undergraduate scholarships, and we lag behind in facilities. We began remedying some of those issues, but the recession got in the way. We need to find the resources to continue on that path.
So where can we look for these resources? One place is philanthropy, and we are working hard at that, with great and generous support from our friends. And as the economy turns around, we need to continue to make our case to our legislative and political leadership about the value of UT to our State. We're working hard at that during this Legislative session, but we must also find resources within our own budgets. If we don't, we won't fulfill our academic goals. This, by the way, is the "Moneyball" philosophy I have highlighted so often and that is the underpinning of our revamped budgeting process. We have to always ask whether we're deploying the resources we have in the most effective way.
In my first State of the University Address, I proposed the notion that if we could transfer just 1 percent of our budget from low-return to high-return activities, and then compounded that year after year, it would make a tremendous difference. We have done that. We need to continue to do that, and with a special focus on our administrative budgets and processes. We need to continue reforming our business operations similar to what the Commission of 125 did for our academic goals.
Universities, real universities, are not simply businesses, so not all business concepts are practical or even appropriate. For example, students aren't simply "customers," who are "always right." In order for students to learn, faculty members must often remind students that they are not always right. Trying to employ business ideals across the board in education is folly. Or put another way: we need to remember the academic nature of our "business."
So universities are not simply businesses, but in some ways they are like businesses -- processing applications, supporting information technology, reimbursing travel, buying paper from outside vendors, turning lights on and off, printing and mailing, and so forth. In these areas, they ought to be following the best business practices. As a recipient of both tax dollars and tuition dollars, to do otherwise is to betray the public trust. For any public institution, efficiency is a moral imperative. But it also is the smart thing to do because it can free up much-needed resources we can redirect to our core missions of teaching and research.
None of this is new. Business operations and efficiency have long been a part of our university's story. President H.Y. Benedict, who was appointed in 1927, established such fundamental tools and procedures as a handbook and an accounting system. When Benedict passed away 10 years later, his friend Roy Bedichek reflected that these basic business practices had become a routine part of the University to its benefit. We thought about these things even back then. In much more recent history, my predecessor President Larry Faulkner undertook a major reorganization of our vice president portfolios. This was extremely effective, and we're still reaping the benefits today of his strategic vision.
We've done a good job adopting better business practices, but we've picked a lot of low-hanging fruit. Now it's time to get out the ladder and go after some of the fruit higher up in the tree.
To that end, in April of last year, I asked 13 distinguished leaders in business to come together and offer advice on aspects of the University's business operations and processes that could be improved, streamlined, and leveraged to better effect. We called it the Committee on Business Productivity. Over the course of the year, they met several times as a full committee and even more often as working subcommittees. In addition, the committee's support staff, some of whom established an office here on the campus, conducted scores of interviews with our own staff and with staff across the country on different aspects of campus operations, campus assets, and commercialization of intellectual property. I am happy to say that they report that our staff has been tremendously supportive and open to new ideas.
I've brought us together today to release their report, which they call "Smarter Systems for a Greater UT," and I want to share a few of its ideas with you and give you a sense of the direction and scale of change we are considering.
I want to repeat that these recommendations are in the service of our core academic mission of teaching and research and of my longstanding and often-repeated goal of making UT Austin the best public university in America. This was the ethos adopted by the Committee. Their ethos was not just to lower the cost of our business practices, it was to make them better and to channel savings into our teaching and research missions. I believe this work is a critical means to our academic aspirations.
The ramifications of the Committee's report are sweeping. The combined recommendations could yield as much as $490 million over a decade. That is a lot of money, and we could do a lot with it. It is greater, though granted over 10 years, than the total state appropriations and AUF for 2012-13, which was $471 million. And these estimates are conservative, so the savings, albeit again over 10 years, could end up being more than our total tuition for a year, which is $592 million.
I want to dispel any notion that this will be simple or easy. Indeed, if successful we would be the first university in America to overhaul its operational models in all three areas under consideration. But little worth doing is easy, and if it were easy, it would have been done already. This will be a major effort. It won't happen overnight. It will require a robust and interactive dialogue among faculty, students, staff, and administrators. It will require a champion and a structure to manage change and to facilitate dialogue about change. It will require investment in new systems. But if it is to happen at all, all of us, deans and vice presidents particularly, need to attack it aggressively and with sustained focus and energy.
As is always the case with projects this large, there will be institutional inertia to overcome, but I believe we must succeed, and we will. Other major, multi-year initiatives of my administration -- such as reforming the undergraduate curriculum, overhauling the academic budgeting process, and reorganizing our information technology function -- required widespread buy-in. We succeeded in those projects, and we're doing it again now with our course transformation project and with our push to increase four-year graduation rates. Now we need to do it with our other business operations. And we're beginning in a position of strength, because the Committee was extremely impressed by the attitude and the measures they found already in place. They found that our culture is open to change.
