A presentation by emeritus professor and author William Massy at the Southern New Hampshire University about how to be Mission Centered, Market Smart, and Margin Conscious.

1. REENGINEERING THE UNIVERSITY:
HOW TO BE MISSION CENTERED, MARKET
SMART, AND MARGIN CONSCIOUS
William F. Massy
Professor Emeritus, Stanford University
Presentation at
Southern New Hampshire University
November 16, 2016

2. Overview
• Balancing Margin with Mission and Market
• Mission – The university’s ‘“Intrinsic’ Value Proposition”
• Market – The university’s “’Customer’ Value Proposition”
• Margin – Difference between program revenue and program cost
• Introduction to Reengineering
• Flaws in the “Academic Business Model” and portfolios of initiatives
• The New Scholarship of Teaching
• How to deliver more learning while containing cost
• Activity and Cost Models
• How to get critical data at the needed level of detail
• Ways to Achieve Better Budgeting
• How to build comprehensive and sustainable solutions
• Q & A

3. Balancing Margin with Mission and Market
Q: Why all the attention to margin? Why now?
A: Margin is a key variable for mission-centered universities,
but NOT because they should put money above academic values.
Margin data provide unique and important insights about:
• Where mission conflicts with market forces
• How choices in prior years reflect mission priorities
• How forward-looking choices can better reflect mission priorities
To see how this works, compare what happens, in steady state,
to (net) margins in not-for-profit universities to what happens in
for-profit ones.
• Not-for-profits: Positive margins are invested in
high-value activities that are losing money.
• For-profits: Positive margins are distributed to
shareholders
and money-losing programs are shut down.

4. The Two Results Stem from Different Business Models
Counter-intuitively, in not-for-profits,
negative margins imply high incremental value and conversely.
$0
R C
M
M
CR
Money
makers
Money
Losers
Not-for-profits
Maximize Value,
which requires, for each
program, that
Incremental Value
equals
Incremental Margin
,and, also, that the
Budget is Balanced.
For-profits
Maximize Profit,
which requires, for each
program, that
Incremental Revenue
equals
Incremental Cost
.
$0
R C
M
Money
makers
Money
losers
Poo
f
Unprofitable
programs are
soon eliminated

5. How Value Maximization Works: Budget Tableau and Value
Frontier after Maximizing MissionAttainment
The dots represent requests for funding, listed in priority order (up is better) with margin
on the horizontal axis. Green dots indicate requests that have been accepted. The curves
approximate “Incremental Value = Incremental Margin” for three budget limits.
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
(7,500) (6,500) (5,500) (4,500) (3,500) (2,500) (1,500) (500) 500 1,500 2,500 3,500
Rank
Margin ($000))
Source: Massy
2016, Fig. G-1
Better

6. Concluding Thoughts about Margins
• Without margin data for academic programs and
individual courses:
• Provosts, deans, and faculty can’t understand the true impact of
changing curricular requirements and course offerings, or adding,
resizing, or eliminating programs.
• They have insufficient perspective about the financial aspects of
course redesign.
• They can’t judge how well they have balanced mission with money
in the past or learn to do better in the future.
• But margin data by itself can be dangerous
• Increasing margins can become a goal in itself.
• Margins can blind decision makers to the quality of the school’s
teaching and scholarship.
• Therefore, in addition to margin, schools need detailed information
about production processes—especially as they affect quality.

7. Introduction to Reengineering:
Flaws in the “Academic Business Model”
These flaws stand in the way of “delivering better learning, consistently,
at scale, at affordable cost”
Weak understanding of
the “teaching production
function”
Over-decentralization of
teaching activity
Lack of good learning
metrics
Dissociation of
educational quality from
teaching cost
?

8. Building Blocks for Portfolios of Initiatives
Evolu onary Discon nuous Disrup ve
Type of Change
Faculty
members
Departments
Central
administra on
FocusofInvolvement
Schools
Organized Con nuous
Imrpovement
Teaching
Improvement Funds
& Support Units
Course Redesign
Departmentally Oriented
Ac vity & Cost Models
IInnova ons by Individual Faculty Members
School-level
comprehensive budget
support models
Central-level
comprehensive budget
support models
Centrally Oriented
Ac vity & Cost Models
Redesign of teaching; Activity & cost analysis; Better budgeting

9. The New Scholarship of Teaching
Learning science
Service science
Systems
thinking
Departmental
Teaching
Improvement
Portfolios
Generally Accepted
Learning
Assessment
Principles
“Kaizen”:
continuous
improvement
Academic
Quality
Work
Course Redesign
On-line
learning
objects

