Business of IT >> More Than Money

• By Mikael Blaisdell
• 06/27/05

When business-savvy schools set out to build revenue-generating campus IT businesses, they uncover more than new revenue streams.

It was June of 2000, and the board of trustees at Lansing Community College (MI) brought in a strategic planner who had previously done similar work for large corporations like General Motors, Bristol Myers Squibb, and others, recalls Glenn Cerny, CIO for the institution. “He brought a strong business sense to the development of the strategic plan for the college, driving home the fact that state-funded higher education cannot continue to operate as it has done in the past.” The IT executive adds that the consultant’s stance was so important because “appropriations are going to be reduced in the future; the college simply has to operate more on a business model.”

Consulting by demand. The result for LCC was the adoption of a metrics-based operational plan that measured return on investment for all programs. “But in order to perform comprehensive ROI analyses,” says Cerny, “you need a serious technology infrastructure that can get data out to people’s desktops instead of just allowing them to share spreadsheets.” According to Cerny, the ensuing process of moving the institution’s systems to a more state-of-the-art, accessible, and scalable Oracle (www.oracle.com) collaboration environment also created a strong IT group with not only valuable and marketable skills, but excess capacity, as well. It wasn’t long before word of those assets spread beyond the confines of the school. “Other institutions came to us directly, to ask about how we got Oracle Collaboration Suite up and running, how to create an ROI for each program, etc. Oracle brought us in on some accounts, as well, paying us for our consultation.”

For many US institutions of higher education, resource sharing isn’t just a happy accident, but a well-plotted goal. Take Drexel University in Philadelphia, for instance. Says John Bielec, Drexel’s VP of Information Resources and Technology, “Our President, Constantine Papadakis, came in with a vision of sharing resources, not just on an educational level, but on a business basis. It’s the wave of the future,” he maintains. In fact, Drexel began its foray into IT-services-as-business with a smaller school (the Allegheny University of the Health Sciences, which Drexel later acquired and renamed the the Drexel University School of Public Health), supplying to that institution the same services that it used itself.

Hosting for fun and profit. “We now have three components to our revenue generating IT operation,” Bielec reports. “The first is the complete suite of software systems that any college or university would need for student information, financial aid, student accounts receivable, administration, and grades. This includes the usual school-wide financial systems: GL/AP/AR/HR, and payroll. The difference is, we host all of it here at Drexel, use it ourselves, and also make it available to other schools— a classic ASP [application service provider] model.” The second component of Drexel’s IT “business” also follows a standard ASP approach: The university hosts SunGard’s SCT Banner ( www.sct.com) and WebCT (www.webct.com) for several other colleges and universities, under license from the respective software providers, charging fees to the users for access. “We also host the complete suite of SAP (www.sap.com) products here,” says Bielec, “purely for academic use. Professors at 17 different colleges and universities around the US, and in the UK and Russia, access our SAP modules for their teaching. Revenues for this third component come directly from SAP, which is responsible for signing up the subscriber universities.”

At Dakota State University (SD), “We had already been providing ASP hosting for our local K-12 system for awhile,” reports John Webster, the university’s director of the Center for Remote Enterprise System Hosting (CRESH). “Then PeopleSoft (now part of Oracle; www.peoplesoft.com) asked us if we could take on more, to serve as an ASP for other schools. One of PeopleSoft’s senior people drew a diagram of a proposed business relationship on a tablecloth over dinner, and asked if I thought we could deliver. I said we could, and we did.” The relationship with PeopleSoft began with HR and financial systems, and was in operation in about six months. A similar relationship with Microsoft (www.microsoft.com) came later, Webster reports.

IT services as developer. At Georgia Southern University, different factors came together to create a new kind of opportunity for that institution. Jim Bradford, dean of the school’s College of Information Technology, remembers: “A vice president at NCR (www.ncr.com) had previously worked on a research project with one of GSU’s department heads, so we had an existing link. At the same time, NCR was assessing one of its products that was getting pretty long in the tooth, and determined that it needed significant updates and extensions, but its development staff was heavily committed to other projects. One of the ideas that quickly moved to the top of the list was to work with a university to redevelop the product.” As luck would have it, the state of Georgia was also exploring economic development options for the region at that time. “We applied for, and received, a state grant to help develop intellectual property options to improve the area economically, and used the grant to hire a professional project manager from the [IT] industry. NCR donated the source code rights to the university as a tax-deductible, in-kind donation worth about $2.7 million dollars, which was a critical point in helping us get the state grant,” says Bradford.

