In Praise of Management

Some of the objections to proposed cuts at King’s College London and elsewhere take the line of opposing all managers in all ways. This is too simple: there is a world of difference between good and bad management, and between appropriate and inappropriate management.

It is important to separate the strands, not least because one of the main lines of argument deployed in recent years to control universities has been the “aspic” gambit, claiming that academics only oppose efficient management as practised by the private sector for selfish reasons. They therefore need to be taught a lesson and modern managers are ideal for the job of dragging them into the 21st century.

I would like to suggest here that many British universities diverge from the private sector in key ways which invalidates that argument: the current problems are arising not because university management is efficient, but because it is not.

To be precise: to identify university management with business is something of a slander on the private sector, to which real businessmen should object strongly. This does not mean universities should be run more like businesses, but rather that the conceit of pretending that the business model must be emulated should be abandoned as impractical and irrelevant.

Running any organisation well requires the utmost skill. I have written elsewhere in fulsome praise of the truly effective manager, and about how constructing and controlling a large organisation deserves to rank as one of the most difficult tasks the human mind can take on.

It requires an ability to look at detail and at the larger picture; being able to adjust to circumstance rather than sticking to a predetermined method. It requires an understanding of money and people and structures. It means knowing when to delegate, how far to delegate and when to intervene. It requires understanding the difference between consent and coercion. It means tailoring your methods and style to the particular nature of the organisation you are running. It is a subtle art as well as a demanding science.

Few people have the skills and temperament to do it well; those who do not only deserve high rewards, they will inevitably get them. There are not enough of such people around.

Alas, there seem to be few in UK universities.

Even in the corporate sector, such people are not trusted, however good they may be. Companies work within a system of checks and balances to monitor management performance and correct mistakes: it is not perfect by any means, but it works, enough of the time.

The Chief Executive answers to the board, which is led by a Chairman. The board, in turn, answers to the shareholders, who are (literally) invested in the health of the company but are distant from it. Share prices rise and fall to indicate esteem, and serve as an early warning of something going awry.

And if something does go wrong, punishment follows: the company shrinks in value, and becomes vulnerable to a takeover. Competitors grab market share. Profit dwindles. The chief executive can be thrown out; there may, in extreme circumstances, be a shareholder revolt. Even the possibility of such things keeps the management on their toes.

Few of these factors apply to universities. They do not make profits, so their performance cannot be easily monitored. There is a board, but no “invested outsiders” to keep an eye on things. There are no competitors in any real sense. And there is little scope for external rebellion to enforce a change if management proves inadequate.

The problem with importing managerial techniques into universities – and into the public sector generally – is that it has centralised authority along business lines, but has not at the same time imported the checks which monitor performance and the balances to control managerial power. The result has been conditions which are a gift to the mediocre.

Administrators in universities (and elsewhere in the public sphere) have exploited this, even when they are well-meaning. They have adopted the style, the language, the pay, but not the external disciplines, of the private sector.

This is, I believe, a source of the current problems at King’s College London, although it is far from being unique. King’s has attracted attention because of its efforts to dismiss academics, but many other institutions in the Higher Education sector show the same weaknesses, and some are worse.

Instead of the cautious approach, there seems to have been very little provision for the unexpected in the last few years: rather like the government itself, King’s seems to have been working on the belief that the uniquely favourable conditions of the past decade were both normal and permanent. As we now know, this was an unfortunate assumption to make.

In four areas specifically, King’s has adopted policies which call into question the quality of its management.

Firstly, there are the ballooning administrative costs. Normally, businesses expand in order to cut the ratio of fixed to variable costs and so become more efficient. Ordinarily you would expect administrative costs to fall in proportion to revenue as an organisation gets bigger.

Such things are carefully watched: every unnecessary pound spent on administration is a pound off profits at the end of the year. Private sector managers have a vested interest in keeping administration under control.

Universities do not, as they make no profit and are in a position to transfer money out of “core functions” (teaching and research) without making themselves vulnerable to more efficient competitors.

The result, at King’s and elsewhere, is that expansion in the last decade has been accompanied by a remarkable drop in administrative efficiency. This suggests weak cost controls, and a failure due to inadequate external sanctions.

