Operational Excellence homes in on potential savings

With state support for higher education shaky at best and the economy still in the doldrums, it’s no surprise that top Berkeley officials — even as they continue their budget-advocacy efforts in Sacramento — are looking for ways to achieve permanent, long-term savings right here on campus.

Under the auspices of Operational Excellence, efforts to identify opportunities to reduce costs and improve services in Berkeley’s non-academic support systems are beginning to bear fruit, according to Vice Chancellor Frank Yeary, the project’s point person. With the help of external consultants Bain & Co., the campus-led project has interviewed more than 500 staff, faculty, students, and alumni to determine smarter, cheaper, and more effective ways of conducting university business. At least 150 others have contributed workload-reduction and cost-saving suggestions via email.

The effort is now two-thirds of the way through a six-month fact-finding phase, with a final assessment due in mid-April. A just-released interim report — summarized in a new video featuring Yeary and Chancellor Robert Birgeneau, who heads the Operational Excellence Steering Committee — suggests that substantial savings are attainable in the areas of administration, information technology, energy, space management, student services, and procurement.

Due in large part to the decentralized nature of the Berkeley campus, the report found, these areas are sometimes needlessly complicated or duplicative. The fact that more than half of all supervisors have three or fewer reports, for example, leads to “increased bureaucracy and slower decision-making,” Yeary says in the 11-minute video. Similarly, while the campus spends roughly $600 million each year on purchases, the lack of a standardized procurement system means the campus has little leverage with vendors.

“We work with, and buy from, thousands more vendors than we need to, raising costs and increasing complexity,” he explains.

After the final assessment in April, says Yeary, will come the really heavy lifting — what he calls “a Berkeley-led capability to organize, manage, and track the change efforts” necessary to achieve the cost savings identified in that report.

“We are doing the work now to lay the foundation for that,” he says. “We know from having spoken to other organizations, including universities, that have effectively managed this kind of change that it requires a group of people who understand what the objectives are, and work with all the individual team leaders that are pushing the change, help eliminate roadblocks, and — when cross-disciplinary challenges come up — help clear the way so that the change can move forward.”

‘Tens of millions’ in ongoing savings?

The campus’s $1.8 billion budget took an enormous hit in the wake of an $813 million cut in funding to the UC system in mid-2009, which led the Office of the President to institute forced furloughs and salary cuts and triggered painful layoffs and service reductions at Berkeley and other UC campuses.

Berkeley’s long-term budget problems, however, were evident even before Sacramento’s massive reductions in funding to UC and higher education. “It was clear, even in the spring of 2009, that we had some budget challenges,” Yeary recalls, sitting in his office in California Hall. “So we began a discussion about whether there were ways for us to structurally reduce our operating costs, so that we could direct the greatest percentage of our resources possible to our teaching and research mission.

“This,” he adds, “is the core and the foundation of what Operational Excellence is all about.”

Those early budget discussions, which involved senior administrators, Academic Senate chair Chris Kutz, and other campus leaders, “really got kicked off in a big way after the May revise” — the governor’s revised budget proposal — “when it became clear that the financial challenge to us more than doubled,” Yeary says.

After extensive consultations with campus leadership and management groups, the Office of the President, and other universities that had faced similar budget issues, Chancellor Birgeneau asked Yeary to look into ways of improving efficiency throughout the campus. Birgeneau also appointed an Operational Excellence Steering Committee, whose input helped lead the campus to enter into a $3 million contract with the consulting firm Bain & Co.

Why hire outside experts? “Changing large organizations is very hard,” Yeary explains. “It is not a skill set that is entirely intuitive to organizations themselves, though ultimately your organization must own the change effort. So the changing itself cannot be outsourced, but self-diagnosis is infrequently successful. And we learned that even organizations that have a much greater propensity for change than we do find it really beneficial to have professionals come in to help give them cadence, direction, analytical support, and the benefit of experience.”

In contrast to previous, smaller-scale cost-cutting efforts, Operational Excellence aims to trim “tens of millions of dollars of ongoing operating costs,” a target that convinced Yeary, Birgeneau, and others that “we needed to approach this in a way that was as thoughtful and as well-advised as we could.”

The steering committee “identified Bain as the best fit for us,” he says, citing the company’s record of “having managed change efforts at hundreds of organizations,” including “recent and very relevant experience at peer institutions” including Cornell and the University of North Carolina, Chapel Hill.

Since the effort launched in October, Yeary says, “We have worked with Bain to create perhaps the most comprehensive outreach-and-engagement strategy of any of the 900 change projects they’ve managed.”

As for the size of the contract — which some have called an extravagance for a campus in the throes of financial crisis — Yeary observes: “Yes, we’ve agreed to pay Bain $3 million for their help in this phase. But assuming we’re successful in generating tens of millions of dollars in savings, those tens of millions in savings happen every single year. The money we pay Bain gets paid once. So the return on investment, if we’re successful, will be many, many, many times greater.”

Given that some 65 percent of the campus’s total spending goes to salaries and benefits, Yeary acknowledges that some of the savings may come at the cost of jobs — though it’s possible eliminating positions could occur through attrition rather than further layoffs. “In order to effectively tackle all of the challenges ahead of us, it’s likely that we’re going to need to ask hard questions about what do our people do and how do they do it, and are there ways we can have the same or better service with different constructs?” he says. “And that may involve having fewer people at the end of the day.”

“We have to be responsible stewards of the money we get from the state, the money we get from our students, and the money we get from our wonderful community of donors,” he says. “And that means that we’re managing our budget in a cost-effective, responsible way.”

That responsibility, he adds, “is not optional for higher education.”

To see the video — which includes detailed charts and graphs on the project’s preliminary findings — or to download the interim report, visit the Operational Excellence website.