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Business Officer Magazine

Gates Urges Quest for Best Practices

Bill Gates, co-chair, Bill & Melinda Gates Foundation, shares his insights on issues that concern business officers.

At the NACUBO 2014 Annual Meeting in Seattle, Rolando Montoya, college provost for operations, Miami Dade College, Florida, interviewed Bill Gates, co-chair, Bill & Melinda Gates Foundation, based on questions submitted by attendees. Following is an edited version of the question-and-answer session. You can also read a synopsis of Gates's keynote address in the September issue of Business Officer.

What advice can you provide to institutions desiring to set strategic direction that improves the institution's relevance to future students, when the state and federal policy makers measure success based on more traditional outcomes, such as completion of a degree?

If we just say it's all about completion, then what we're going to do is simply make it easier to compete.

I agree that if you come in with just a few measures, it's going to be confusing. People try to offset that by taking longitudinal salary data, which I do think should be available and easy to browse, but that too has huge problems. If I were just going to take a school of education in Utah and one in New York—because of huge differences in teachers' salaries in these locations—you would make one school look brilliant, and the other one look awful because of their local labor market conditions. If you're in a very tough area, where the unemployment is particularly high, you'd look like you weren't doing well. So, all these really simple measures are very difficult.

I think it is important that we all stay in touch with anecdotal evidence as well as statistical evidence. The business strategists, including all of you at a university, can sit down with a group of incoming students and talk about their aspirations, or with a group of graduating students and ask them what they liked and what didn't work for them. Talk with a group of dropouts to find out what you could have done better for them. That's equally important, because statistics don't tell the whole story. The self-examination process is the way not to be surprised.

We know that the cost of higher education is rising faster than inflation. Why do you think that is, and how can it be stopped?

One thing that the public reads in articles is the nominal tuition rate, which is going up a lot, particularly at state institutions, for a variety of reasons. If the state support doesn't go up, then you've got to charge the student more, and that makes it look disproportional.

Also, if you want to do more tiering—get the upper middle class to pay more, but have a higher discount rate for the other students—then your nominal price will always go up, but your pricing pyramid means that you're not realizing that. There are only about 20 to 30 percent of students who are paying that higher tuition. So, it's important to educate people about the list price versus the actual cost of running the institutions.

Now, it is absolutely true that the cost of running the institution has gone up very dramatically. That to me is more of a black box. It should be possible to read about some exemplary institutions that measure their costs where they explain, for example, what they are doing with technology. If they had to put in a wireless campus, people can decide whether that's good or bad. People can look at the sports programs and see the subsidization. They can look at the non-tuition-related costs. The costs should be separate in the reporting so you can talk about the choices the institution has made.

For the support piece and the actual teaching piece, there aren't that many elements—the plant and the salaries­—and there should be some transparency. The book, Why Does College Cost So Much? [Oxford University Press, 2010], was able to show that white-collar salaries have gone up quite dramatically. However, people see that the number of professionals per student has gone up, and the number of professionals who aren't delivering classes or providing direct support to students has gone up.

Somebody's got to take this model and a dozen parameters. NACUBO is trying to do this through its Blank Slate project. But, I would not give the field a high grade for explaining the choices that went into these cost increases. There's a view that tenured teachers don't teach enough classes. Is that really the case? When you look at student outcomes, are the adjuncts less effective than the full-time professors? Is there even a rating system? Does the institution attempt to decide per teacher, per department, if there are any measures of excellence?

I'm used to private enterprise, where the CEO has a lot of unilateral authority to discontinue things, including jobs and areas of endeavor. Of course, the president of a university doesn't have that kind of authority. So, in a certain sense, documenting the challenge is more important because you have to get buy-in from the trustees and the legislature.

It's not only the perception from outside, but even those of us inside the organization find it difficult to understand the financial structure. And, sometimes, there are internal forces that are not too interested in change.

A good example is to look at the for-profit institutions—how much they spend on student supports, and how they have career measurement and feedback in their support systems—and compare it to the publics. The for-profits spend considerably more money on support.

The public institutions are facing budget cuts, whereas the private institutions are subject to a dropout constraint. The private institutions take a far more difficult cohort of students than 95 percent of the publics do. The book, College.Edu [Octameron Associates, 2008], says that some institutions understand how much their alumni give and how many went to the basketball game, but they don't really understand who didn't attend classes. In the for-profit area, if a student does not show up to attend a course within 10 minutes, the institution calls up the student and tries to figure out what's going on. The for-profit institutions hold the numbers out and contrast themselves with others all the time.

If you were a business officer at a college or university, in what areas would you concentrate your efforts for the next few years?

