What don't Big State U and Wal-Mart have in common?

Parent Cafe
1

You’re probably wondering what they even do have in common… They, more often than not, are the largest employer in a state (# of employees). Another top state employer: heathcare provider.
http://247wallst.com/special-report/2015/03/19/the-largest-employer-in-each-state-2/

There are a few interesting exceptions. In Nevada, the biggest employer is MGM Grand Las Vegas. In Washington state it’s Boeing.

Enjoying huge economies of scale like Wal-Mart, why is State U perpetually in the red?

Are there any lessons to be learned from running a hotel casino in the desert (attracting disposable income), running hospitals (necessary services), or building airliners (creative enterprise)?

2

Big State U is not autonomous like Walmart. They have state governments setting a lot of their rules and they have to give away a lot of stuff (tuition+) for free.

3

The basic mission. One is dedicated to spending its money on customers and service providers. The other to make big profits while impoverishing its customers and service providers.

4

So which one is Wal-Mart, and which one is big State U?

5

As anyone who reads my posts knows, I think some state universities (and other schools) have lost their way. They are confused about their mission. There was a time when most people knew that the mission of the schools was to educate, generate new knowledge and serve the community. And all offices on a given campus were devoted to contributing to that goal. Copiers in departments were used to serve that goal. Parking on campus existed to serve that goal. Then someone realized it would be more efficient to move copying to one central spot on campus and charge departments for copies-so the departments did not abuse the privilege. And a separate department was created for parking. Then the copy center and parking started to focus on the funds coming in instead of the mission. Their mission eventually was disconnected to the original mission of the university. Now parking and the Copy Center strive to make a profit. It is all about being as efficient as possible and about generating funds. What happened in those two departments only mirrors what happened all across campus. And across the country.

6

State universities are not a business, they are a service, as all universities are supposed to be, whose goal is to educate students. There is an ROI on universities, and over the long term I could make a pretty good point that they pay back a lot more than they cost, but they are not supposed to be ‘profit now’. To make a profit or break even, a university would need to double their tuition likely and would need to attract only those well off enough to pay for it, and they also would need to literally sell pieces of the university off in effect (basically, de facto solicit owning rights from corporations and such, rather than the current endowment model). More importantly, a lot of ‘losing’ departments would be shut down, so you would see arts and English departments and liberal arts departments shut down, and the university would in effect become the parallel of the big football and basketball program, where in a sense the university would be the ‘minor leagues’ of corporate america, and only things ‘valuable’ to them, would be worthwhile pursuing.

There would be an irony to that, state universities are research universities, who do a lot of ‘pure research’, which can lead to major discoveries but often leads to dead ends…but those discoveries can lead to revolutions. The problem is that corporate america hates pure research, they of course benefit from it, but as long as someone else pays for it. If you ran state research universities based on the corporate model (if they ‘own’ the university, they get to decide policy) pure research would become marginalized if not eliminated as ‘no ROI’. It reminds me of those who claim that government doesn’t do anything right and who point out to the ‘great revolutions’ that private industry have done, without pointing out the obvious, that much of what private industry did that was ‘revolutionary’ was the result of government sponsored research.

I have heard politicians who have said that state universities should be self sufficient, that they should get corporate sponsors and become more ‘results oriented’, so this isn’t just speculation. There is another side to this little talked about, that state universities with their diversity have another payoff that the narrow focused cannot see. Take a look at places with state universities in them, and what you often see is a region that is an incubator of business, and it isn’t all just about research. A university area, because of the things universities offer in the way of diversity, help attract people to live in those regions, areas like the research triangle in NC, Austin in Texas, are a lot more diverse than the rest of the states where they are. College towns around research universities tend to have a mix of people and often offer things like cultural events and the like that can help make the area attractive to live in. If we turned the state universities into businesses, a lot of what makes college towns interesting would likely be curtailed more than likely, as the university became focused on ‘results’.

One of the things that has proven itself time and again is that the business model doesn’t work when it comes to services like a school or university, or with things like infrastructure, because their payoff or ROI is not quite as obvious. When they have tried to run things like transit on a ‘business’ basis it often has led to disaster, as one big example, basic transit is one of the things that can help a region flourish and make it attractive to businesses and for people to live there, yet we hear how it ‘costs’ too much and so forth.

7

They are arguably going towards a business model. I recall a recent thread about how some are charging an arm & leg for ancillary services like meal plans.

8

People willingly choose to shop at Walmart, so customers are impoverishing themselves. It’s the customer who decides which businesses stay, and which businesses go. “Big profits” is also untrue… Walmart’s net profit margin is a only 3-3.5%. That’s really not that much.

Regarding the topic question, state U’s are not as efficiently run as most private businesses. Waste, fraud, and inefficiency are the biggest reasons IMO. I feel there also is a disconnect between what people are willing to pay vs. what things actually cost. Perhaps people don’t understand that if you want to pay teachers well, live in high quality housing, and have high quality food options, you need to be willing to fork over more money for your education.

9

What is missing for the U is a price/traffic feedback mechanism. As long has they have X+n applicants for X spots, then nothing will change to how they operate. Wal-mart on the other hand will alter product/pricing to increase store traffic as needed to meet the revenue goals.