More Than Money

There is no question that there is money to be made by appropriate use of a school’s IT resources. “We have no problem in sharing our staff expertise for an hour or so with another school in a conference call,” explains LCC’s Cerny. “But when someone needs more than that—to do an install or an implementation— that’s when we put a proposal on the table. We did $200,000 to $400,000 worth of proposals over the last year, in combinations of helping, consulting assistance, and mentoring.” At Drexel, benefits are shared between the university and the client school (either schools of the university, or other schools and institutions contracting with Drexel University). “The economics work very well for us,” says Bielec. “We’re able to leverage each other in terms of our resources. We both end up with substantially more for the same amount of money.”

Small school, big services. According to Cerny, “Everybody has financial aid, registration, tuition to be collected; benefits and payroll; workloads to be tracked. It’s a very common set of functions.” Bielec agrees. “Students and parents are looking for the same functionality regardless of institution size. The difference? Smaller schools are trying to provide it with an IT staff of seven to 10, and a dozen servers. It’s almost an impossible task.”

By partnering with a larger institution, the available budget of the smaller school can buy much more than it could on its own. “The way the economics work in computing,” notes Bielec, “two plus two d'esn’t equal just four; you get closer to eight. For example, we have demonstrated in our relationship with Cabrini College [also in Philadelphia] that a school of two thousand students can offer those students access to the exact same services that a student at Drexel—a much larger institution of 15,000 students—receives.”

Real-world business acumen benefits. But beyond the immediate gain in budget dollars or ongoing royalty income streams into a school’s foundation, there are other very important benefits to be gained from “campused” outsourcing relationships. According to Dakota State’s Webster, “As a faculty member who has done this, who now has the direct experience of doing all of the things that are required to build and run a company, I can talk to my students about the real world; tell them what a real project is. I have an MBA, and that’s certainly valuable. But when you’re getting your MBA, you don’t actually go out and manage a trademark process all the way through, yourself. You don’t handle a C-corporation formation yourself, or set up a payroll process and negotiate with a service. When you set up this kind of outsourcing business, you get an education after your education. It really adds credibility beyond your degree. Now, if I need an example for a class, I can open up a real e-mail, and ask students: ‘Can you help me with this problem?’ It lets them see that what they are studying has implications for the next level, when they go out into the world. It also demonstrates that the faculty member who’s standing in front of the class is not just talking theory; he’s actually been in the trenches doing the work himself.”

Student and curriculum benefits. At Georgia Southern, the experience of the software redevelopment project with NCR has returned “real-world experience” to the students. Says Bradford: “The students who have worked on this have developed very rapidly in the process. Our students, like those at all modern universities, work on team projects. But working on a really big commercial project isn’t exactly the same dynamic as a three-week assignment. If you have a whole team working on a huge coding project like this, then you have to agree on things like documentation standards, variable naming standards, etc. There is a lot of software engineering stuff to be handled, and that requires good communication skills. It also gives the students practical experience in recognizing and dealing with interpersonal team tensions.” Past benefits to the individual students, however, there are very real curriculum benefits.

“The NCR project has helped us see an aspect of the educational experience we hadn’t given a lot of thought to,” says Bradford. “It started a dialog within the college about exactly what it is we need to be teaching our students.” Although GSU students were very up-to-date technically, says Bradford, the university found it needed to focus more on professional independence. “This age group, 18 to 22, functions well in a structured classroom environment,” he explains, “but what we want is for people to take responsibility for doing things. There’s a character aspect to professionalism, as well as a skills aspect, and we’re beginning to focus more on what we need to do to develop that character.”

AT GEORGIA SOUTHERN University
IT outsourcing is 'mainstreamed'
benefiting students and clients.

