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What Academia Can Learn From Business

[Reposting from an earlier internal blog]

An academic colleague once said to me that “universities need to become more like a business.” At the time, I didn’t really get what he meant. Certainly in the coffee rooms and corridors (indeed, often in formal settings too) there seems to be increasing concern amongst academics that we are being pushed that way — we see increasing emphasis on “students as customers”, increasing pressure to be more competitive, and more frequent references to management, performance, and financial responsibility.

As it turns out, that particular fellow had no idea what he was talking about. I don’t believe he was wrong, it was just that he didn’t really understand good business. Having only recently dabbled in the business domain, I won’t claim exceptional expertise, but I present here three ways in which Universities might learn from good business practice, and along the way highlight some common misunderstandings that we might think “being more like a business” might entail.

Let me first clarify what I mean by “a business”. Many people associate that word with BIG business, which refers to plc – public limited company. Going public takes a company to a whole new level – the company becomes owned by a large number of people, which can change hands as shares are traded. The money raised by selling shares to the general public is used to grow the company, and investors expect a return. This is the kind of company that another colleague was referring to when she complained that “businesses only care about profitability for their shareholders.”

In fact most businesses (99.9%) in the UK are SMEs (small and medium sized enterprises, defined as <250 employees), and they employ nearly 60% of the workforce in the UK (so many of our students will end up in an SME). Almost 50% of UK turnover is in SMEs. SMEs are typically privately owned by people who are out to make a living rather than make a fortune. NGOs and charities are also businesses — they report to companies house, the don’t make a profit but they can make a “surplus”, and they certainly have to bring in at least as much as they spend.

So what it means to “be like a business” is not clear. If it means being financially viable, meeting high standards of professionalism and paying more attention to the people we serve (the taxpayers and the students), then I have no objection to being more like a business.

Creative Commons photo courtesy flickr user 401K.

So, here are three things for academia to learn from business….

The Bottom Line is Not the Bottom Line

One easy mistake is to think that “being like a business” means “focus on the money”.

It’s easy to become obsessed with the bottom line, and start to drive out loss making activities and keep the profitable ones. In fact I would argue that it is a mistake for any business to take such an approach… in isolation.

Of course it is important to know which elements of a business are loss making or profitable, but it’s equally important to evaluate that profit or loss in terms of value to the business, both now and within a plan for the future. The “loss leader” is a well-known expression for the strategy of losing on one area to benefit somewhere else. Large scale examples can be found everywhere: Microsoft sells the Xbox hardware at a loss. Why? To make more money on the games. When Google acquired YouTube in 2009 they proceeded to lose $450m each year on it. Why? Because they wanted the Internet traffic that YouTube was generating and it was part of their larger strategy of dominating web content.

Any good business knows that to plan for future success requires “investment”, which by definition means short term loss for long term gain. This must be within a plan, and driven by a vision. As academics, we don’t experience this kind of approach first hand. We consider research grants as “payment for services” and core funding as “money well spent”. We don’t tend to think of these as investments.

So, the first thing I think we can learn is to concentrate on “value for money”, not “money as value”.

So What is the Value (for Money)?

Working out the value of something is very difficult. This is not the cost nor the price — cost can be calculated with some precision and price is defined by the market. But value, is inherently subjective and difficult to quantify or even qualify.

I believe that academics need to learn to think about “value” and understand what it means for us. Successful businesses invest plenty of time and energy thinking about value — in terms of the company, in terms of the services or commodities supplied, and in terms of the customer’s sense of what is valuable to them.

Academia has, in my opinion, failed to communicate its value to the wider world. We tend to balk at the idea that a university is a place simply to prepare people for employment. We get upset at the idea that we are merely feeding the knowledge economy through intellectual property, spin out companies and fundamental research. But these are the things that many people (especially politicians) think are valuable about universities. We have failed to communicate effectively that independent, blue skies thinking is valuable in more than simple economic terms — that thinking creatively, critically and “out of the box”, adds intrinsic value to the well-being of society (in it’s broadest terms), as well as all that other stuff. While we were waiting for everyone else to see this (we think it is so obvious that surely everyone can see it!) we let the politicians take the lead — they placed it firmly in terms of economic growth and prosperity, and now we are stuck with “impact” around our necks.