10

GMT, just because continued government cutbacks are forcing public universities into a business model doesn’t mean public schools’ basic premise has changed. It means schools will have to carry out that mission in a different way. But the ultimate goal is still to educate - enrich students intellectually, if you will. Walmart’s only ultimate goal is to enrich shareholders and the Walton family.

11

Different businesses. You can’t just lump big box store retail with education… people value these two things differently.

Again, nobody is forcing you to shop at Walmart, and pay their shareholders, and the Walton family.

12

Yes, in theory, a state university is an investment in the state’s future workforce and economy, with the idea that a better educated workforce will build a stronger economy in the future. However, funding for state universities has to compete with other current spending items in the state budget, so the tendency of politicians to forego investment in the future for current spending or tax cuts is something they need to worry about. (The universities themselves are not helping themselves in this respect with respect to bureaucratic cost growth.)

I have seen a few things from state universities suggesting that the cost of education there (not including student living costs, student books, and other student expenses) ranged from about $10,000 per year to $23,000 per year, depending on the school and subject (subjects where there is more industry competition for faculty like business and engineering cost more).

Of course, there are well endowed private schools that spend much more than that per student, like $90,000 per year (but that includes student dorms and dining halls and such – still more than their list prices).

Actually, some state (and private) universities have sold the naming rights to buildings, endowed faculty jobs, departments, or divisions to large donors. E.g. “[name] Hall”, “[name] School of Business”.

However, departments that get cut or shrunk when budgets get tight are not necessarily just English and such. For example, SUNY Geneseo and Tulane cut or shrunk their computer science departments, possibly because faculty are harder to recruit in that subject due to competition from industry.

13

Walmart is more or less the same everywhere. Public universities exhibit much more variability in price, quality of the educational product, emphasis on research, faculty resources, financial resources, mix of funding sources, etc.

Walmart has a single national brand, and promoting and protecting that brand goes hand-in-glove with cookie-cutter uniformity from one store to the next. Public universities each have individual brands, most operating in distinctly local markets; the comparative handful that have truly national brand recognition still operate in only a single location.

Walmart essentially has a single revenue source, sales to retail customers, and its goal is to maximize retail sales by maximizing the number of customers it serves and maximizing the volume of goods it sells to each customer so that, even while it beats the competition by undercutting them on price, it generates large net revenues through sheer sales volume. Public universities typically have multiple revenue sources; retail “customers” (students) aren’t their only revenue source, and in fact each retail “sale” is typically made at a loss insofar as taxpayer subsidies, payouts from endowment, annual giving by alumni, and other revenue sources are partially subsidizing the cost of each student’s education. Consequently, it is seldom a sound strategy for a public university to simply keep expanding the number of “customers” it serves, unless it is 100% tuition-driven or its revenue comes entirely from tuition plus a taxpayer subsidy mechanically tied to the number of students it serves. That does not characterize any school in the middle or high end of the public education market. There’s actually a much closer analogy between Walmart and private, for-profit post-secondary educational institutions than between Walmart and public post-secondary educational institutions.

As a corollary, Walmart is happy to sell to pretty much anyone who walks through the door. Most public universities are at least somewhat selective, and the better ones are highly selective; they decide which customers get to come through the door…

Walmart’s business model is built on unrelenting price competition—people shop there because it’s usually the cheapest. Public universities are not always the cheapest; the better ones compete on the basis of a combination of price and quality, and at the top end, there’s a distinct tilt toward quality in competition with the very best sellers of luxury goods (the elite privates). So to that extent, a UC Berkeley or a UVA may be more like a Nordstroms than a Walmart. Another big difference, though, is that Walmart gives you 100% price transparency–the price is always marked, you always pay the posted price, and if a discount is offered, as through a sale, that same discount is automatically available to all purchasers. Pricing in the educational sector, public and private, is notoriously non-transparent. Discounting in the form of need-based FA and merit aid is rampant and often done through non-transparent formulas. One consequence is that although public universities consistently have lower sticker prices than their private counterparts (at least for in-state students), they are not always the cheapest once all the discounts are factored in. And many public universities don’t have sufficient resources to engage in aggressive price competition against the better-heeled privates, which becomes a competition as to which institution can absorb the largest loss per student.

14

“I have seen a few things from state universities suggesting that the cost of education there (not including student living costs, student books, and other student expenses) ranged from about $10,000 per year to $23,000 per year, depending on the school and subject (subjects where there is more industry competition for faculty like business and engineering cost more).”

Everything I have ever read about higher education , public or private, is that the cost of educating a student is far less than the charged tuition at full pay. It gets complicated, but the cost of educating the student is not just the teachers teaching the classes, there is the school administration, the cost of facilities and maintaining them, security, and it adds up. One of the things colleges have been using to save money is to use adjunct faculty, who get a princely sum of like 2000 to teach a class, and in part it is to bring in more profit/class (think about this,if a tuition is let’s say 12.5k a semester (25k a year), and they take let’s say 5 classes, it probably takes a handful of kids to pay for the salary of the teacher for that class, let’s say for arguments sake 4,lot more cheap than tenured faculty likely would be (not to mention an adjunct has no costs of benefits).

The real point is that a state university is supposed to be about providing an education to the state’s student population in a way that it is affordable, it is not supposed to be a business.