The Business of Running A Large Public Research University.
October 15, 2003
Thank you for your welcome and for the invitation to talk with you. It is a pleasure to be here.
I have been asked to address the topic "the business of running a large public Research University."
This is a topic I could talk about for a long time.
In many respects, a large public research university like Oregon State University is a major business.
As some of you may know, I spent 33 years at Ohio State starting as a faculty member and ending up as Executive Vice President and Provost. So I've had a lot of experience dealing with faculty and academic issues, and overseeing the inner workings of a University's teaching and research and service enterprises and their budgets.
And I am a passionate believer, by experience and personal conviction, in the mission of the Land Grant University. So there is a lot I could say on that side of the equation as well.
In the time we have together I'll try to touch on some of the business aspects of Oregon State, because it truly is a large and complex undertaking. My main focus, however, will be on the things that make a major public research university unique, not only among educational institutions but among human enterprises generally.
And, of course, I'll talk about some attributes that make OSU special.
As you know from your own experience, OSU is an enormous business enterprise.
In fiscal year 2003, our total revenue exceeded $580 million dollars.
We have six and a half million square feet of space in which we conduct our business.
In addition to the main campus, we have an innovative branch campus in Central Oregon, 40 Extension Service offices, 14 Agriculture Experiment Stations, and 7 Research and Extension Centers.
We own a football stadium, a research library, a nuclear reactor and several supercomputers - we're one of the most powerful academic computing centers in the nation - and several oceangoing research vessels. We own student residence halls and dining facilities. We own pianos, stage costumes, and a performing arts hall. So we're pretty diverse in our activities.
We're a growing business too. With the enrollment of 4,000 new students and our new president in this year's freshman class, Oregon State University enrollment rose to 18,900.
Enrollment has increased by almost 40% since 1996. And the GPA of incoming students continues to rise. Our research funding is up. Gifts to the Oregon State University Foundation continue to increase.
We have over 2900 faculty members. And the racial and cultural diversity of our faculty and student body continue to improve.
We have a direct customer base - total alumni - that exceeds 130,000. If you count people served by our extension programs, or reliant on our research, or involved with us internationally, the number grows into the millions.
Obviously, I could continue this list at some length, but this will suffice to establish the extraordinary scale of the enterprise. Ultimately, two things really set a public research University apart as a business: the first is our primary "product" graduates. What we produce is in many respects intangible - it's a man or woman prepared for success in future endeavors, and prepared to contribute in many ways to family, society, business and community. Defining this product and measuring "value-added" is not an easy challenge, as you know, but it is the core of the enterprise.
The second distinctive factor is the variety of our funding sources - it is far more complex than any typical business entity.
Even when a funding source appears to be simple, it's not. For instance, student tuition and fees provide 18.6% (FY03) of our total revenue. This is income from the "sale" of our educational services. This may sound straightforward from a revenue standpoint until you start, as an institution, addressing the question of how to use available financial and resources from tuition to ensure access and attract well prepared students.
Likewise government appropriations, 24% of our revenue, bring an entire set of governmental expectations and criteria for the use of funds.
A critical issue for us at OSU is state funding. In the last biennium, student tuition covered 50% of the cost of education. In this biennium, it will be 62% of the cost of education. That's a huge shift in our sources of revenue.
This pattern can't continue if OSU is going to offer access, as it has in the past, to the full spectrum of qualified students. We are pricing worthy but economically disadvantaged students out of the market, or burdening them with unprecedented debt levels.
This is a crucial issue for this nation too. The educational testing service recently published a study of the nation's 146 most selective colleges and universities. These are the places hardest to get into, and therefore most expensive. And E.T.S. found that only 10% of the students at these institutions came from the bottom two economic quartiles in American society. Almost three-quarters of the students at these institutions came from the top economic 25% in terms of income per family.
So the public Universities' historic role, as places of educational access, is even more important today than in the past.
One last example from the revenue side. Gifts, grants and research contracts bring in about 34% of our revenue, plus another 3% of revenue in indirect cost recovery. Obviously, these dollars are critically important to Oregon State University's mission. But they also bring amazing financial complexity. We must abide by the tenets of Federal Research Accounting, and the terms of Private Grants and Research contracts. There is "fund accounting" for the dollars that come from the OSU Foundation. There are statutory regulations we have to meet, such as those in areas of research that use animals or human subjects in research. All these activities require extremely careful and detailed compliance procedures.
There are other differences as well, of course between public Universities and most businesses. A number of our employers have tenured faculty positions and others are state workers and are members of a union. Open record laws require public disclosure of all our decisions and processes. And so on.
This brief look at the business of the Public Research University brings us to the verb in the topic, the word "running".