In addition to understanding what this report is, it is equally important to understand what it is not. I did not seek, and this report does not recommend, any change that would impinge on the faculty and teaching mission of the University. There is no interest in bringing a corporate mentality or strict business values to the classroom. For example, academic departments will always have the responsibility of recruiting faculty and setting curriculum. What the Committee asked is whether they should also perform functions like accounting for faculty travel or processing the funding for human resources. Again, all of these recommendations are made in the spirit of enabling the institution to focus its precious resources squarely on the academic and research mission and lose less of those resources to business practice inefficiencies within our complex system. In this regard, it is the students and faculty themselves who have the most to gain by embracing these transformative recommendations.
And this report is not a blueprint that designs the details of change. It focuses on areas and recommends that we work diligently and thoughtfully for change through a consultative process on our campus.
Given the magnitude and complexity of this effort, it is likely that not every one of the recommendations will prove to be worth the cost. We'll have to figure out the details as we move forward. But there is no doubt in my mind that these recommendations represent the direction that we need to go.
So now let me turn to a broad-brush description of the Report. The Committee was divided into three working groups that studied three distinct areas of opportunity. One studied how we can better streamline our administrative services. The second studied how we can better leverage the assets we have as a university. And the third studied how we go about commercializing technology.
First, our administration services. The art of governing any federated institution in large part lies in finding the optimal location of authority and responsibility for each function. For example, in our institution we have matters that are left up to the faculty member, other matters that are best governed at the department level, others that are best overseen at the college level, and still others that are best overseen by the Central Administration. And some functions, by law or by common sense, are overseen by our System or the state. For any given function, it is possible to err on either side of the optimal location of responsibility. We don't want departments buying insurance for their faculty and staff, but neither do we want the Central Administration deciding who to hire as faculty in a department. Err on one side and we become overly centralized; err on the other, and we become overly federated. The Commission of 125 endorsed the idea that, on most academic matters, the main location of responsibility should be in the departments. The Committee endorsed this. But in matters of business operation, the Committee's view is that we are overly federated, overly decentralized, and because of that, we spend more time and money on routine business practices than we should.
The Subcommittee on Administrative Services Transformation studied how UT could save money by changing how a number of administrative functions are organized and operated. This "shared services" initiative would move toward consolidating such functions as finance and procurement, human resources, and information technology. Though some consolidation already has occurred in these areas over recent years, the committee found that the campus is still highly decentralized across the various colleges, schools, and units in comparison to the best practices at other universities as well as in the private sector. Consolidating these administrative functions could yield up to $200 million in savings over the coming decade. To be blunt, to those looking at university operations from a private-sector perspective, this recommendation, among them all, was a no-brainer.
The Committee also believes that it will take some initial investment of resources to make these changes, because we will initially need to update and upgrade some of our platforms and systems to capture these savings in the medium and long run. These savings can only be realized if we make this investment and then actually make the changes in our processes.
The second area of the Committee's work studied how we use our assets. The Subcommittee on Asset Utilization looked at how we can better leverage our existing assets, such as by selling excess power generated by our power plant on the open market, incentivizing deans and department heads to conserve power, bringing UT's food, housing, and parking rates more in line with market values, and possibly taking advantage of outsourcing or privatization opportunities. These recommendations could yield up to $290 million over 10 years. And that amount could dramatically increase if a culture of transformation takes root.
The Committee also recommends that we invest even more in conserving energy. We have already made a lot of progress. We have cut our per square foot energy use nearly in half in the past 15 years. But we can save even more. The committee believes UT could conserve another 3.5 percent. We should incentivize academic units to save by letting them keep and spend the savings from their own conservation efforts. It's worth noting that this recommendation decentralizes control, even as it improves efficiency. The subcommittee believes improvements to buildings, such as updated controls and air handlers, could reduce consumption by 20 percent. The cost reduction over a decade could equal $59 million.
With regard to food, housing, and parking, several other universities, including Texas A&M, have generated significant savings and revenue. The subcommittee recommends we explore similar avenues. There is no doubt that looking at the possibility of outsourcing certain function and the rates we charge for services is controversial, and it will take a lot of discussion. Housing and food rates are part of the cost for our students, and parking is part of the benefits package we offer to our faculty and staff. So we need to be careful. But we should be making conscious decisions about what we are doing.
And our staff will naturally want to know, in plain English, "What will all of this do to my job?" There is no one answer to that. For some, the answer may be that their job will remain but in a different building or with a new supervisor, or in a different structure. For some it may even be off campus.
Outsourcing is not a new concept to us, as we did this with janitorial services last year at the Pickle Research Campus and with minimal impact on the majority of the staff affected. And consider all the ways we've been outsourcing all along: we don't have a fleet of airplanes used by faculty to get to meetings; we use Southwest Airlines. Outsourcing already is everywhere we look. I understand the anxiety these ideas engender, but we simply can't afford to ignore possibilities for saving money that we can put into our academic mission.
