Archive for August, 2010
August 24th, 2010 by hlucas under The University in the Future. No Comments.
I am concerned that the economic model of the university is going to break. Can schools continue to raise the nominal tuition that fewer and fewer families can pay? If 90% of students need scholarships, then tuition raises do not accomplish much.
The biggest expenses for a university are salaries and energy. Looking for a 10% improvement in costs and/or productivity is not enough; we need to see dramatic changes in costs and productivity. I do not see where these are going to come from. The ideas below for reform might help, but they will not solve the fundamental problem that universities have too few resources to do their job.
We need to reign in athletics; football and basketball dominate academics. Universities should not be farm clubs for the NFL and NBA. Yes, athletics brings in funds, but it also requires a huge staff and expenditure to support sports. What message does it send when coaches make seven-figure salaries, salaries that dwarf the president’s wages? In most cases a booster club pays the salary, but the fact remains that the highest compensated employee of the university serves no academic function.
At the risk of alienating all the alumni, I have two proposals. First, a coach should not receive compensation higher than the 75th percentile of full professors in the university. Second, there should be no athletic scholarships. The Ivey League did away with them years ago and refused to participate in post-season bowl games as well. Of course, there is an industry of bowl games and schools make a lot from an appearance. But we are educational institutions, not sports franchises.
We cannot promote our fundamental goals of learning while graduating a small percentage of our athletes to whom we devote considerable tutoring and hand holding. Very few of these athletes become professionals so that schools are taking advantage of their physical skills without much concern about what happens to them after their last season.
How can faculty become more productive? Any of us could teach another course or two, though at some point you become so inundated that quality begins to suffer. Increasing course loads would help reduce costs, but that is only a temporary measure because there is a limit to how much one can teach. For the research university, there is always a tradeoff between developing new knowledge and teaching.
Why not increase class sizes? Is there a practical limit on class size? When the Internet first came along we all thought that it offered the opportunity for the best economist in the country to teach all intro econ courses, thousands of students at one time. Of course, that did not happen. Universities have long offered large lecture courses for introductory courses, often with a small discussion section lead by a graduate student. Large means hundreds, not thousands of students.
The only way to reach very large numbers of students is through a videotaped course, an Internet simulcast, or an online course that is asynchronous. Structured courses that do not feature a lot of discussion are the best candidates for these approaches. I believe that the future will see more online courses led by non tenure-track faculty, especially for subjects like statistics. A second approach being tried by some schools is a “hybrid” or “blended learning” model in which there are some physical class meetings and some portion of the class taught online. This hybrid has a lot of attractive features and I expect it to become the dominant mode of instruction for many subjects.
These approaches will help, but they will not solve the university productivity problem.
Faculty have long been criticized for the research they undertake. For people outside the field some topics seem to be irrelevant to much of anything and sometimes even silly. But who is to judge? What study might lead to a breakthrough? Research in medicine, physics, chemistry and engineering have all led to better lives for us all. The social sciences and humanities may help us solve some of the really important problems confronting the world like how to help countries to get along with each other, how to mount successful negotiations, and how to solve political problems. All in all, it would be nice to see a section in our academic articles that talks about the relevance of the work to the reader.
Closely tied to research is the issue of publications, especially those in peer-reviewed journals. For most research schools these are the keys to promotion and tenure. In my own field, information systems, it appears sometimes that the peer review process has broken down. It can take years to go through multiple revisions to satisfy anonymous reviewers and ultimately publish a paper. Reviewers take a long time to respond, and often ask for trivial changes that result in another revision and resubmission.
The New York Times (8/24/2010) reported on the Shakespeare Quarterly which posted four articles online and asked readers to comment on them. Forty-one people made over 350 comments and the editors reviewed and finally published the papers in the print journal. This crowd-sourcing of reviews offers an exciting alternative to the traditional, lengthy process. The next step is to get rid of the print journal entirely.
Research leads to the tenure question. I once asked at a lunch of academics why we did research, and the answer that came back was “to get tenure.” But one usually gets tenure after six years of teaching with a few exceptions at nine years. But that is a fraction of one’s career, so why continue? One reason is because you become used to doing research and you like it. Another reason is to keep your options open so that you can move at some point, and you want to maintain the respect of your peers as well.
Administrators can be pretty arbitrary. I worked under a dean once who would gladly have done away with my department and fired all of us because he did not like information systems as an academic discipline in a business school. The fact that we were tenured prevented him from doing more than merging the department with another one. As one pundit said to the prior dean: “deans come, deans go, but I stay.” So tenure protects the faculty form a short-term administrator’s arbitrary actions.
