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UMI Microform 9619882 Copyright 1996, by UMI Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code. UMI 300 North Zeeb Road Ann Arbor, MI 48103 ABSTRACT FISCAL DECISION MAKING IN ACADEMIC DEPARTMENTS DURING FISCAL STRINGENCY: A CASE STUDY OF MICHIGAN STATE UNIVERSITY DURING R-CUBED (1988-92) By Chinyere Maria-Carol Nwagwu This study examines how academic departments make fiscal decisions in periods of resource stringency by addressing two research questions: 1. What were the responses of academic departments in Michigan State University to institutional fiscal stringency? 2. Through what processes did these academic departments select their responses to fiscal stringency; and did these processes conform to the rational decision making model? The study involves two academic departments in the same college, with the same chairpersons throughout the R-cubed period, with similar faculty and student sizes, and with both undergraduate and graduate programs. College and departmental documents reports and memoranda), and demographic data) were archival examined. The (communiques, records dean plans, (budgets of the and parent college, chairpersons of the departments, and faculty members who were on the Faculty Advisory Committee period were interviewed. Faculty (FAC) during that members who were not involved in making decisions for the department at that time were also interviewed. Data was analyzed initially by using coding categories to organize, data. sort, and explain the relationships within the Afterwards, pattern analysis. the empirical data were subjected to Patterns in empirical data were compared to those predicted by the rational decision-making model and the literature. Departments in the study knew the timing and extent of the reductions. Their responses to fiscal stringency were shaped by the directives of their parent college, serendipity, areas of flexibility in their budgets, and complexity of the department. The departments used a combination of efficiency, revenue augmentation and survival measures. The departments mortgaged positions of retiring faculty members (one or two years before their retirement) to meet the reduction quotas. They also tried to protect their programs from budget cuts by marketing themselves more, generating more revenue and offering to eliminate programs that were important to their parent college. They also used a combination of decision making models (mainly the political and rational models) responses to fiscal stringency. to select their Copyright by Chinyere Maria-Carol Nwagwu 1995. All rights reserved. DEDICATION To my parents Chief Cletus Nnakolam and Bridget (Brigid) Iheoma Nwagwu for telling me to get this Ph.D., for their unconditional love, and confidence in me. To my husband Abiodun Olusola Oriyomi for his love, support, and encouragement during a challenging period of my life. Thanks for inspiring me. We did it. V ACKNOWLEDGMENTS I could not have completed my dissertation without the assistance of many individuals. To them I owe my gratitude, and with them I share the harvest of a completed product. Firstly, my Lord God and Creator whose amazing grace saw me through a very challenging period in my life. At Michigan State University, my dissertation director and one of my greatest teachers, Dr. Mun Tsang, was always a source of encouragement and assistance. Without his dedication, availability, and advice this dissertation would not have been completed. Dr. Max Raines my mentor and major advisor, was always kind, to me. His fatherly advice, availability, and encouragement throughout my advanced degree at Michigan State University enabled me achieve this feat. Dr. Kathryn Moore, an invaluable member of my committee, offered good suggestions, and challenged me to excel in my work. Dr. John Schweitzer, another invaluable member of my committee offered good suggestions and was very supportive. Dr. Robert Lockhart and Dr. Martha Hesse were always kind, and supportive of my efforts. Their advice and feedback during the early stages of my dissertation enabled me clarify the focus of my dissertation. Dr. Lockhart and Ms. Elaine Richard provided me with a substantial part of the data I used for my research. thanks. I owe them a world of Dr. Maenette Benham and the Dissy Dissertation Group gave were supportive. Dr. David Horner, Dr. Ken Ebert, Ms. Peggy Arbanas and Mary-Jane awarded me fellowships that enabled me produce my dissertation and register two dissertation credits. My brothers gave me their love, support, encouragement throughout my academic career. Gordian, IK and Chijoke believed in me, and assisted me financially out of their stringent resources. I am very grateful. My special friends, Dr. Maureen Eke, Drs. Remi and Dare Aworuwa, Dr. Austin Okwuegbu, Ms. Agatha and Dr. Emmanuel Awuah gave their time and resources to ensure that I completed my work. Most of all, when I was weary they gave me strength to continue. Without their encouragement and commitment the dissertation would not have been completed by now. Ayo Walker edited drafts of my work. James was always available to resolve my software problems. Drs. Ernest Ndukwe and Clifford Akujobi were also supportive. The staff at the Office of Planning and Budgets and the Michigan State University Archives were supportive, and assisted me in my data search. The dean, associate deans of the college I studied were supportive of my data collection efforts. The departmental chairpersons and faculty who participated in the study endured long interview sessions and offered candid responses to the questions. Without the support of the college and department administrators, and faculty this dissertation would not have been possible. Julie Loehr and Christine Lare were very generous. They inconvenienced themselves to meet my deadlines and yet edited my work only for a token fee. Carey Draeger transcribed the large volumes of interview tapes within deadlines. Ms. Marian Stoll was also supportive. Her cheerfulness made a stressful period much easier. Dean Franklin and Joyce Miller offered me a job at the computer center, which enabled me cover some of my expenses. My in-laws especially Deacon Kunle and Mrs. Semisola Oriyomi, and Mrs. L. A. Bamgboye were very supportive. Many friends whose names were not mentioned, also gave me the encouragement to complete my dissertation. TABLE OF CONTENTS Chapter 1 BACKGROUND 1.1 Historical Background of the Study................ 