If we thought a little more like a business, we would be making a much greater effort to think through our value (and our values) and to express that in terms that other people can understand — taxpayers, students, politicians.

Knowledge for knowledge sake” is a faith dogma — it’s not evidence-based nor even rationally based and is very difficult to justify. We have to do better than that.

The Customer is Not Always Right

It is claimed that Henry Ford once said, “If I’d asked people what they wanted, they’d have said a faster horse.”

I often hear colleagues getting worried that as students start to pay higher fees and we have to think of them as our “customers”, our teaching (style and content) will be directed by popularity or student expectation[1]. There is no good reason to assume that. Good businesses listen to their customers, and take heed to what they say, but they don’t let the customers make the decisions[2]. Steve Jobs didn’t get his idea for the iPad from customers. He thought it up because “he wanted one”. And Anita Roddick didn’t create the Body Shop simply because she pandered to what she thought the customers wanted it, she did it because she believed in it[3].

It’s a common fallacy to think that successful businesses are steered by their customers. Likewise it would be daft to think that universities should simply pander to the wishes of students. Besides, I would argue  that students are clients, not customers.  Knowledge is not “consumed” in a university. We, the professionals, offer a service that allows students to learn, not consume.  In a professional service business, you would not expect the client to tell the professional how to do their job. They may have valuable comments about the manner in which the service is delivered, but until they have gone and used their education, a student is in no position to know whether it was an effective service or not.

However, whatever you wish to label them, you have to be able to do two things for students: offer something that they would clearly get something from (and spread the word to other students), or, to be able to communicate to them the value of what they are learning and why. Why should they study that particular topic in that particular way? We need to articulate and communicate that value and build some trust — that is the way to a successful learning experience.

To conclude: I don’t think universities should be more like a business – we are a business. We shouldn’t shy away from that fact, but instead we need to understand exactly what our business is, and to effectively communicate the value of that business to outside the academy.

Links:

Top Ten Issues Facing Higher Education Institutions, a Deloitte Report.

Alain de Botton on Higher Education.


[1] For those of you worried about students as paying customers, take note: Bologna University, the oldest university in Europe, began as a group of young lawyers who employed experienced experts in the law to teach them. The idea of students “employing” the teachers is not a new one!

[2] Actually that is not always true. There was one famous case of Coca Cola in 1985. Worried that Pepsi was taking a hold of the market because it typically won on blind taste tests with the public, Coca Cola changed their recipe. Horror! There was a major outcry from Coke fans, sales plummeted and Coca Cola eventually had to backtrack to their “classic” taste. Don’t always assume customers know what they want.

[3] I will accept that you can always be sceptical about anything a business says, but it is interesting to note this from the Body Shop website: “Businesses have the power to do good. That’s why The Body Shop’s Mission Statement opens with the overriding commitment, ‘To dedicate our business to the pursuit of social and environmental change.’ We use our stores and our products to help communicate human rights and environmental issues.” What do we use Universities for?

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7 comments on “What Academia Can Learn From Business

  1. alanmccolm
    November 10, 2012

    Perhaps there should be more emphasis on ‘performance’ and relevant indicators of high performance, than money…

    Also, a reluctance to accept the ‘relationship’ with (being a) business, may result in missing the opportunity to benefit from good and relevant business ‘discipline’ and thinking. I have some experience of academics choosing to avoid (or worse, reject) clear, beneficial thinking and ideas, simply because they have an association with business…. sad!

  2. matthiasfeist
    January 7, 2013

    Reblogged this on What I've learnt recently… and commented:
    Thoughtful blog post by @fortiain, so I thought it’s worth sharing.

  3. Torsten Reimer
    January 7, 2013

    In some way I agree with your argument – certainly with regards to the general issue about understanding and articulating value. However, I am not sure I am convinced by the business argument (certainly not from the point of view of marketing this to academics).

    At 1) you make the argument that “being like a business” should not first of all be associated with “focus on the money”. I am not sure your examples prove that. After all, the investments you cite have been made to eventually create an even larger profit somewhere else. Just because you invest to make money does not change that you are in it to make money. Whatever charitable or other motivation owners of businesses may have it is about creating profit. Otherwise they would run a charity.

    Now, the point about thinking in terms of investing and value is not wrong because of that, but if you get at this using the business language you are going to lose some of the academic audience. Is the argument really better when clad into the current rhetoric of being more like a business?