But tenure has a downside, those we call an abuse of the tenure system. If a faculty member is not doing research and not teaching very well, then there should be no guarantee of a lifetime job. We need a reasonable peer review process to withdraw tenure from the few faculty who stop contributing to the University. The faculty member should be given a year’s terminal appointment to move on to something or someplace else.
Universities are also in need of re-engineering their basic processes. We are undertaking such an effort in the Smith School; it is needed system-wide. There are huge inefficiencies in our business processes, some of which come from the fear of any kind of scandal (auditing expense reports in three locations as one example). Some inefficiencies come because a process has always been done a certain way, and others exist because no one has probably ever asked why the process is done this way. Re-engineering will save some money, but not enough.
Even if all the suggestions above were implemented, they would not solve the economic crisis facing higher education. We as a society are going to have to decide to what extent we want to invest in the future. Historically higher education leads to higher salaries and a more competitive, educated workforce. The US has fallen behind other countries on the percentage of eligible students enrolled in college. If this trend continues we will have trouble competing in a world economy that is becoming increasingly complex.
As a modest start I recommend that states or the federal government give every accredited, not-for-profit community college, college and university a fixed amount for every student graduated. Further, I recommend that every for-profit organization that hires a new college graduate remit an amount equal to 10% of the graduate’s first-year salary to the institutions that granted her degrees. If we really want to be creative, require each subsequent employer to pay 5% of the graduate’s starting salary to the schools where she obtained her degrees. Firms often pay recruiting agencies a fee; a little extra to support education would be a good investment for the country and the economy.
August 24th, 2010 by hlucas under Disruptive and Transformational Technologies. 9 Comments.
To me, one of the most exciting and at the same time frightening outcomes of the digital revolution is the extent to which it has been so disruptive and transformative to different business models. Many traditional organizations have suffered greatly from new competitors that take advantage of technology. Often these competitors start business with a clean slate and no legacy products or organizations. Some existing organizations have managed to adapt the technology and continue to prosper, but the number is small.
My interest in this phenomenon has led to a number of papers and a book which are listed below. One of the most exciting transformation studies is the Public Television Documentary the Smith School co-produced with Maryland Public Television. It debuted in the spring of 2008 and is available through University Microfilms. Individual chapters of the documentary may be found at www.rhsmith.umd.edu/transformationage.
The newspaper and recorded music industries have been dramatically impacted by technology while organizations like Kodak and the New York Stock Exchange are trying to re-invent themselves. Google and Amazon are relatively new firms that have demonstrated explosive growth using the Internet and other digital technologies. Apple has gone from a minor computer vendor to a powerhouse in entertainment with iTunes, the iPhone and now the iPad. Apple was able to redefine itself from a hardware vendor to a major content provider. Apple has amassed so much power that it scares the music industry while Amazon’s e-books initiative has thrown publishers into disarray.
What are the important questions the digital revolution raises for all of us?
- How can a manager predict that a new technology or a new application of existing technology will prove disruptive to her business model?
- Given the manager’s belief that a threat exists, how does she enlist the rest of the organization in meeting that threat? This is where Kodak experienced its biggest failure with digital photography.
- How do you meet the threat? Do you use technology to try and defend your existing business model, a la the New York Stock Exchange? Do you capitulate sooner and adapt to the technology? How?
- If your existing business model is not threatened, how do you find opportunities to apply new technologies to become more competitive, and/or offer better products and services? Think of the auto companies who are embedding digital technology in all aspects of their products from antilock brakes to smart cruise control to real-time traffic information combined with a GPS-based navigation system.
- How do you use technology to go beyond number 4 above and transform your own organization and industry? As an example close to home, how do we use information technology to redefine the University, improve the quality of instruction and get our costs under better control?
Transformational technology also raises questions for public policy:
1. Can we demonstrate that electronic medical records and physician order entry systems will reduce the cost of health care and increase the quality of care in the U.S.?
2. What organizational conditions are needed for IT to transform health care in the U.S., e.g. do physicians need to be on salary? Do we need to have a single payer system in place of multiple insurance companies and government programs?
3. How should the U.S. stimulus funds be allocated between fixed and mobile broadband? Is it more important to increase bandwidth or the scope and reach of broadband?
4. How should a power company design incentives so that customers will allow it to control their appliances over a smart power grid?
5. Can the implementation of e-mail, class web sites and social networking software improve communications among teachers, students and parents in underperforming schools? Can this technology bring about greater parental involvement with education?