1 1.2 Conditions Leading up to R-cubed ................ 3 1.2.1 R-cubed as a Response to Fiscal and Social Challenges: State of Michigan and Michigan State University (MSU) Fiscal Circumstances in the 1980's.....................................3 1.2.2 Conditions Leading to R-cubed at the University Level................................ 8 1.3 Characteristics of R-cubed...................... 10 1.3.1 What was R-cubed?.............................. 10 1.3.2 Differences between R-cubed and Earlier Fiscal Strategies MSU used............. 15 1.3.3 R-cubed as a Strategic Planning Process........16 1.4 R-cubed from the Department's Perspective........22 1.5 1.5.1 Statement of the Problem....................... 25 Purpose of the Study......................... 25 1.5.2 Significance of the Study...................... 25 1.5.3 Limitations 1.5.4 Overview of the Study...................... 27 of Interpretive Framework............ 27 1.5.5 Key Research Questions......................... 2 8 1.5.6 Definition of Terms............................ 2 9 1.5.7 Overview of Dissertation Sections.............. 34 Chapter 2 LITERATURE REVIEW 2.1 Overview........................................35 2.2 Review of Relevant Literature.................. 35 ix 2.2.1 Literature on Institutional Responses Fiscal Stringency...............................36 2.2.2 Literature on the Structure of Academic Departments..................................... 57 2.2.3 Literature on Decision Making in Academic Departments in Periods of Fiscal Stringency...................................... 63 2.3 Interpretive Framework and Other Making Theories............................. 71 2.3.1 Steps in the Rational Decision-Making Process......................................... 71 2.3.2 Findings that May Confirm the Occurrence of the RationalModel ............... 77 2.3.3 Criticism of the Model......................... 79 2.3.4 Findings that May Discredit the Rational Model........................................... 89 2.3.5 Strengths of the Rational Model................ 90 Chapter 3 METHODOLOGY 3.1 Overview.......................................... 95 3.2 Research Questions................................96 3.2.1 Overarching Research Question.................. 96 3.2.2 Design of the Study............................ 96 3.3 Study of Research Question 1 .................. 97 3.3.1 Findings on Institutional Responses To Fiscal Stringency........................... 98 3.3.2 Information Related to the Responses of Academic Departments at MSU to Institutional Fiscal Stringency..................................... 100 3.3.3 Information Sources........................... 102 x 3.4 Study of Research Question 2 ................... 104 3.4.1 Findings on Decision Making Processes Used by Academic Departments in Periods of Fiscal Stringency............................. 104 3.4.2 Information Related to the Processes which Academic Departments Used to Select their Responses to Fiscal Stringency; and Comparison to those Processes of the Rational Model.................................105 3.4.3 Information Sources........................... 108 3.5 Sample........................................... 109 3.5.1 Selection of Sample........................... 110 3.5.2 Selection of Administrators for the Study Ill 3.5.3 Selection of Faculty for the Study............ Ill 3.5.4 Semi-Structured Interviews.................... 113 3.5.5 Measures Taken to Enhance the Validity and Reliability of the Study......... 116 3.5.6 Handling Discrepancies........................ 118 3.5.7 Case Study Data Base.......................... 120 3.6 Data Analysis..................................121 3.6.1 Plan for Analyzing Data from the Interview Transcript...................... 121 3.6.2 Grouping by Department........................ 122 3.6.3 Data Reduction.................................122 3.6.4 Determination of Coding Categories that I Used to Classify Data, and the Codes (or Symbols) I Used to Represent those Categories............ 123 3.6.5 Assignment of Codes to Units of Data.......... 128 3.6.6 Grouping of All Units of Data with the same Comes Together in an Envelope........128 xi 3.6.7 Explanation of the Relationships Within Each Group of Data..................... 129 3.6.8 Analysis of Data that do not Pertain to the Research Questions..................... 129 3.6.9 Compare Findings to Predictions Literature and Theories Pertaining to the Research Questions..................... 130 3.6.10 Plan for Analyzing Documents................. 131 3.7 Presentation of Data......................... 132 3.8 Limitations of the Study..................... 133 Chapter 4 DISCUSSION OF FINDINGS ON ABI DEPARTMENT 4.1 R-cubed at the College Level................... 135 4.1.2 Planning Guidelines Given to Departments in Brigid College During R-cubed................. 148 4.2 Analysis of APP&Rs from Abi Department......... 155 4.2.1 Plans Abi Department Proposed for Reducing Its Budget by 5.5% in FY 1988-89 1988-89 APP&R, June 10th, 1988)............... 156 4.2.15 Budget Reduction Plans in Abi Department for 1989-90 (4% Reduction in the General Fund Budget)..................... 170 4.2.21 Budget Reduction Plans for 1990/91 (2% Reduction General Fund Base Budget Base Budget).................................. 174 4.2.26 Budget Reduction Plan for 1991-92 (2% of General Fund Base Budget)............. 178 4.3 Processes Through Which the Department Responded to Fiscal Stringency.................. 184 4.3.1 Beginning of R-cubed for the Department.......185 4.3.2 Department's Goals and xii Priorities Before R-cubed.....................186 4.3.3 Goals of the Department During R-cubed Period................................ 186 4.3.4 Courses of Action Considered.................. 191 4.3.5 Criteria for Decision Making.................. 