10. Course Redesign
Course redesign shows that faculty can improve teaching quality while
containing cost when they have the right tools and are motivated to do so.
Faculty teams address the important elements of teaching
productivity: course content, teaching processes, quality of
learning, resource utilization, and cost—including:
When well done, the result almost always is
improved learning at lower cost.
Faculty
teams
• Learning objectives and metrics
• Use of technology and the “New scholarship of
Teaching”
• Resource utilization and cost analysis spreadsheets
• Calls on outside expertise where necessary

11. Activity and Cost Models
ItturnsoutthatEnhancedActivity Based
Costing(E-ABC)candothejob.
• E-ABCaddsastructuralmodelofteaching
productiontocourse-basedABC.
• Theresultisa“DecisionSupportModel”
(DSM)foracademicdecisionmaking.
• MostU.S.schoolsalreadyhavemostofthe
dataneededtobuildthemodel.
• Themodelhasbeenimplementedatadozen
Australianunis,attheUniversityofCalifornia–
Riverside,andatanumberofotherschools.
Howcanwemakethekeyvariablesfromcourse
redesignavailableforallcourses,allthetime?
Help
improve
course &
curricular
designs
Help
determine
which courses
to offer
Help understand
the effects of
enrollment
changes
Inform
conversations
about budgets
Report activity,
cost & revenue
data on courses &
degree programs
Stimulate
faculty work
on learning
metrics
Enhanced
ABC
Enhanced ABC provides the data needed to contain cost without sacrificing
quality. It also can provide the “dislodging stimulus” needed to motivate
education quality work.

12. Outputs from Enhanced ABC
Activity Variables Cost & Revenue Variables
Delivery mode (e.g., F2F, on-line, hybrid)
and types of sections
Direct costs of teaching: total, per section,
per student, per credit hour
Student headcount: in-state/out-of-state;
student level (LD, UD, GR)
Direct revenue (e.g., tuition & fees): total,
per section, per student, per credit hour
Numbers of primary and secondary
sections, by type (e.g. lectures, labs)
Gross margin generated: total, per section,
per student, per credit hour
Average class size by section type, and
groupings of sections by size category
Full costs (i.e., including allocated overhead)
and net margins
Personnel hours used, by kind of activity
and teacher type
Costs, revenues, and gross margins for
degree and certificate programs
Percent of room capacity utilized Incremental direct costs for adding a certain
number of students
Quality-Related Variables (Not available in Version 1.0, but with a clear development path.)
Student attrition, grades and/or pass rates
in this course and downstream
Faculty-generated learning measures as
they become available
All results pertain to individual courses, with rollup available to higher organizational units.

13. Transaction data are brought together
to produce a comprehensive model
using Pilbara Group’s E-ABC
technology or equivalent.
Queries of department chairs supply
data on the ratios of un-timetabled
activities to timetabled ones, plus an
overall faculty time distribution
Enhanced ABC was not feasible until the advent of on-
line timetabling and other system improvements.
• Timetabling
• Student registration
• General ledger
• Human resources
• Facilities management systems
• Class preparation, etc. to teacher
contact time
• Grading, etc., to class sizes
• Ratio of teaching to research effort
• Administration and other fixed effort
How These Outputs
Are Produced
Development
opportunities for
modeling on-line
course activities

14. Some Problems Identifiable from Activity Data
• Class Sizes that are too large: can degrade quality
• Class Sizes that are too small: excessive numbers of small
courses limit capacity
• Overuse of Adjunct Faculty: can degrade quality
• Course Completion Rates: failure to complete a course
delays graduation and increases cost
• Effects of Enrollment Change: often drive the above
• Curricular Complexity: increases cost and time to degree
• Faculty Course Load: uncontrolled variations can reduce
instructional capacity, increase costs, or degrade quality
• Few courses with unconventional configurations: may
suggest a lack of attention to innovation
Resource scarcity makes these problems more acute.

15. Ways to Achieve Better Budgeting
Envisioning
Information
Strategic
Finance
Enlightened
Allocation
• Dashboards for activities and people,
mission attainment, market performance,
and financial results
• Separation of history, current, and forecast
(>3 years) periods; proper identification of
controllable and uncontrollable variables
• Financial sustainability: attention to growth
rates and hidden liabilities
• Management of financial and operating risk
• Coherent and complete processes: e.g., all
funds budgeting
• Separation of tuition and allocation
decisions -> preset budget limits
• Allocation processes that consider both
mission and margin (as described earlier)

16. For further information, see William F. Massy,
Reengineering the University: How to Be Mission Centered,
Market Smart, and Margin Conscious (The Johns Hopkins
University Press, 2016).