Planning the Route

So, let’s say you’re thinking seriously about developing your own “campused” outsourcing business. You have students, faculty, IT infrastructure, staff that could be utilized, and support from the administration. But before you set off down the road toward new revenue and useful experience, there are a few things that can make the journey smoother…

The two Cs. “Start with careful coordination and communication,” says Bielec. The Drexel CIO cautions, “At the presidential level, they know what’s going on, but as you go down in the organization to the staff, faculty, and students, it’s not often clear what the objectives and benefits are. Effective communication on all levels is a large part of being successful.” Planning and documentation are also key prerequisites, he says.

At Dakota State, for instance, the ASP program had been running for some time, but the expansion into serving other schools outside of the area bumped up the stakes, Webster explains. “You’ve got to have clear lines of authority, with everything laid out and defined so that everybody knows who can say yes, and who can say no; who is responsible; how things get done. All the things that businesses deal with all the time—that’s the framework you need in place, up front. You can sign off on a project in good faith, but if you get 36 months down the road and there’s no paper trail, no letters of agreement, you’ll be the one left holding the bag.”

Get a project manager. The importance of communication and advance planning is also emphasized by Bradford at GSU, who credits a good part of their success to their project manager’s work. “You need to maintain a close, continuous working relationship with your client. That can be hard to do if you have nothing but faculty administrators who have many other things they have to do as well. Between the recruiting and training of the student workforce and making sure that the client and the university were on the same page, week by week, it would have been too much for a faculty member to handle. We had a real advantage in having a professional whose sole job was getting this project done.”

From the client end of the NCR project at GSU, former NCR VP Joanne Walter notes that priorities need to be clearly established; it’s vital that support for the project be maintained. “The biggest challenge is to keep the program a priority,” she says. “It is up to the university to make these projects mainstream; failure to do so will cause the program to fail. The projects cannot just be side experiments; the students and companies who will rely on them deserve more than that.”

Dollars and Sense

Still, the financial aspects of projects and relationships can pose special challenges to higher education, and goals are important to keep in mind. While most schools look for the added revenue, that d'esn’t mean they’re interested in taking profits. At Lansing Community College, Cerny points out that the intention was to offset costs. “We don’t intend to make a profit off all this; we’re going to return the costs of the infrastructure and move that money back into direct instruction. We have a Business and Community Institute that actually d'es the proposals for outside work, and we take the resources from our IT division to support those projects. Right now, the accounting is being handled inside the college. The goal—from the president and our board—is to determine the best way to handle it in the future.”

Georgia Southern was also careful to use an appropriate structure and entity for handling the expected returns from their project. “As a non-profit institution,” Bradley explains, “we certainly didn’t want to jeopardize our status, so we spent six to eight months carefully researching and working out the details of what we could do with the royalties. We found we could take our research foundation structure and expand it to include what we needed for this project. It was a bit of work, but after that, things went fairly smoothly.”

Taxes and bookkeeping. And from Bielec at Drexel: “We can’t provide the services without having the income to cover the expenses we incur,” he explains. “Our model is one of strategic collaboration. It’s not meant for profitmaking; for us, it’s more about costavoidance and getting a more robust resource for our partner institution than it could have afforded on its own.” Yet though the model may be non-profit, strict attention is paid to accounting and reporting. “At Drexel, we do a P&L [profit & loss] statement and file ‘unrelated business income’ taxes,” says Bielec. “Personally, I’m not sure whether we’re actually liable for the tax, but we file and pay it anyway just to make sure that there aren’t any questions about the relationships or our tax status. We treat it the way schools treat other unrelated business activities such as athletics.”

“Accounting is a critical piece,” agrees DSU’s Webster. “We’d go to a school and negotiate a contract with a C-level officer. Afterward, it was taken out of our hands and was managed by someone over in the university’s accounting department who would send them a bill. You never knew when or if it was done, or where the money went after it was paid. Basically, you’d make a sale, but there was no way to actually link that sale back to what was going into the project. This went on for the first couple of years, and then we started to get some standard green-bar accounting reports.”

Road Hazards

Universities and colleges have some definite advantages to offer, to each other and to private industry as well. But there can be drawbacks to some of those advantages, and they should be seriously considered by any school, before moving ahead.