192 4.3.6 Implementation of Choice...................... 194 4.3.7 Problems the Department Encountered as It Tried to Implement the Reductions............ .1.98 4.3.8 Revenue Augmentation.......................... 2 01 4.3.9 Criteria that Guided the Selection of the Particular Measures the Department Used to Raise Its Revenue............................. 201 4.3.10 Implementation of Choice..................... 202 4.3.11 Problems the Department Faced as It Tried to Boost Its Revenue and How It Overcame Them.......................................... 205 4.3.12 Future Survival of the Department............ 206 4.3.13 Criteria That Guided the Selection of the Particular Measures the Department Used in an Attempt to Ensure Its Future Viability..................................... 207 4.3.14 Implementation of Choice— How the Department Went about the Task of Restructuring Its Program....................................... 208 4.3.15 Problems the Department Encountered as It Tried to Restructure Its Programs, and How It Overcame Them......................... 211 4.3.16 Outcome of Implementation ofChoice.......... 212 4.3.17 Impact of The Actions the Department Took During R-cubed the Quality of Its Instruction...................................212 4.3.18 Impact of the Actions the Department Took During R-cubed on Its Research............... 214 xiii 4.3.19 Impact of the Actions the Department Took During R-cubed on Its Service Function...................................... 215 4.3.20 Feedback to Participants in Departmental Decision Making on the Outcomes of the Unit's Responses to R-cubed....................................... 216 4.4 Comparison of Abi Department's Fiscal Decision Making Structure to the Rational Decision Making Model........................... 217 4.5 Comparison of Findings to Literature............ 227 Chapter 5 GORDIAN DEPARTMENT'S RESPONSES TO FISCAL STRINGENCY 5.1 Overview......................................... 231 5.2 Background of Gordian Department................ 232 5.3 Analysis of the APP&Rs From Gordian Department....................................... 234 5.3.1 Proposed Plan for Reducing Gordian Department's Expenditure for FY 1988-89 (5.5% Reduction of Its Base Budget in the Three Expenditure Lines: AES, CES, General Funds).................................234 5.3.2 Budget Reduction Plans for 1989-90 APP&R (4% Reduction in Gordian's General Fund Base Budget)..............................240 5.3.3 Proposed Plan for Reducing the Gordian Department's General Fund Budget for FY 1990-91..................................... 246 5.3.4 Budget Reduction Plan for FY 1991-92 (2% Reduction in Gordian Department's General Fund Base Budget)................................... 252 5.4 Processes Through Which Gordian Department Responded to Fiscal Stringency.................. 256 5.4.1 Beginning of R-cubed for the Department...... 256 xiv 5.4.2 Department's Goals and Priorities Before the R-cubed Process.................... 257 5.4.3 Alternative Courses of Action for Reducing Expenditure...................... 258 5.4.4 Criteria that Guided the Selection of the Particular Measures the Department Used to Cut Down Its Expenditure.............. 2 60 5.4.5 Implementation of Choice...................... 2 62 5.4.6 Problems the Department Encountered as It Tried to Implement those Reductions........266 5.4.7 Overcoming those Problems..................... 267 5.4.8 Revenue Augmentation.......................... 268 5.4.9 Criteria that Guided the Selection of the Particular Measures the Department Used to Raise Its Revenue..................... 268 5.4.10 Implementation of Choice: How the Revenue Augmentation Actions Were Implemented...................................269 5.4.11 Problems the Department Faced as It Tried to Boost Its Revenue................ 271 5.4.12 Future Survival of the Department............ 272 5.4.13 Criteria that Guided the Selection of the Measures the Department Used in an Attempt to Ensure Its Future Viability.......273 5.4.14 Implementation of Choice..................... 273 5.4.15 Problems the Department Encountered as It Tried to Restructure ItsPrograms.......278 5.4.16 Outcomes of the Actions the Department Took...............................2 80 5.4.17 Impact of the Department's Responses on the Quality of Its Instruction............ 281 5.4.18 Impact of the Department's Responses on the Quality of Its Research............... 282 XV 5.4.19 Impact of the Department's Responses on Its Service Functions..................... 282 5.4.20 Feedback to Participants in Departmental Decision Making on the Outcomes of the Unit's Responses to R-cubed.................. 283 5.5 Comparison of Gordian Department's Fiscal Decision Making Process to the Rational Decision Making Model.................. 284 5.6 Comparison of Gordian Department's Responses to the Literature..................... 2 92 Chapter 6 SUMMARY AND RECOMMENDATIONS 6.1 Overview........................................ 2 96 6.2 Statement of Problem............................ 296 6.2.1 Key Research Questions........................ 2 97 6.3 Comparison Between the Two Departments.......... 297 6.4 Summary of Findings on Abi Department........... 304 6.4.1 Budget Reductions........................... ..304 6.4.2 Criteria...................................... 304 6.4.2 Revenue Augmentation.......................... 305 6.4.4 Survival...................................... 306 6.4.5 Criteria...................................... 306 6.4.6 Implementation of Choice......................306 6.4.7 Impact on Research............................ 306 6.4.8 Impact on Instruction......................... 307 6.4.9 Impact on Service............................. 307 6.4.10 Nature of Decisions.......................... 307 6.4.11 Comparison of Decision Making xvi Processes In Gordian Department to the Rational Decision Making Process............. 308 6.5 Summary of Findings on Gordian's Responses to Fiscal Stringency................ 308 6.5.1 Budget Reduction ............................. 309 6.5.2 Criterion..................................... 