This is where Public Research Universities truly become distinctive institutions. Unlike a multi-product corporation, a public research university is run by, and on behalf of, a countless number of people. It resembles a small city much more than a contemporary corporate structure.
As President I am, of course, responsible for the direction of this small city, and its progress forward. That's why my priority since arriving has been completing Oregon State University's strategic plan, a topic I'll talk about shortly.
Nevertheless, my 33 years in higher education gives me an appreciation for the irony of using the word "running" in conjunction with any one reason - even the President - in a public research University.
As a young economics professor I was fully persuaded that the faculty ran the University. And at OSU and elsewhere, the faculty does indeed have ultimate collective responsibility for the content and quality of the curriculum.
When I rose to department chair, it was of course apparent to me immediately that while the faculty might perceive they controlled the University, it was really department chairs who played the crucial role in organizing and managing the enterprise, and in shielding the faculty from the vagaries of the administration. Department chairs, clearly, were "running" the University.
Naturally, when I became Executive Vice President and Provost of Ohio State, it was perfectly clear to me that the Provost ran the institution on behalf of - and for the betterment of -those above and below.
I have not been a state legislator, or a member of the State Board of Higher Education. But it is evident that people in those roles often consider themselves as "running" the University. In our case, OSU is answerable to a system Chancellor and a Board of Higher Education.
Beyond this, there is a nearly infinite number of constituents and stakeholders. Alumni feel a special allegiance to their University and an engagement in its success. I am seeing this is particularly true of Oregon State University alumni. It extends far beyond the loyalty and involvement typical of a good customer. It's a genuine and enduring bond.
OSU also has a unique value relationship with its alumni that goes far beyond the annual gift, important as that is. We have a commitment to an interest in alumni success in every realm, because it affirms the quality of our work and we care about them as individuals. Likewise, alumni have a commitment to Oregon State University's growth and improvement, because is sustains and enhances the value of their degree and they have a genuine desire to give back.
I could, of course, go on to talk about the non-student constituents who rely on us: the 4-H youngsters -- 40% of whom are in urban areas, incidentally - or the many people with a stake in our cutting edge research, or our vital role in business development.
With this background, you can see why I am especially grateful for the suggestion that the President of OSU "runs" the enterprise. In fact, as I've suggested, a public research University is a shared enterprise unlike almost any other.
This mixture of shared governance, common interest, and diverse funding is a source of a University's great strength - its resiliency, and its institutional momentum, and its freedom of scholarship and inquiry. It is the source of the incredible opportunity the University provides to the ambitious learner of any age. It is the source of Oregon State University's ability to serve Oregon, the Northwest, the Nation, and the World.
Of course, there are costs of this way of doing business that are the source of what many people find frustrating about Universities - their resistance to change and ponderousness, there occasional self-righteousness, and their sheer overwhelming complexity.
The challenge and it has been a profound one for Universities in the modern era - is to maintain the fundamental aspects which make the University strong and valuable, while also reengineering its business practices to take full advantage of inherent strengths and available resources.
On this count, I can tell you that OSU is moving assiduously and expeditiously. Allow me to conclude my talk by looking at some of the ways OSU is reengineering the way it is running its business.
First, it's become more entrepreneurial, and it will continue in this direction. Last year, OSU faculty won $125 million in competitive grants and contracts. In fact, our faculty just won major grants for disability transportation and complementary medicine projects. This work has created valuable spin-offs and will continue to do so.
Revenue from marketing OSU intellectual property continues to move forward. It reached an all-time high last year at $1,250,000. We've got some catching up to do, but we're heading in the right direction.
OSU faculty has 36 invention disclosures in calendar year 2002, and 39 new license/option agreements. We are involved in research agreements and contracts with institutions and organizations in countries all over the world.
We just opened a hotel on campus through a partnership with Hilton. This gives OSU, with the Stewart Center and the CH2M Hill Alumni Center, one of the top ten University conference centers in the country. This means more revenue; it will also bring more people to campus and help spread the word about the many great things OSU is doing.
One of the most exciting projects to come out of the top 25 engineering initiative, and a great example of what is possible, is the micro-products breakthrough lab we just created through a collaboration with the Pacific Northwest National laboratories, the University of Oregon and Portland State University. Thanks to very timely help from Hewlett-Packard, we've been able to get this project up and running quickly, which is essential if you are going to catch the crest of an emerging technology. The potential here is extraordinary.
Let me just note, with my economist's hat on, that the micro-products program is really distinctive, because it is at the leading edge of an entire new field. This is where the transformational opportunities lie. There are no guarantees, or course, but history suggests it makes a lot more sense to invest in a sector where you can seize leadership than to spend your resources trying to compete in a sector where other communities and regions have a substantial head start. So I think the University is being very astute here, on its own behalf and also for the region.
