Is outsourcing right for you? from IT to food service, outsourcing can be a viable means for IHEs to provide services and save money

University Business, Feb, 2005 by Jean Marie Angelo

The basic rationale for a college or university to outsource to a vendor could be summed up this way: I can't do this, others can, I think I'll let them.

The reason for outsourcing food services, maintenance, bookstore management, some IT functions, or any other needed campus service is driven by dollars and sense, so to speak. It is common for higher education institutions to decide that it is simply more economical or more productive to bring in an outside vendor to handle nonacademic tasks than it is to hire and train in-house staff.

"I ascribe to Peter Druker's business philosophy," says Gregg Lassen, CFO at the University of Southern Mississippi. Management guru Druker was known for telling businesses to focus on their core strengths. In a higher ed setting those would be research, instruction, and service, says Lassen. Cooking is not on the list.

In mid-2004, Lassen was part of the team that brought Aramark's dining services to USM, along with the Barnes & Noble franchise, which now manages the bookstore. Prior to last year, USM staff managed these operations. The move to outsourcing is part of the overall redevelopment of the campus, adds Lassen. USM is currently constructing a new student union that will include a campus retail area. Aramark and Barnes & Noble are the two anchor tenants. "We needed to provide a 'wow' factor," he explains, referring to the retail area that is expected to draw not only students and staff, but residents in greater Hattiesburg.

Aramark has already upgraded the dining facilities with new design. Barnes & Noble, also in operation, will eventually become a two-story outlet in the new building. While Lassen will not reveal the financial details of the agreements, he says that both outsourcing agreements are saving money for USM.

Outsourcing has taken on negative connotations during the past few years due mainly to the term being associated with corporations outsourcing jobs to foreign countries. Outsourcing has come to mean "offshoring" to many people because of the issue over companies using cheaper Labor from such countries as India, which especially has been singled out for handling call center and Support positions for U.S. companies. Outsourcing in higher education bears no resemblance to this. Further, outsourcing is nothing new to higher education.

Temple University (Pa.) has outsourced a portion of its IT work to SCT, now SunGard SCT, since 1977. (The contract was most recently renewed in November 2004.) Specifically, SunGard SCT manages Temple's mainframe computer and data center, much of which runs on legacy systems. "It is a 24/7 operation," says Tim O'Rourke, vice president for computer and information services, who adds that SunGard SCT, which is based Malvern, Pa., employs 37 IT professionals to work on the Temple campus. These outsourced employees run daily reports, manage accounts payable, and handle payroll reporting. The arrangement assures O'Rourke that key functions will be completed, while freeing him from worrying about HR issues. "If someone critical is sick, it is SCT's responsibility to fill that position. Otherwise, I would have to find other resources."

O'Rourke estimates that Temple pays several million per year to SCT; the university is responsible for buying equipment.

More recently, Temple has outsourced some telecommunications functions to Verizon. "Cost is a major factor in any outsourcing decision," he says, declining to give specifics about that arrangement. He adds that bringing expertise to campus is another important criteria. Bottom line, says O'Rourke, is the realization that the money spent on outsourcing will "buy" a team that can do the job more efficiently than an in-house team.

This is because a vendor will often pay a professional a higher salary than a college or university can afford. Vendors can make this affordable by dividing an employee's time across various campus projects, or between different institutions. SunGard SGT might pay a database administrator--a very in-demand job that does not need to be done on-site--an annual salary of $70,000 to $90,000, whereas a higher education institution might start a professional at $50,000, estimates Mike Macos, the company's vice president of outsourcing and hosting.

New Trends Emerging

On the surface, outsourcing in higher education really doesn't took much different than it did a decade ago, says Ronald Phipps, senior associate for the Washington, D.C.-based Institute for Higher Education Policy, a nonprofit think tank. The services that have most Likely been outsourced by higher education have not changed much over time. These include food service, bookstore management, and facilities, he says.

But a closer Look reveals some hints of change.

According to a study supported by UNICCO, a Houston-based facilities maintenance firm, and presented in a white paper by the Institute for Higher Education Policy, 91 percent of higher education institutions surveyed in 2002 outsourced some type of campus service. This was up from 82 percent in 2000.