309 6.5.3 Implementation................................ 309 6.5.4 Revenue Augmentation..........................310 6.5.5 Problems...................................... 311 6.5.6 Survival ..................................... 311 6.5.7 Criteria...................................... 311 6.5.8 Implementation of Choice......................312 6.5.9 Impact on Instruction.........................313 6.5.10 Impact on Research........................... 313 6.5.11 Impact on Service............................ 313 6.5.12 Nature of Decisions.......................... 313 6.5.13 Comparison of Decision Making Processes in Gordian Department to the Rational Decision Making Model............... 314 6.6 Implications for Future Research................ 314 APPENDICES A. Codes Used in the Study.......................... 319 B. Letter of Approval from the University Committee on Research Involving Human Subjects............. 322 C. Initial Letter to Study Participants............. 323 D. Letter of Appreciation for Allowing me to Review Documents.............................. 325 E. Thank You Letter to Study Participants for xvii the Interview..................................... 326 F. Cover Letter for Interview Transcripts.......... 327 G. Summary of Interview Protocol.................... 328 H. Interview Protocol for Abi Department............330 I. Interview Protocol for Gordian Department....... 337 J. Interview Protocol for College Administrators.... 344 BIBLIOGRAPHY.............................................. 350 xviii LIST OF TABLES Table 1.1 State of Michigan Appropriation to its Higher Educational Institutions and Its Comparison to Other States (1988-89)............................5 Table 1.2 State of Michigan Appropriation Per Fiscal Year Equated Student to Its Higher Educational Institutions......................................6 Table 1.3 MSU's Appropriation from the state, 1985-1992; and State Appropriation to MSU as a Percentage of Its Total Current Revenue...........................................7 Table 4.1 Funding Sources for Departments in Brigid College.........................................137 Table 4.2 Headcount of Faculty and Academic Staff in Brigid College.........................................143 Table 4.3 Headcount of Support Staff in Brigid College.....................................144-146 Table 4.4 Abi Department's Expenditure Lines............. 157 Table 4.5 Headcount of Support Staff in Abi Department......................................195 Table 4.6 Student Enrollment, Student Credit Hours, and Evidence of Research and Creativity........... 203 Table 5.1 Funding Sources for Gordian Department, 1987-88 to 1992-93......................................233 Table 5.2 Reduction in General Fund, CES, and AES for FY 1988-89..................................236 Table 5.3 Academic Personnel Component of Gordian Department, 1987-88 to 1992-93................. 250 Table 5.4 Support Staff Headcount in Gordian Department, 1987-88 to 1992-93................. 263 Table 5.5 Student Enrollment, Student Credit Hours, and Evidence of Research and Creativity. .................................. 276 xix LIST OF FIGURES Figure 1.1 Relationship between State of Michigan Appropriation to MSU and the Growth in MSU's Tuition Revenue............................8 Figure 1.2 Relationship between MSU's Expenditure and Her Projected Revenue........................9 XX CHAPTER 1 BACKGROUND AND STATEMENT OF THE PROBLEM This chapter (Refocussing, University. 1.1, I discusses Rebalancing the and background Refining) in of Michigan It is divided into four sections. discuss the historical background R-cubed of State In section the study. Section 1.2 discusses the conditions leading up to R-cubed at the state and institutional level. characteristics of R-cubed. Section 1.3 examines the Section 1.4, examines R-cubed from the perspective of the different colleges and academic departments at Michigan State University. And, presents significance, the overview of purpose the major research terms used in of the study, interpretive questions the study. its framework, and an It a synopsis operational also gives a section 1.5 of definition summary of an the of the chapters of the dissertation. 1.1 Historical Background of the Study Michigan State University was founded in 1855 as an autonomous public institution of higher learning by, and for the citizens of Michigan. In 1863, as a result of the Morril Act, it became one of the first land-grant institutions in the United States of America. Its land grant and service missions were in the areas of agriculture and the mechanic arts. 1863, the university has evolved l into an Since internationally- 2 esteemed university/ offering a comprehensive spectrum of programs and attracting gifted professors, staff and students. By 1964, the instruction research and public service activities of the institution, had reached such a high level of excellence Association as of to qualify American it for Universities membership (AAU; in (R3 the Internal Discussion Paper, January 1989) . The largest sources of revenue for the university come from state appropriation (about 36%); these two (about 58%), sources of and tuition and fees revenue ninety-four percent of general fund revenue. generated equity from from endowment activities, expenditures. departmental fellowships, indirect prior funds, and year cost recoveries, budgets, departmental restricted income comprise Revenue is also interest from held income, investments, activities, revenue about auxiliary for future Sources of expenditure include: instruction and research, public services, scholarships and institutional support, operation and maintenance of plants, and auxiliary activities. 3 1.2 Conditions Leading to R-cubed in MSU 1.2.1 R-cubed as a Response to Fiscal and Social Challenges: State of Michigan and Michigan State University (MSU) fiscal circumstances in the 1980s In the 1960s and 1970s, Michigan's support for higher education was high relative to other states. In the early 1980s,, however, that support dropped significantly. to a low point in 1983, It fell when Michigan ranked 33rd in the nation in per capita expenditure on higher education. 