    Now, value, your 2) point is of crucial importance and a very interesting case. When value comes up in a business context it tends to be associated with financial value. However, academia is after economic and social value. Admittedly, academia needs to be a lot better at expressing that. Our organisation now works with economists to be able to do that, but it is not easy. Describing this in a business context instead of the overall economy or society again risks losing the audience without, to me, adding anything significant.

    So personally I would move away from financial and business to social and economic value. This would also be the language government bodies would speak when considering how to invest in or regulate academia. In order to drive this along we would need less general business rhetoric and more concrete advice on how to soundly define and communicate value.

    • fortiain
      January 7, 2013

      Thanks for that comment, Torsten.
      Maybe if I rewrote the blog, I would write it slightly differently. Certainly, my emphasis on “value” is not just about money-value (that’s why i put it in quotation marks). Note that its Harvard Business School that has been promoting the Triple Bottom Line for businesses — social and environmental, as well as financial. Universities (in UK at least) need to catch up, IMHO.
      I would disagree with your view on what “business” is, however. “Profit” is merely term for what is left after you add up what you spend and what you brought in. No healthy charity, including universities, can survive for long if they spend more than they earn. It is just a technicality that charities call this “surplus”. Every organisation has to aim to be “in the black”. And what do all these organisations spend their surplus on? Well, whatever it is that they think is valuable to what it is they do.
      I think you risk fuelling a false distinction between businesses and universities — there is a difference, but its not as great as is often portrayed. I think it is particularly problematic when academics cast a picture of “business” as simply being “for profit”, as if that were the only reason that people start, or run, businesses. It is one reason, but there can be many. For instance, my mother ran a local bookstore for most of her working life — she would have made more money doing something else. My wife works in a small architecture practice — they have a passion for beautiful buildings. Not much profit in that either.
      I am very happy to acknowledge that academia can learn a thing or two from business.

      • Torsten Reimer
        January 7, 2013

        There are two reasons why I am not convinced that bringing business into the debate helps very much. It introduces confusion and it is not necessary, in my opinion.

        You don’t need to refer to businesses if you want to analyse and communicate economic and social value – in an academic context that works much better looking at charities and how they do it. There are established economic analysis methods that can help getting solid figures that will be accepted by government analysts. They also give the materials needed to get media and public attention. Business and for profit does not need to come in there at all, it is not necessary.

        If you bring “business” in you first have to educate people about the difference between financial, economic and social value, and you have to start blog posts with a preface that you don’t mean “big” business when you speak about lessons from business. I am just not sure what it adds.

        Now, I don’t want to demonise business. There are all sorts of reasons that get someone into a business and some ventures, including ones I have been involved with, are just meant to make enough money to be able to continue the work. That’s fine and in some cases the difference to a charity may not be that big. However, if you only cite really small, family run, less successful businesses were making a profit is about as important as it would be for a charity then you limit the discussion to only a section of business: “What academia can learn from small, mostly family owned businesses that are not creating much profit” does make for a less catchy title, and it adds to the confusion on terminology (see above).

        Also, I am not sure how much academia can learn from such smaller SMEs, like the book shop example you cite. Do they know how to analyse the social value they generate? What expertise do they have in economic valuation? Are they good communication on an international level, with senior stakeholders? Can they also function as business that turn over dozens or hundreds of millions a year? That is what universities need to do.

        I am not arguing against the last sentence of your comment, I’d just look for other examples.

        (I do work for a charity that supports higher and further education to be more innovative,btw, and one of my most recent projects was on the use of economic valuation to help with that.)

  4. fortiain
    January 7, 2013

    Ah, well, here I agree with you. 🙂

    My post was originally in response to foolhardy academics saying “we must be more like business”. My starting point was someone else making comparisons to business, and me offering ideas of why there are bad things to learn from business, but there are also good things we can learn from business.
    Successful businesses (big or small) do some things really well, and often not in the way that academics seem to think. It is not a requirement to refer to business to “analyse and communicate economic and social value”, that I agree. The blog post, however, was exactly about the good things that can be learnt from business, if we chose to recognise it. I agree that in the wider debate on the value of universities I wouldn’t start from here (as the old joke goes). If there are existing models to do that, then lets look at them — whether from businesses big or small, or charities.

    Running a business is not just about making money — and small enterprises can become big companies.

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