Whatever changes are made, you have my solemn pledge that they will be made thoughtfully, with consultation, and with the least negative impact possible while still moving us toward our goal. I'm confident that the vast majority of the savings coming from labor costs can be achieved through natural attrition. Over the past five years, some 4,000 people left the payroll voluntarily. That's 20 percent of UT's core staff workforce. I understand that natural attrition and strategic consolidation are not always fungible -- the positions won't all match up exactly. But 20 percent turnover in five years is a lot of natural, voluntary change that we have to work with.
Lastly, the Subcommittee on Technology Commercialization examined how UT encourages innovation and protects and monetizes the intellectual property developed on our campus. While the University is already among the nation's best in this area, the committee felt that UT can raise its game to another level to spur innovation, to foster entrepreneurship, and to generate economic growth in the region and across the state.
The committee found that the best performers were universities who concentrated their efforts on increasing the sheer volume of licenses and did not focus on trying to prejudge which pieces of intellectual property would prove to be winners or losers in the marketplace. The committee firmly concluded that concentrating on volume was the best direction to go. The subcommittee's key recommendations for making this shift began with the Hippocratic oath: first do no harm. Harm in this case would result from central control over all aspects commercialization in a way that could stifle innovation. But there are things we can do at the center. The committee felt that the University should establish a structure to exchange ideas and best practices among the many entities currently involved in technology commercialization and to resolve conflicts and other obstacles to licensing.
As I have said, for many recommendations, further study is needed to determine whether and how to implement change, so today is not the time to announce which recommendations will take what form. But I canannounce that I am adopting the committee's first recommendation, a recommendation that sets in motion all subsequent action flowing from this report. This is to appoint a champion of these changes.
Having a champion, someone who wakes up each morning and whose job is to drive change forward is critical. This practice has been key to virtually all substantial changes occurring during my administration. When we wanted to make real change in undergraduate education, I appointed Paul Woodruff to be the champion, eventually becoming the inaugural dean of undergraduate studies. When I wanted to make real improvement in our four-year graduation rates, I appointed David Laude to the new position of senior vice provost for enrollment and graduation management. As part of that effort, when it came time to overhaul orientation, I appointed Associate Dean Marc Musick to be our orientation champion.
I am asking Kevin Hegarty, vice president and chief financial officer, to take on this task. It will be his job to wake up every morning and make real progress toward the goals we approve. He reports directly to me and has sufficient power to resolve conflict and overcome institutional inertia. He will establish a consultative governance structure and process - just as he did in Information Technology - to involve the faculty, staff, and students as we move forward. Kevin, thank you.
This will be hard work. But as I said in the beginning, it is crucial that we direct more of our resources into our teaching and research. And we need to do that to foster a civil society, to bolster our understanding of the universe, to bolster our understanding of our place in that universe, to collaborate with fellow institutions across the world in building humanity's body of knowledge -- then teaching our students about it, and about how they will create more of it.
What specifically will we do with the money we save and the new revenue we bring in? This is a question that must be answered in the budget each year, but in general, I can tell you that it will help fund long-term initiatives aimed at improving our teaching and research.
Will it look exactly like this two years from now? Surely not. But even if we can capture half of these savings, it will be worth doing. Yes, there will be the pain and stress of getting it done, but it will be worth it.
In 1586, the Pope decided that an obelisk that stood near the new Saint Peter's Basilica should be moved to the center of Saint Peter's Square. The good news was that the move was only 256 meters; the bad news was that the obelisk weighed 344 tons. There are lessons for us in how they undertook this literally monumental task.
First, they didn't try to do it in a single day. In fact it took more than a year. Some parts of the task before us we can start immediately, but this will be an iterative process, and we should expect the organizational landscape of the University to look different in five years. It will take time.
So this pope took his time to get it right; he took it one logical step at a time; he had to invest in some equipment to get the job done; and everyone worked together, pulling in the same direction, working with single-minded unity of purpose. We will have to do the same things.
And one thing more: because they were successful at this, many more obelisks were moved around Rome in the following years, one of which weighed 510 tons. If we get this right, there's no telling what else we'll be able to accomplish, and there are other areas of our operations that will need our attention too.
So I present the Committee's report to our campus. I'm extremely grateful to these 13 leaders for their expertise, insight, and hard work. I believe that decades from now we will look back on this moment as a turning point in our ability to serve all of our constituents better and focus even more of our resources and energy on our core mission.
Steve Rohleder chaired the Committee on Business Productivity, Steve James chaired the Subcommittee on Administrative Services Transformation, Gary Kusin, chaired the Subcommittee on Asset Utilization, andCharles Tate chaired the Subcommittee on Technology Commercialization. The other committee members were Jason Downie, Paul Kinscherff, David Moross, Benjamin Rodriguez, Hector Ruiz, Sam Susser, Larry Tu, Lynn Utter, and Marcie Zlotnik. This was a very hard-working committee and each and every member, as well as the support staff supplied by the global management consultant Accenture, has my profound thanks.
And now, the real work begins. This process will be iterative. Rome wasn't built in a day and neither was the operational structure of America's fifth-largest university. And we're going to be systematic and we're going to get it right.
Thanks to all of you for your help.