6. What are the implications if print newspapers disappear and readers obtain all of the news from Internet news sites? Will the public be better or worse informed?
7. What is the likelihood that network television will disappear? Will cable and satellite systems become content producers while video transmission moves entirely to the Internet? What are the implications of such shifts for workers in the industries affected?
I argue that these are some of the most important questions about technology, yet few people appear to be addressing them. I hope this condition will change.
Some of my Research on Transformative and Disruptive Technologies
Co-producer and co-writer of the public television documentary The Transformation Age: Surviving a Technology Revolution with Robert X. Cringely, 2008 (shown on over 200 public television stations, winner of a Golden Eagle award)
Inside the Future: Surviving the Technology Revolution, Westport CT: Praeger, 2008
“The Defensive Use of IT in a Newly Vulnerable Market: The New York Stock Exchange, 1980-2007,” Journal of Strategic Information Systems, (March 2009), (with W. Oh and B. Weber)
“Disruptive Technology: How Kodak Missed the Digital Photography Revolution,” Journal of Strategic Information Systems, (March 2009) (with J.M. Goh)
“The Impact of E-Commerce on Competition in the Retail Brokerage Industry,” Information Systems Research, (December 2005), pp. 352-371(with Y. Bakos, W. Oh, G. Simon, S. Viswanathan, and B. Weber)
“The Information Systems Identity Crisis: Focusing on High-Visibility and High-Impact Research,” MIS Quarterly, Vol. 29, No. 3 (September 2005), pp. 381-398 (with R. Agarwal)
“The Global Impact of the Internet: Widening the Economic Gap Between Wealthy and Poor Nations?” Prometheus, Vol. 21, No. 1, 2003 (with R. Sylla).
August 20th, 2010 by hlucas under Business and the Economy. No Comments.
It is hard to find the words to express my disappointment with business leaders in the financial industry. Are we business school faculty partially responsible for the financial crisis of 2008 to the present? Did we fail to teach our students of twenty years ago that Adam Smith’s invisible hand assumed market participants had some sense of ethics? Have my colleagues in Finance Departments across the world created such arcane products of great mathematical complexity that buyers, sellers and regulators did not really understand the risks involved? How can a firm purposely create an investment instrument designed to fail and sell it to one of its customers so that a different customer could gain by betting against it? And an MBA graduate from a top business school is at the center of this scheme.
I have to wonder where boards of directors have been the last few years. They certainly have not been representing shareholders. Board members at banks and other financial institutions did not look very closely at the breakdown of underwriting standards for mortgages. How could they miss what was going on? It was documented in numerous news articles; I remember reading about a woman with a $30,000 a year income who was given a $300,000 mortgage. I predicted the mortgage market would crash, but not to the extent that it did, and not that it would bring down the economy with it. Did no one on Bank of America’s board realize what kind of losses the bank was taking on when it bought Merrill Lynch? Were boards at Lehman and Goldman Sacs comfortable with leverage ratios of 30 to 1? Or did they even know about them?
I was on the board of a manufacturing company for three years, and when there were no profits, there were no management bonuses. Yet on Wall Street it seems that whether or not the company makes a profit, and wether or not their actions destroy value for stockholders, people should still receive their bonuses. A friend who works in Finance in New York said that I did not understand these bonus agreements. That is true. I do understand that people who participated in almost starting a depression insisted on getting lavish bonuses while cities were laying off teachers. I have a hard time understanding that logic.
I have an old-fashioned view of banks. To me a bank is there to provide loans for individuals and business and to pay interest to individuals who have accounts there. Individuals need credit to purchase items they want to enjoy now rather than wait, items like houses and cars. Businesses need credit to finance their operations, to expand their business and to merge or acquire other businesses. No place in my model of a bank does it say the bank should gamble with the shareholder’s investment by betting on derivatives, foreign exchange, or other instruments. It is interesting that states regulate casino gambling, but no one before now thought about regulating financial institutions that were gambling billions of dollars.
Despite the financial crisis and the behaviors that created it, there are still people calling for less regulation of financial products and markets. I personally don’t like to be regulated, but as a consumer and investor I am more than a little afraid of leaving the financial industry on its own. Past and recent history have shown that these markets are not the perfectly efficient markets of economic theory.
My worry about regulation is whether or not the regulators can keep up with the people who are trying to evade them. Technology can help by providing information and computational power to a regulatory group charged with looking at the entire economy, not just one part. But how do you find out about a new, stealth derivative or other financial product that puts the economy at risk? The challenge is not just the products we know about, it is the ones that no one has dreamed up yet.