1984 and 1988, as a result education by Governor of strong advocacy James Blanchard and the Between for higher legislature, colleges and universities enjoyed relative prosperity. The result was that in 1986/87 Michigan ranked 20th in the nation in its appropriations per capita of state funds for operating expenses for higher education; in 1987/88 it ranked 24th; and in 1988/89 it also ranked 24th. 1989/90 The following fiscal year, (when Michigan appropriated about 15.7% of the state general fund budget to colleges and universities), 22nd among education the states (see Table in per capita support it ranked for 1.1),(State Higher Education 1987, p. 70; 1988, p. 84; 1991, p. 76) . higher Profiles, Though this level of funding was an improvement, it did not keep up with inflation. For example, the funding was insufficient for Michigan State University (MSU)to close the projected gap between expenditure and revenue (R 3 Internal Discussion Paperf 1989). Relative to other universities of its size in the state of Michigan (such as Wayne State University and the University of Michigan), MSU has generally received the least funds per FYE (fiscal year equated) student (see Table 1.2). In the mid- and late 1980s, the State of Michigan incurred a loss of revenue as a result of the declines in the auto industry. the same time, the state gave in to the growing At public pressure for increased state support for other social services rather than higher education. Consequently, MSU did not expect to receive more than its traditional share of state revenue (23 percent of institutional appropriations) (R5 Internal Discussion Paper, 1989) . in 1989 5 Table 1.1 State of Michigan Appropriation (in millions) to its Higher Educational Institutions and its Relationship to Other States (1988-89). STATE Alabama Alaaka Arizona 1 1Colorado (Connecticut 1Appropriation "*1000 Rank 775.344 168.814 538.014 310.795 5.396.430 15 30 24 33 1 I Appropriatlona per ca 259 f*a 467 213 176 259 Rank 7 1 18 37 6 ITwo-year ohanoe adiuated for killatkm 11% -27% 12% -2% 2% Rank 7 50 9 43 31 Florida Georgia 475,181 467,385 107.516 1.474.345 812.229 27 28 46 4 14 196 102 218 154 176 25 27 16 44 36 4% 12% 3% 6% 5% 27 8 30 18 25 Hawaii Idaho lllinoie Indiana lOwa 274,233 144.967 1.399.444 756.614 478.991 34 41 5 16 26 330 207 165 184 228 3 21 41 33 13 15% 6% 7% 5% 9% 5 19 46 23 12 362.326 560,075 463.034 162.432 095.261 31 22 25 40 19 211 189 155 180 201 19 30 43 36 23 6% 13% -11% 19% 13% 15 6 49 3 7 Mtaaouri Montana 866.426 1.338.033 661.462 425,751 560.600 105,227 41 6 13 29 23 47 191 198 270 231 144 180 28 24 5 11 47 36 -2% 1% 2% 20% 7% -4% 41 36 13 1 17 45 Nebtaaka Nevada New Hampahire New Jereey New Mexico 253.431 121.249 72.454 1.129.452 268,600 37 43 49 10 36 215 154 89 194 261 17 45 50 26 6 9% 9% 19% 17% 1% 14 11 2 4 39 iNew York iNorth Carolina 1North Dakota Ohio Oklahoma 3.110.021 1.329.606 118,072 1.320.460 415.191 2 7 44 6 30 225 274 239 164 176 15 4 10 42 39 4% 5% -10% 1% 0% 28 26 48 35 37 Oreoon Pennaytvania Rhode laland South Carolina South Dakota 1 Tenneeaee Texaa Utah Vermont Vkuinia 361.189 1.237.966 138.802 576.598 77.369 32 9 42 21 48 173 140 186 230 152 40 46 32 12 46 -1% 3% 9% 6% -1% 38 29 13 22 40 673.861 2.245.956 259.615 53.855 1.033.096 20 5 36 50 11 168 190 249 129 227 31 29 0 49 14 1% 5% 2% 6% 6% 31 29 9 49 14 719.437 252.616 738,670 114.753 16 36 17 45 206 161 206 343 20 34 22 2 6% -4% 2% -7% 21 44 32 47 Kanaaa Kentucky Loulaiana Maine Maryland iMaaaachuaaetta Waahinoton Weal Wotnla Total USA 1 3fl.309.43C 4% Source: State Higher Education Profiles, 1987-1993. 6 Table 1.2 State of Michigan Appropriation Per Fiscal Year Equated Student to Its Higher Educational Institutions (1987-92). INSTITUTION Central Michigan University Eastern Michigan Ferris State Univ. Grand Valley State Univ. Lake Superior State Univ. Michigan State University Michigan Technical Univ Northern Michigan Univ. Oakland Univ Saginaw Valley State Univ. University of Michigan UM-Ann Arbor UM- Dearborn UM- Flint Wayne State Univ. Western Michigan Univ. YEARS 1987/88 2866 3060 2961 2950 3685 4871 5524 4919 3129 3034 1988/89 3075 2692 3164 3115 3520 5074 5638 5345 3351 3231 1989/90 3300 3501 3412 3539 3826 5682 6183 5564 3712 3683 1990/91 3457 3517 3636 3427 3799 5996 6463 5684 3865 3976 1991/92 3,686 3,360 3695 3206 3707 6217 6459 5947 3916 3873 6395 2872 2879 6810 3714 6534 2945 2984 7079 3696 7336 3300 3455 7931 4008 7613 3474 3526 8003 4044 7732 3539 3524 7813 3994 Source: FY 1988-92 Appropriations Agency Lansing, Michigan. Throughout the 1980s, State University increased could faculty initiatives, not as sustain as appropriation MSU students both well faced and program in To cope with the declining increased considerable new investment the tuition (see Table 1.3, and Figure 1.1). university Fiscal inflation as significant technological infrastructure). state State state appropriations to Michigan salaries, (such Report, public tuition increases at, or below, inflation. it charged In addition, pressure to the keep As a result, the 7 university designed a strategic plan that would span five years (Statement on Long Range Strategic Planning, The APP&R and SSPP&R 1984). (i.e., Academic Program Planning and Review, and the Support Services Program Planning and Review (SSPP&R), which are planning tools that academic and support units used to conduct the tactical and operational plans of R-cubed) APP&R were first used in is different 1984. Although from the R-cubed version the original in focus and content, it is similar to the R-cubed version in some ways. Both require detailed planning administrative unit levels. at the college and major They also require definition of the unit's objectives and means of achieving them, analysis of the programs for making effectiveness, improvements, assessment of and projections for alternatives future plans (B. Shapiro, 1991). Table 1.3 M S U 1s Appropriation from the State, 1985-1992; and State Appropriation to MSU as a Percentage of Its Total Current Revenue. REVENUE SOURCE 1 State Appraprtabon to MSU State Approp. to