You have to decide what your differentiation is going to be. Are you going to scale your capacity? Is that within the realm of possibility or not? The hybrid online world—where the lectures are delivered online at flexible times, but the study sections and labs are still primarily face-to-face—eliminates the capacity constraint and the need for the person on your payroll to actually deliver that lecture.

Only 5 or 10 percent of the institutions will get into this new way of thinking in the next three or four years. There are a few institutions, such as the Arizona State University, which made that leap and are going for a volume increase by using hybrid learning. We need a lot more institutions to dive in and do that. This is very important, because then you get supply greater than demand and that really starts to reorder things.

A lot of institutions will be falling 10 or 15 percent short of full enrollment. And, if you have 15 percent fewer students, will you try to get them back? What would you do to adjust your cost structure appropriately? If you lose 15 percent, you shouldn't necessarily assume that those students are the average price payers in your institution. These are unusual markets where the person who pays the most tends to be the most sophisticated buyer. So the person who will shift first to something that's different or better is your full-tuition student, because he is thinking more about whether he is getting value than the completely subsidized student.

You need to look at those models and see what is flexible in the cost structure that you've got. How do you do pension accounting or maintenance accounting?

The idea of who is the best at doing something, that has to be found out. How can you find best practices? Which students are you losing the most money on? Who are you making the most money on? Who are the students that are most disappointed? Who are the students that are most pleased with what's going on? You've got to start with that picture in mind and then talk to other institutions about how they achieved that.

The institutions at the extremes—the Harvards and Stanfords—are going to be OK. So will the community college that listens to local employers and creates programs around the local economy. Everyone else is in an area where the idea of best practices and economic efficiency will start to come to the fore.

Digital books and handheld devices are playing a larger role in the textbook industry every year. In what other innovative ways do you believe technology can support the industry and the consumer? How can we best prepare for success in this area?

Technology is taking things that used to be separate and bringing them together. When I have an online product, is it a textbook, is it a lecture, or is it a lab? I have the ability to talk to other students. I can call in an expert to help me. So, the digital experience isn't just a textbook replacement. The physical textbook clearly has limited life—at most five years—before students buy everything digitally.

The digital devices are really primitive today compared to what they will be in five or six years. The video portions of MOOCs [massive open online courses], the interactivity, and the online forums are not very good yet. So, we're going through a revolution where these things will really get good, and a few will emerge in the top entry-level courses and just be as excellent as the standard textbooks were.

This doesn't mean that the students are motivated. It may be easier to learn, but you still have to connect, particularly to a kid whose parents didn't go to college and is having a hard time with the schedule and that whole motivational piece. We don't magically understand that. We do understand how to teach biology, statistics, and all those things. We need to take the unmotivated kids and mix them in with the person who is part of a study group and talks to peers afterward, so they can see the passion that that person has and the student, in turn, receives encouragement. You could lose some of that as you transition online.

A lot of experimentation has to be done, which our foundation is interested in funding. It's about how to you create those social and relationship elements, either face-to-face or online, while we take the pedagogy and raise it to a level that's never been seen before. There is an unsolved piece that is absolutely critical. I still believe in physical places of learning for a fairly significant part of what goes on.

In a period of increasing accountability and performance-based funding, what kind of incentives can we introduce to make sure that we don't abandon the students who are low income, the students who are graduating from high school without the basic skills, the ethnic minorities, the individuals with disabilities, the recent immigrants? These are populations that we are also called to serve but, sometimes, achieving positive results with them is very difficult.

That's an absolutely critical question because those students are harder to educate, need more support and personal relationships, and have less of an image of success. If you've got your parents encouraging you, if you've been told you're really good, say, five times as much as the other students, you can persevere through periods of difficulty and doubt. Hopefully, we will learn more about perseverance and how we teach that and encourage it.

Many measurement systems would just say to you, don't take those students and let somebody else take them, because you can get very high graduation rates and good longitudinal studies if you don't enroll those difficult students.

So, when U.S. News &World Report reports the average SAT score of an entry-level class, that is really perverse because it's making you look good. The most valuable university in America is the one that takes kids with low SATs and helps them develop high motivation and self-confidence, and succeed in life. I don't know the name of it because it surely wouldn't show up in any of the measurement systems that we have today.

People don't love the No Child Left Behind Act, which is a K–12 measurement system. But one of the few things that most people wouldn't want to get rid of is its ability to show some of the differentials, such as income and ethnicity. The two often tell the same story because there's a correlation.

We have to have goals not just for the overall system, but also for the kids who are coming in from the toughest backgrounds. The measurements have to give huge credit for people who figure out how to connect with those students. What is the support system and the early intervention when the students seem to be checking out of the process? There are some really high dropout rates, which are bad psychologically and economically. We need to keep this in mind as we build a more measured, market-driven, excellence learning from best practices.


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