Winning with Win-Win Sourcing

• By William H. Graves
• 02/03/06

The dots between sourcing models and organizational survival are now connected; will higher education self-flatten, or be flattened?

It was around 1930 when Ronald Coase (later to be awarded the Nobel Prize in economics) observed that organizations were becoming larger and more bureaucratic, to the extent that their core products and services depended on other products and services (which typically were sourced internally in order to avoid the friction then inherent in external sourcing). No surprise then, that bureaucracy grew accordingly and soon became a barrier to customer intimacy and organizational nimbleness in many sectors of the economy. And by mid century, American higher education had grown significantly in enrollments and bureaucracy—often to the detriment of student intimacy and accountability. Indeed, higher education’s basic organizational and services delivery model today retains much of its 1930s bureaucratized efficiency, which is inefficient in 21st-century terms!

Fast forward to 1998 and the global spread of the Internet, when Larry Downes and Chunka Mui argued compellingly that the global Internet would change the competitive landscape by dramatically reducing the friction and risk in external sourcing (Unleashing the Killer App: Digital Strategies for Market Dominance, Harvard Business School Press, 1998). They made the case that IT-enabled external sourcing was about to become a powerful strategy for creating more nimble, less bureaucratic, more competitive, and customer-intimate organizational models. Downes and Mui were right: At no time in recent economic history has competitiveness and productivity increased more dramatically than during the economic downturn that started around 2000. With their revenues stagnant or dropping, for-profit organizations used the Internet and its panoply of communication, transaction, and tracking technologies, and related win-win sourcing opportunities to increase productivity by a whopping annual average rate of 3.55 percent from 2000 to 2003—a full percentage point higher than the average from 1948 to 2000, and also greater than the average for any decade in the past 50 years. (This, from “Reprogrammed: Blazing gain in productivity means some jobs are no longer needed,” Vikas Bajaj, Dallas Morning News, Oct. 10, 2004.) Downsizing sometimes resulted, not because of productivity increases, but because productivity increases occurred in the absence of revenue growth—and because some services and production processes were shifted to cheaper labor sources as technology-driven globalization and its inherently competitive forces increased “offshoring.” During this period, higher ed experienced counter-cyclical enrollment growth and continued to increase per-credit tuition revenues, thus (consciously or unconsciously) ignoring the productivity pressures affecting the broader, more competitive economy.

The Road to Flat: Why Less Traveled?

In The World Is Flat: A Brief History of the Twenty-First Century (Farrar, Straus and Giroux; 2005), Thomas L. Friedman recently connected all the transformational dots for us by studying the new technology-enabled win-win relationships among (sometimes competing) organizations. In his book, he succinctly states the basic premise of my first column for CT (“Order the Change, and Change the Order,” November 2004): “Introducing technology alone is never enough. The big spurts in productivity come when a new technology is combined with new ways of doing business.” Relying on engagingly written case studies to elaborate his “flat-world” thesis, he accounts for “new ways of doing business” by parsing Downe’s and Mui’s “killer app digital strategies” into eight “flattening” forces that have driven nimbleness, productivity, and competitiveness to new levels in many market sectors: 1) workflow software, 2) open sourcing, 3) outsourcing, 4) offshoring, 5) supply-chaining, 6) insourcing, 7) in-forming, and 8) the “steroids” of emerging “digital, mobile, personal, and virtual technologies.

Higher education arguably seeded the viral spread of in-forming with its contributions to the Web browser, “Googling,” and other forms of depositing, searching for, and accessing resources on the Web. Colleges and universities likewise have been at the forefront of open sourcing and also have adopted workflow software, but only on a limited basis. Through periodicals like this one, and more directly through experimentation, higher education is now embracing the “steroids” of emerging “digital, mobile, personal, and virtual technologies,” even if too often as costly add-on enhancements to traditional services such as the lecture—capturing and podcasting lectures, for example; being an au courant non-transformational user of the latest technologies.

Few institutions, however, have moved beyond simplistic, food-and-janitorial-service outsourcing to understand and adopt more sophisticated productivity-improving forms of win-win sourcing relationships—Friedman’s outsourcing, supply-chaining, and insourcing relationships. Most colleges and universities remain a bastion of the 1930s all-in-house service sourcing model, and have yet to discover the competitive advantages of true win-win sourcing relationships with external service providers in areas such as IT services, financial aid, institutional research, advancement, recruiting, admissions, academic course and program development and support, and so on.

Wake Up and Flatten

Unfortunately, the signs that higher education is awakening to the “flat world” are conflicted. Early in 2005, the National Commission on Accountability in Higher Education (NCAHE; www.sheeo.org/account/comm-home.htm) transmitted its final report with a clear statement of belief that “improved accountability for better results is imperative, but how to improve accountability in higher education is not so obvious.” How to improve accountability in higher education (by measurably improving and reporting on key indicators of institutional performance, all via the wise use of IT) is not so obvious? Say what?

Perhaps reacting to the NCAHE’s report, later in 2005 Secretary of Education Margaret Spellings empanelled a “commission on the future of higher education.” In any case, she has signaled that improved accountability is indeed an imperative, but also an obligation not to be ducked as blithely as did the NCAHE—at least not when federal support is involved.

The way to improve performance and account for it in nonprofit higher education is surely clear by now: Use information technology innovatively to redesign (flatten) academic and administrative services, including instruction, for improved effectiveness and efficiency (improved “academic productivity” in the language of the NCAHE; a flat organizational and service delivery model in the language of the flat world).

To improve its eroding social compact with the public and with national and state policymakers, higher education will have to redesign its service processes—especially its academic services rooted in the contact hour, the course grade, the semester schedule, and so on—not only for measurable improvements in learning and other service outcomes, but for flexibility from a student perspective, and for reductions in internal unit costs which can be parlayed into reduced or stabilized tuition rates. The bottom line: If higher education d'es not take visible steps to self-flatten, then many colleges and universities risk being flattened.