MSU ao % of total curr Rwwtue I Student Tuition Studt tuition a* % of total curr Rav. t 1 1 YEARS 1984/85 1£5621061 37.60% 60024670 17.90% 1065/06 1986/67 01,048.377 16 00% 1987/68 1988/89 1969/90 1990/91 1991/92 245153360 36 60% 254336848 37.20% 265130053 36.30% 277518736 35.70% 277518736 00,657,066 110,364,070 18.70% 16.60% 133060408 10.60% 145630106 10.00% 197505258 20.30% 167470072 20.40% 210614674 220,410,666 36.70% 30.90% 35.20% ... " i t e t * Apfvop. i idMSU 1964/85 r of total cuirRMniM 6 tu d t tuition a s % of total curr Rav. 1 1 1965/86 37.50* 17.50* 1966/87 36.70* 1600* 1988/89 1987/88 36.50* 16.70* 1800* 1990/91 1989/90 37.20* 19.60* 36.60* 36.30* 1991/92 35.20* 20.40* 38.70* 20.30* 19.90* 1 40.00* 3600* 4 30.00* 3600* 20.00* • 1600* 10.00* 600* • - S M i Apprep. ID MS a a * of tetri curr 0.00* 1064*6 1064*6 1064*7 1067*6 1 006 * 0 1 000 * 0 1000*1 1001*2 Vi tetri currVUv. Figure 1.1 Relationship between State of Michigan Appropriation to MSU and the Growth in MSU's Tuition Revenue. Source: Michigan State University Annual Reports (19851992). 1.2.2 Conditions leading to R-cubed at the University level In pattern 1988, from expenditure the university 1978/79 through pattern through 1990/91. between (see its 1987/88. estimates It of expenditure combined projected this revenues This longitudinal view showed that the gap expenditure uncorrected with examined and revenue figure would 1.2). continue Unrestrained if left expenditure before reallocations was also expected to grow by 11%, or by $30 to $40 substantial internal the million part cost national of between this factors, statistics 1978 growth and 1991. rate was Although attributed a to the growth rate closely paralleled showing that higher-education expenditure(5%-8%) the growth rate of is about 1 to 2% above 9 the national addition, rate the reached about of inflation university's $100 million 1989a, p. 31) . (4%-6%, deferred (R3 Internal in 1989). In maintenance items Discussion Paper, MSU administrators had to find a way to get a better match between growth of expenditures and revenues, since the university must balance its budget (R3 Internal Discussion Paper, 1989a). 500.0 Expandituraa (Projection at 7%) Ravonuaa (Projection at 5%) 450.0 E 350.0 300.0 250.0 1*1— 5 if U f> M * U_ O JS 200.0 150.0 ■>--------i----------,— 1978 1980 1982 1984 1986 1988 1990 1992 Fiscal Year Figure 1.2 Relationship between MSU's Expenditure and Revenue Source: R3 Internal Discussion Paper, 1989a. On the national scene, changes were occurring. demographic For instance, Her Projected and technological there was a growing 10 increase in minority enrollment, women faculty, older part- time students, life-long learners, and students needing more remedial services. were Also, innovations in computer technology "revolutionizing" storage, dissemination of information. to impact teaching and analysis, retrieval and These changes were expected research, library services and administration of MSU, and other universities in the United States (R 3 Internal Discussion Paper,. 1989a; and Cetron, 1988) In order to remain competitive through the year 2000 and beyond, MSU had to address these challenges. through self-examination of its focus and It did so programs. According to the University's Provost, David Scott: What we are doing today will not do for our University tomorrow, at MSU or any other university.... We have a broad and deep array of excellent programs. This achieved excellence must now be enhanced or we will lose both the hard-won competitive edge and flexibility to take advantage of yet unforeseen opportunities and to be responsive to the society of which we are part (R3 Internal Discussion Paper, 1989a, p. 3). 1.3 Characteristics of R-cubed 1.3.1 What was R-cubed? Michigan State University responded to those fiscal and social challenges with the R-cubed strategies. a planning framework for positioning MSU R-cubed was to meet the 11 challenges of the decade of the According to University, Dr. John 1988-92), 1990s more Dibiagio R-cubed (then was a effectively. President budget of the reallocation exercise as well as a long-term strategic planning activity (R3 Internal Discussion Paper, 1989). referred to evaluating the "continuing For MSU, refocussing process institutional priorities of purposefully and adjusting programs to reflect designated areas of emphasis." Rebalancing was the "adjustment of existing resource allocations necessary to support identified priorities or changes in the overall level of available resources" 1988, to (Refocussing and Rebalancing. Michigan State University, p. 1) . the "refining effective and of MSU's efficient academic outcomes" Refining referred enterprise [R3 Internal for more Discussion Paper, 1989, p. 1) . At the initial stages of R-cubed, a set of values were identified to guide the R-cubed process. These values were a university that is: . Multidimensionally excellent; . Multidisciplinary, built on excellent departments and schools; . Integrated; . Humanitarian and caring; . Strongly coupled-externally and internally; . Pluralistic and diverse; . Built on current and selectively developed strengths; . A learning environment that is built on new technology; and . More efficient and effective (R3 Internal Discussion Paper, 1989, p. H i ) . 