Second, like all great business enterprises OSU is increasingly setting benchmarks.
In engineering, for example, the University no longer talks about getting better, it says specifically that it is going to be ranked in the top 25 Engineering schools nationally. And there are specific targets every year, for a number of students and research funding and the rest. It's a very detailed plan. Already our Engineering enrollment has soared to 3,000 undergraduates and 500 graduate students. We rank 22nd in the nation for undergraduate enrollment. We've hired many new professors.
Of course, the new Kelley Engineering building is an enormous factor in this undertaking.
It's noteworthy that Oregon State University's engineering graduates have long ranked near the top of the entire nation in their performance on the National Engineering Exam. So the product has always been very, very good. And our Austin Entrepreneurship Program for undergraduates will combine the energies of both Engineering and Business on campus.
This is a 24/7 residential experience for undergraduates to incubate, start up and grow their own businesses.
Another change in how we do our business is the increase in collaborations and mergers and realignments. For instance, OSU faculty and college administrators came up with a plan to merge two colleges into one, creating the College of Health and Human Sciences. So we have been able to reduce overhead and apply it to the core enterprise. And even more importantly, we created opportunities for cross-disciplinary work, and faculty and student interactions, that will have profound impacts.
We also dispersed the Department of Entomology across the campus, engaging entomologists directly into Forestry and Agriculture and Human Health and other disciplines. On a University-wide basis, our capabilities and expertise in Entomology rank near the top for any University in the country.
Collaboration like this will continue to be an emphasis.
Finally, a large part of our future success rests on our strategic planning process.
I'm very fortunate to arrive at OSU after much hard work has been done, as reflected in OSU 2007 and the subsequent draft strategic plan, the University-wide effort to generate thinking and interaction about our future course.
The process engaged many people from campus and beyond. It is a testament to the resiliency and spirit of everyone associated with Oregon State. They did this work - and it's hard work - at a time of significant cuts in programs and staffing, and of great uncertainty. We now have a new draft of the strategic plan I hope you will review.
Strategic planning is something I have some experience with. I tend always to come back, when I think about strategic planning, to Will Rogers, who said, "it's not enough to be headed in the right direction. If you aren't going fast enough, you'll be run over from behind."
It's very clear OSU is headed in the right direction in the classroom, in the admissions office, over the internet with our distance education, in Central Oregon at the Cascades Campus, on the football field, in the Extension offices, and in countless other places.
We must serve to make sure we are headed in the right direction with the strategic plan. We've made some tough choices there, and we'll make some more tough choices before we're done.
My job - with help from everyone at OSU and everyone who cares about it -is to make sure we're not run down from behind because we're not moving fast enough!
In my University Day speech to the faculty on September 16th, I challenged all of us to complete our discussions and be ready to adopt a plan by the end of the first term this fall.
This is ambitious. We are going to do it, however.
The plan itself has a primary benchmark: OSU will become one of the top ten public Land Grant Universities in the country. That's the measure of success we've set.
The strategic plan has two attributes that I believe are crucial to the future of OSU as a public Land Grant Research University, and I want to touch on these before closing.
The first is the focus on interdisciplinary themes and enterprises.
We've broken away from the emphasis on isolated discrete improvements to really focus on enterprises of regional and global importance.
This is clearly reflected in the strategic plan. The plan addresses five key areas of endeavor for OSU. The first four of these are:
- Understanding the origin, dynamics, and sustainability of the earth and its resources.
- Optimizing enterprise, technological change, and innovation.
- Realizing the potential of the life sciences and the optimal delivery of public health.
- Managing natural resources that contribute to Oregon's quality of life, and growing and sustaining natural resource-based industries in the knowledge economy.
These are areas where we have the potential to rank among the best anywhere. These areas are also integrally tied to Oregon's future, and to the vitality of the entire region and our nation.
The last goal of the strategic plan is pivotal, in that it undergrids everything else.
- Building and maintaining a strong curriculum and basic inquiry in the arts and sciences that contributes to all parts of the University.
Achieving this goal will ensure we are providing the men and women who come to OSU - or who reach us from around the world - the kind of quality education that is essential for their future, and the future of our region and Nation.
It requires that we continue to raise Oregon State University's performance in every realm. We can do this. It will take everyone's help. And its purpose is to insure that our graduates, who are our most important contribution to the future, are able to compete against anyone, anywhere in the world.
I would ask you visit our web site and review the draft plan there. We need you input, and we are going to need your leadership and your help in the future.
I believe it is a good plan. It is ambitious. It is going to require that we continue making hard decisions, and that we win new resources and funding. I believe it will be accomplished, because I have seen already the incredible energy and spirit of the faculty, staff and students of OSU, its alumni, and the people who rely on the business of this great Public Research University.