MOOCs and University Managment Troubles

If you're an investor in educational services and are following MOOCmania in the newspapers or in the mind of the technopublicist Thomas Friedman, you may or may not buy their overblown educational claims, and you wouldn't see immediately how they are going to make money.  On the other hand, you might think, they can't be worse at making money than existing universities.

A quick tour of the horizon would show this investor major problems with the university's "traditional business model."

Policy paralysis: Public universities are never independent of state politicians, and none of the latter want to reverse huge, long term spending cuts even as it gradually dawns on them that the alleged cures for past cuts, namely tuition hikes, are worse than the disease.  Academic managers and politicians have jointly entered the phase that the prominent management guru Jim Collins calls "grasping for salvation."  Real budgetary and fiscal problems, you might assume while wearing your investor hat, will not be solved.

Flat revenue sources: Readers of reports by Moody's and other services will learn that all traditional revenues are under pressure, both on the private side, meaning especially tuition increases and endowment growth, and on the public side, particularly state appropriations and financial aid.  California's Jerry Brown is typical in insisting on continuing austerity.

Unconfronted major costs. You may or may not have followed senior manager plans to merge payroll systems or to securitize parking lot revenues, but you will note at least two major expenditures that senior managers have not addressed

• Administrative bloat. UC budget watchdog Charles Schwartz has just updated his previous study to show that administrative personnel have continued to outgrow academic staff during the crisis (chart above). He estimates the cost of "excess" administrative growth at about $1 billion per year. UC itself has classified 74 percent of its personnel, including medical center personnel, as non-instructional administration.
• Unreimbursed research costs.  UCOP's Office of Research estimated that in one recent year when UC had $3.5 Billion in gross revenues, it netted negative $720 million on this research.  The National Science Foundation, though it has long benefited from university subsidies of the costs it does not cover, confirmed the pattern that on average research universities put at least 20 cents of "institutional funds" into research funding for every extramural dollar they receive (page 16). You may remark, as an investor, that nothing meaningful is being done to address recommendations that research not be cut back, but fully funded.
• Politicized allocation of insructional resources.  Inside Higher Ed suddenly published a piece on UC "rebenching" today--with data apparently from the Delta Project showing, for example, UCLA students getting twice the per capita allocation as students at UCSC.  I've discussed the State Auditor's version of these findings, but even to an outsider they might suggest that instructional money follows the path of clout and prestige rather than of instructional need.  As an investor, you might wonder about the future of a central administration that lets a Santa Cruz student get half in instructional money of what she pays in tuition (actually less than that). You might conclude that on a per-dollar basis a MOOC could do quite a bit better.

The obvious advantage of online education is that it can replace administrative systems with temporary production staff,  conduct no research, and equalize teaching resources.  Online can freeride on research universities, at least as long as they last. But it can also dump the costs of "mission creep" that have created an overwhelmingly complicated system.

Online ed won't solve any of higher education's problems, either educational or budgetary. But in your investor role, it only takes a few minutes to see why you might bet on them instead of on public universities.