12 R-cubed also involved five "platforms" or panels. platforms include CORRAGE And Graduate University Planning Support), Undergraduate Institutional (Committee on Review of Research Education) , Systems), The PLUS AMPS CRUE (Planning (Administrative (Committee Education), Diversity: for and for PAIDEA Excellence In Lifelong Management the Review (Pluralism Action). of And These platforms comprised faculty/ administrators/ and students. The goal of the platforms was to develop a strategic vision for century. the university as it moved toward the 21st Recommendations of the platforms were intended to guide academic units in their decision making and planning. Each of the platforms studied an aspect of the university's mission. For instance, PLUS was begun in 1986/87, to study the university's lifelong education programs. It resulted in the restructuring of these programs within the university (Shapiro, 1991). In addition accomplished to the through "platforms," the Academic unit reviews Program Planning were and Review process (APP&R). Furthermore, the university expected its units to use APP&R for additional purposes: their assess core programs, identify alternative methods for improving their programs, develop a means for attaining such improvements, and develop new programs that promoted the 13 strategic mission period each of MSU. (1988-1992)/ college or Each year during the R-cubed the provost gave an APP&R document major administrative unit to help to it implement various aspects of the goals of R-cubed, including its various reallocation targets. The aim of reallocation under R-cubed was that by the end of 1992, units would have reallocated a total of 10-15% of their base budgets to the central administration. The reallocated funds would be used to in offset shortfalls state appropriations and to strengthen high priority programs. MSU also expected that through reallocations it could generate flexible funds to enable support of new programs that were central to its strategic mission. in 1989, For instance, after setting a reallocation target of 4.5%-5.5%, the provost then promised to give a total of 3%-3.5% of the main line libraries base budget back items. Reallocations recommendations, sustain the to that unit were also position to of for support core (relative to their peers), life support education, enrollment of minorities initiatives in the University, to CRUE colleges, including James Madison long special support increase enhance MSU's research standing in certain areas it considered important (such as plant research, hazardous waste management, etc.), support the renovation of research laboratories, and support 14 changes in the physical environment to improve handicapper accessibility 10) . (R3 Internal Discussion Paper, 1989b, p. 9- According to the 1990/91 APP&R of the parent college (Brigid College) research, in increases were of the 1989/90 two 40% funded departments of with the the studied general funds in fund recovered this salary from the of the strategic and reductions. Furthermore, University tactical during communicated decisions to R-cubed the the objectives of the APP&R. the Provost institution's colleges, Then, the in the form of the colleges communicated those objectives to the departments which made operational decisions based on those objectives. The goals of R3 that the University planned to achieve were: 1. Improve the quality of undergraduate education; 2. Revitalize lifelong education; 3. Improve the quality of graduate education and raise the rate of growth of research; 4. Improve support for faculty, including the ratios of SS&E and facility infrastructure per faculty; 5. Improve morale and interdependence among personnel; 6. Foster pluralism and diversity; and 7. Streamline and balance effectiveness and efficiency of process and procedures on unit as well as central needs (R3 Internal Discussion Paper, 1989, p. 9-10). 15 1.3.2 Differences Between R-cubed and earlier Fiscal Strategies MSU used. Decision making in the earlier periods differed from that of the R-cubed era in the following ways: 1. According to Shapiro was more substantial: MSU" (1991) the effect of R-cubed "it affected all aspects and units of (p. 85); 2. R-cubed had more facets to it, such as the platforms, goals, and guiding principles. 3. The goals of R-cubed were also different. They were more responsive to changes in MSU's environment. 4. R-cubed was more decentralized and participatory than prior decision-making activities at MSU. given guidelines, but had more Units were decision-making power regarding how to "operationalize" those goals at the unit level. R-cubed administrators, platforms involved the participation of faculty, staff, and students in the various {R3 Internal Discussion Paper, 1989). formation of R-cubed, During the and prior to the development of the APP&R/SSPP&R statements, administrative units (MAU) all were colleges asked to and major prepare three scenarios on how the MAU would look within five years, 5%, 10%, or 15% of its base budget were to be reduced. if Each unit was asked to describe the likely impact of the three 16 reallocation targets on its ability to carry out the tripartite mission of teaching, research, and service. The feedback from these units was reflected in the content of subsequent APP&R documents (Shapiro, 1991). In 1988/89 (4.5% to 5.5%) and 1989/90 (4.5%) across- the-board cuts were established for all colleges and MAUs at Michigan State University Attachment D) . However, (1990 Brigid after a series individual deans and directors of MAUs, College APP&R: of meetings with the provost changed his plan of instituting a 10-15% across-the-board cut in the university. Cuts became individualized peculiar needs of each unit according to the (Brigid College 1990/91 APP&R) . 1.3.3 R-cubed as a Strategic Planning Process According planning strategic is The the fit environment" to Kotler process between the and of Murphy (1981), "strategic matching andmaintaining organization and its a changing (p. 8). following five steps represent the techniques commonly used in strategic planning in higher education: 1. Academic managers examine key trends in the external environment and assess the threats and opportunities these trends pose. Based on these assessments if the managers 17 detect any changes ahead they may adjust the course of their institution(s) . 2. Administrators of institutions assess the strengths and weaknesses environment). of the This institution assessment (or provides its an internal indication of what the university can or, cannot do in a quality fashion (Shirley and Volkwein, 1978). 3. their Institutions institution's set a strategic mission and direction the fit based between on their opportunities and strengths. 