A New Business Model for the University of Michigan

A New Business Model for the University of Michigan

July 16, 2012/Holland Sentinel

By Phil Power

When it comes to college presidents, Mary Sue Coleman is a rock star. Since she took over as the University of Michigan’s 13th chief in 2002, she has been on a tear, successfully guiding the school to ever-increasing stature through very difficult times.

U-M has risen in reputation to No. 18 in the entire world, according to the Times Higher Education World Reputation Rankings. At the same time, the budget of the Ann Arbor campus has risen to $5.8 billion and its endowment to $7.8 billion — second highest of any public university in the nation. But right now, Michigan’s soft-spoken leader is worried, very worried.

“Now is one of the most difficult times in history for great American public universities,” she told me. “Our old business model is unsustainable, and we’ve got to move  — gradually — to a new one.”

 Working with Provost Phil Hanlon, a former U-M mathematics professor, Coleman has been developing a two-pronged strategy for dealing with the university’s increasingly difficult problems, which include sharply reduced state support, rising tuition, ballooning student debt, reduced student accessibility, legislative hostility and an entirely new web-based technology for delivering education products.

 So how to make the new model work?

 • Prong One: Take out cost.

For more than a decade, the university gradually, remorselessly, has been tightening its belt. Over that period, U-M has taken $235 million in cost out of its general fund budget by reducing expenditures by as much as 2.25 percent per year.
 “We’ve been relentless,” says Hanlon. “By now everybody expects it. That’s the way you transform an organization.”

He’s quick to add that the total reduction just about equals what the inflationary rise in university expenses would have been over the period.

“We’ve done this without general layoffs,” explains Coleman. “In fact, during this period we’ve added 150 new faculty positions and reduced our overall student/faculty ratio. But we’ve also increased productivity, changed work rules, made changes in benefits.

“They’re a lot of little things, but year by year they have added up to changing the culture of the institution.”

But she adds that universities cannot be run top down, like a big corporation. “We’re a very complicated organism,” she says, “with many differing constituencies — students, faculty, staff, alumni — and many institutions of shared governance. You simply cannot walk into a room and lay down the law. You have to work with people.”

• Prong Two: Foster a revolution. The basic business model of most universities — a professor lecturing to students — is now at risk, thanks to new web-based technology. Coursera, a nonprofit joint venture between U-M, Princeton, the University of Pennsylvania and Stanford, is offering free online courses taught by world-famous professors.

Response to this revolutionary business model has been overwhelming: More than 100,000 students worldwide have taken courses already, and the total world market for “education for everyone” products is in the millions.

 U-M is at the forefront of all this, and is just now taping seven new online courses. “But we’ve gone way beyond just distributing teaching on a new platform,” Coleman said. “We’re involving our own students who answer questions and grade periodic tests on-line. That way, our students gain enormously in their understanding of the subject by teaching it, while at the same time earning some money.”

Provost Hanlon has been thinking about this change for some time. He calls it “immersive learning.”

When developed, this new education “business model” works like this: Students can learn the mechanical manipulations of, say, calculus, by listening to lectures, whether in person (old model) or online (new model).  But learning how to apply calculus techniques to real-life problems is something that demands close, back-and-forth interactions between student and teacher.

More often, this comes through small-group, practical discussions, much like the old “sections” that covered lecture material. It is through supervised immersion in use of the basic techniques that residential universities propose to add value and sustain their operations.

Of course, any new technology yields big questions. Suppose universities give out a certificate for successful completion of an on-line course. How much will it cost? What employers will accept it? Will families be willing to pay ever-higher tuition if on-line courses are offered free? Why should universities pay big money for brick-and-mortar facilities when they can distribute courses via the Internet?

And what, really, is the value-added for a traditional university, when so much material can be distributed online? Nobody knows the answers — yet. But those answers are bound to shake the foundations of the nation’s — and Michigan’s — university system.

For years, I’ve thought that the creating and sustaining great public universities has been one of the signature accomplishments of American society. In recent years, I’ve wondered whether our university system could survive all that’s been thrown at it. I now believe its continued survival will depend in part on patient, persistent efforts like those now underway in Ann Arbor.

— Phil Power is president of The Center for Michigan, a centrist “think-and-do” tank. Contact him at ppower@thecenterformichigan.net.