COLUMN: Ignoring the Effects

University administrators are neglecting the effects of their reengineering decisions. In recent years, the central administration has shown a consistent pattern of deciding in favor of the short-term payoff and neglecting the impact of those decisions west of 40th Street. Anyone who remembers the business history of the University neighborhood has seen that pattern at work. Since 1980, locally owned or small-chain businesses (Marty's, Campus Corner, Quantum Books) have disappeared and been replaced by huge national chains (The Gap, Foot Locker, Sam Goody), or simply left vacant. The reason is simple: the University owns the real estate those stores occupy, and charges rents that only a huge national chain store can afford. Local business owners and local employees are thus driven out in exchange for absentee owners and minimum-wage clerks, and what middle class is left in University City begins to disappear. Penn's "reengineering" continues and intensifies this pressure on the neighborhood, by displacing University employees with (lower-paid) employees of national and international firms like Barnes & Noble and Aramark. A little history may be in order. In response to a healthy endowment and a growing pool of applicants, Penn's trustees decided a couple of years ago that the University needed to reduce their administrative staff by 15%. They didn't know at that point where the cuts needed to be made, which to a reasonable person would raise doubts about how they arrived at the 15% figure, or indeed about why they thought staff needed to be reduced at all. But University trustees, having no shareholders to report to, need not feel any pressing obligation to explain their decisions to anyone but each other, and so they proceeded. The first step was to hire Judith Rodin -- who, as provost at Yale, had carried out exactly the kind of downsizing Penn's trustees wanted. (Rodin's legacy can be seen in Yale's continuing bitter labor troubles, both with their graduate students and with the two hotel and restaurant employee locals who represent Yale's staff. All of this came to a head after Rodin had left for Penn). And Rodin's first step was to hire Coopers & Lybrand, a Big Eight accounting firm, to find areas in Penn's operation that were insufficiently lean and mean. (Coopers & Lybrand has a whole division, then headed by John Fry, that performs such assessments for universities.) The assessment, to no one's surprise, found that there were indeed areas in Penn's operations that were over-staffed and that could be performed more economically by outside contractors, and made a series of specific recommendations. So Rodin hired as Executive Vice President -- who would be charged with carrying out these recommendations -- the same John Fry who, in effect, wrote them. The first wave of "reengineering" has already begun, and has picked up speed this summer. (When Penn has disagreeable tasks to perform or decisions to announce, look for them in the summer, when the DP changes to a weekly schedule and the University has more control over the dissemination of information.) Much of it involves dissolving or reducing central offices (especially in finances and purchasing) and shifting their responsibilities to individual schools, departments, and centers. This generally means that jobs disappear from the central offices, while other jobs have their responsibilities increased and diversified, on a schedule that precludes proper training and orientation, which creates further opportunities for firing (for incompetence, or unusually grave errors involving money, or whatever). (This is happening, by the way, at the same time that a completely new, enormously complex software is being adopted for Penn's financial operations, the notorious FinMIS, further crippling efforts to train and orient employees and almost certainly producing backlogs in ordering and paying.) The second wave, "out-sourcing," has also begun with the Barnes & Noble agreement. B&N; offers decent discounts, a large (if predictable) selection, and other amenities. It is also death on independent bookstores, like House of Our Own and the Penn Book Center. The libraries are close to signing a contract with a vendor who claims to provide cataloged and shelf-ready books, and rumors about the outsourcing of the Dining Service, housekeeping, the Faculty Club (all of which are union operations), and other services are circulating rapidly at Penn. (Union wages strike many Penn students as an egregious waste of money. Without addressing the Whartonite fallacy of the "natural" or "market" wage, let me simply point out that union employees tend to stay long enough to be good at their jobs, tend to be responsible homeowners, and tend to be the kind of neighbors students--or anyone-- would want.) More and more the administration treats the neighborhood as a site of resource extraction, in effect a local colony, and the occasional outreach effort to local schools or the highly touted directing of $28 million in purchasing (less than 2% of the University's budget) to West Philadelphia businesses does not begin to balance the damage done by the University's bottomless appetite for rental income and the benefits of "reengineering." I expect to read any day now that the trustees are announcing an initial public offering of 60,000,000 shares of Class A preferred stock in the University of Pennsylvania. At least then they would have the usual reason for their conduct ("The stockholders made us do it"). At least then they would be abandoning the values that justify the special status universities have in this country; as it is now, they are simply betraying those values. If they want to act like a Fortune 500 company, we should tax them like a Fortune 500 company.