Student workers. “Use of student workers creates some interesting challenges,” acknowledges Bradley. “They’re right at the start of their careers, so they’re inexperienced. Furthermore, our workforce is even more volatile than it is in the high-tech sector. Students will come in for a semester and work parttime; some work out, but some don’t. We had to deal with training on a continuous basis; getting new students up to speed only to see them move on after doing some months of good work.” GSU managed to turn that challenge into an asset. “With some of our projects, work comes in bursts, and then there’s nothing. So, when an employer needs some work done, we can call up some students who want to pick up a couple of weeks of work, going right from their classes to the lab in the same building. It works out well for everybody.”

Extra staff work. At LCC, Cerny d'esn’t use students for the projects; staff members are assigned as appropriate. “There’s definitely a challenge,” he says. “You’re bringing on more work, but what is the incentive for the IT staff to do it? The outside experience obviously gives staff members a broader range of expertise, and more exposure to best practices, so our staff definitely benefits that way. But the downside is that the incentive piece hasn’t been fully developed yet. Right now, when I send a staff person out to a new place, there’s really no extra compensation; they’re just at a different location for a week. At the same time, some of their work here d'esn’t just go away while they’re out.”

‘Ninja’ IT. “There are challenges,” says Webster at Dakota State. “We found that there are things that we needed to do for the clients that the school system won’t permit because it violates some protocols,” he recalls. “They can’t open up a little door [in the infrastructure] for you to go through, because when they do that, it puts the rest of their systems at risk. In order to solve that, we moved some systems off campus where we could access them remotely from off campus, non-institutional locations. We ended up with almost a ninja-IT group, running a separate IT organization within the larger organization, that could do things not possible within the institution’s systems. In the end, however, we had to move the operation to a separate data center.”

Moving Forward…

What d'es the future hold for these campus IT outsourcers? All four schools are upbeat about prospects.

Forget India. “I just had a call from a company in California that had been referred to us by one of our customers,” Webster reports. “They said: ‘We need about a dozen people for about a year and a half. Rather than talk to India, we’d like to work with you and DSU.’” Webster understands the motivation for the calls, and expects the demand to rise as more people become aware of what his team can do. “It might cost them a little bit more money,” he says, “but we’re 8,000 miles closer, and the time difference is only a couple of hours, instead of 16.”

Startups like students. At Georgia Southern, outsourced software development capabilities are also attracting increasing interest from private industry. “We’ve expanded from one relationship to five [in the two years since the inception of the relationship with NCR],” Bradford explains. “Our newer clients tend to be smaller entrepreneurial startups, and they like working with our students. Startups are often very cost-sensitive, so they’re willing to have less-experienced programmers who work a lot cheaper.” The NCR project is continuing as well, says Bradford, and has a strong future. “My feeling is that because [the NCR product is] marketplace- driven, the demand for new features is never going to end. We’ll be continuously updating and working on this for the next 10 years.”

Mark Conway, who was the PeopleSoft director of Academic Programs responsible for developing and maintaining the company’s relationship with Dakota State, and who now is with business performance management (BPM) software provider Hyperion Solutions Corp. (www.hyperion.com), thinks that the future is definitely bright for cooperative partnerships between higher education and the private sector. “There are benefits all around, as long as the partners understand each other’s needs, goals, and expectations,” he says. “I call it enlightened self-interest. The relationship might not close business for a company this quarter, but it can help in branding, and can help to grow ‘mindshare.’ It can also fuel a pipeline of graduates who are knowledgeable about an industry and its products, and ready for hire.”

Bielec is equally confident about the potential for the campus IT outsourcing idea, and the market. “There are around 3,500 colleges and universities across the country,” he says, “and about 1,500 are small, private schools with a student body of 2,000 or less that are trying to do the same things as the larger research universities. They could fit into this model; a smaller school d'esn’t need to physically own the systems it uses, so long as it has access to what it needs.”

“Working with higher education just makes sense,” says Webster, and adds, “If PeopleSoft can do it, why can’t Barnes & Noble or any other company partner with a school?” The answer, he says: “They can.”