As a rule of thumb, administration costs should rise at about half the rate of revenue increase; at King’s it has gone up twice as fast. Had it been more “businesslike,” rather than less, then administration costs in the past decade would have risen to around £22 million from about £16 million, rather than to the actual figure of £33.5 million, and the college would have had a safety net of around £11 million a year.

Secondly, there has been a heavy expansion of debt to fund an ambitious development programme. This is where “strategic vision” should be a reality rather than mere words designed to sound good. Expansion should be cautious, sustainable and do no damage to the overall health of the institution. Otherwise it is not a vision, it is a grandiose delusion.

According to the latest figures analysed by the THES, King’s now has total debts of £202.7 million, the second highest in the country. Relatively speaking it is not the worst: at debt-to-revenue of 41.7% there are a fair number of universities in a more parlous position.

King's is not going bust: it is in a position to transfer resources away from teaching and research to cover debt payments for ever, if it wishes. (A positive note: the debt was secured at fixed interest rates, which will be good if interest rates start to rise next year).

But debt is now higher than cash reserves, is high, and that is not at all good in a period of declining revenue and more uncertainty over government block grants. This is especially as an extra £60 million was taken on in 2008, when the outlines of the recession were already clear and cuts were becoming likely. This was the time to be paying down debt, not adding to it.

Were the development programme an investment in the commercial sense, it might be justifiable: spending more on plant and machinery (if done properly) shows up in lower unit costs, higher profits and increased revenue. It gives an advantage over competitors and so helps a company survive.

This is not the case with much of the King’s programme. While it is no doubt desirable to move into Somerset House, or build a sports centre for students, these do not increase revenue in the slightest.

Some programmes are intended to generate increased revenue by attractig more students or more research income, but this is now problematic: there is going to be less money for research in years to come, and the government has switched from encouraging universities to take on more students to fining those that do.

And if they do not generate extra revenue (the difference between a new corporate headquarters and a new factory) such programmes can only be justified if they cut overheads by more than their cost. Buying and fitting out Somerset House will probably cost up to £40 million; it would have to reduce net running costs (utilities and so on) by a minimum of least £3 million a year to be worth it financially. This is ambitious, to say the least.

Such programmes are more likely to be a burden on the balance sheet, transfer money to debt payments away from core functions, without offering matching efficiency gains. They are precisely the sort of expenditure which should be put on hold at the first sign of trouble, becasue whatever their long-term benefits, in the short term they squeeze the money available for teaching and research.

Had King’s not taken out extra loans in 2008, its debt payments would now be some £2.5 million lower. Had it been cautious and mothballed part of its development programme, permitting it to pay off some debt, they would be lower still.

More careful control over administration and a less expnasionist attitude together, in other words, could have resulted in fixed non-academic costs very much lower than they are at present, enough to cover a substantial portion of the cuts currently demanded by the government.

Of course reducing these areas to a more appropriate size now would be painful and unpleasant: there are now no easy solutions. An administrator or a construction worker losing his job is a sadness, as much as it is when an academic does.

But if they are to be compared to the private sector, they cannot be regarded as job creation schemes as well. The main duty of a private company is to protect its core activities – in this case teaching and research – not to sacrifice these to maintain an administrative structure.

The final elements of good business management are the way it handles personnel, and the way it guards its reputation. Both are intangible assets, but of vital importance in the service sector where there is no physical product to serve as the main point of comparison, and where there is a highly educated workforce, the best of which can move elsewhere.

In both of these areas, the management at King’s has made large and unnecessary errors. It is not always true that threats of strikes are ultimately the result of management failure (although it is frequently: people really do not like walking out of their jobs) but it is clearly the case here.

To present the proposed cuts without a parallel programme to trim unnecessary costs, and without giving reassurance that redundancies were the last resort, and without taking account of fears about academic freedom, was a serious error of judgement.

The management has proceeded in a way which was breath-takingly flat-footed. Either no-one saw the protests coming, which would be bad enough, or they thought they could be brushed aside, which would be worse. The effect has been disaffection within, protest without, and severe damage to reputation.

Add that to the other factors listed above, and the overall picture of management performance is not impressive.

The situation could be recovered, not least by the powers-that-be deciding to act as leaders, rather than masters. But that would take more acumen than they have shown up to now. The shareholders would be restless, if there were any.

-- Iain Pears