4. Program priorities requires the growth decline of others. of are set. Strategic certain academic programs direction and the A critical step in strategic planning is establishing " (a) the overall inventory of academic programs to be offered, and (b) the relative priorities to be placed on those programs” 488) . the (Shirley and Volkwein, 1978, pp. 472- By building the high priority programs and dropping low priority ones, an institution develops its "differential advantage and carves out a niche for itself in the external environment" Whereas specificity institutions of (Shirley and Volkein, p. 472). may the criteria vary they use in the number in evaluating and their programs, most of them agree on the importance of evaluating a program based on the following points: importance to the 18 mission of the university; curriculum; research, and and extent service overall quality of of in future its demands field faculty and for students, (Dougherty, 1981). Institutions may vary in the relative importance assigned to internal (mission-based) criteria or external (market-based) criteria during program evaluation. 5. Resources are reallocated from the low-priority to high-priority programs with the discontinuance priority areas to strengthen high priority ones 1981). of (Dougherty, These retrenchment and reallocation processes the selective distribution of any new resources) reconfiguration institution strengths. of academic to utilize its programs opportunities low (plus cause the and cause the and develop its Unless budgeting follows the program priorities, the previous steps are merely a planning exercise without any meaningful impact on institutional resources (Clugstone, 1986). In the institution decisions strategic like can operational. be MSU, of three of kinds distinguished: a higher of educational process-oriented strategic, tactical, and Strategic decisions are made at the top level of the organization, level planning that is, at the central administration a University. However, some studies show that often broad participation from lower levels (departments) is 19 invaluable (E. Chaffee, 1983). Strategic decisions guide the organization in its relationship to its environment, well as affect its internal structure and as process. Strategic decisions generally answer the question, "What are we going to do?" Tactical decisions. decisions are derived from the strategic Tactical decisions answer the question, "How are we going to do it?" When decision making is participatory, the authority to make tactical decisions may shift between the central administration and the sub-units of the university. Unlike strategic operational decisions procedures decisions are and answer which are specific. the question, broad-based, They "Who will establish do what?" Operational decisions are usually made at the departmental level (Hambrick, 1980; and Chaffee, 1983). Departments also make strategic and tactical decisions at their own level. The following data support the position that R-cubed was a strategic plan. 1. environment including Hesse of American MSU, opportunities. "Environmental and to Montgomery higher identify studied education trends, the external institutions, threats, and The findings were reported under the title, Scanning and External Tendencies Affecting 20 American Higher Education" Discussion Paper (1989). were lifelong growth of in the In summary, education, R-cubed Internal the findings reported increasing diversity among students, decrease in the traditional college students (18-21 year old), increasing demand for excellent faculty in and outside higher education, an increasing economically constrained higher education environment, and rise in public expectations of higher education. 2. MSU strengths also studied its and weaknesses. internal Part of the environment R-cubed for document gives a detailed description of the internal environment of the university which includes its strengths and weaknesses. 3. The R-cubed document lists the goals of R-cubed as ways the institution institutional was strengths trying and to find environmental a fit between opportunities. MSU hoped that by achieving the goals of R-cubed it would achieve this fit. 4. Part of R-cubed, planning document, institution's stringency as stated in the MSU 1989 R-cubed was budget administrators existed in the reallocation. explained university that and, The fiscal since university could not expect sufficient funds to cover expenses, it would use reallocation strengthen high-quality programs. to generate funds the its to 21 5. Strategic and tactical decisions were undertaken by the central administration of MSU president, provost, (the board of trustees, vice-presidents, and director and assistant director of the Office of Planning and Budgets). The central administration institutional institution priorities would set and strive the values, to strategic and achieve the under vision, goals the R-cubed. Students, staff, faculty, and administrators participated in planning R-cubed and in shaping the objectives of its APP&Rs, the platforms. From SSPP&Rs an and planning) achieve institutional the perspective, platforms tools. were the tactical decision (and Through them MSU elucidated how it would its strategic mission. The Provost passed on the recommendations of the various platforms and the APP&Rs to the deans of the colleges and directors of separately reporting departments. Although, administrative President, there level are of at university Provost, and Vice Presidents) and operational decisions, study. the offices the (Offices central of the that make tactical they are not the focus of this I am more interested in the relationship between the central administration and the departments, and particularly about how decisions are made in departments. 22 In short, the strategic approach to planning has been initiated at many institutions because of resource concerns, and it has been financial issues" 1 -4 useful in the resolution of "vexing (Chaffee, 1983) . R-cubed from the Departments' Perspective There (Academic are 14 colleges Programs and Michigan 115 State departments University, at MSU 1992). Annually during the R-cubed period, an academic unit's APP&R became the basis of budget allocation. Also, every unit was to use its APP&R as the basis for setting specific internal goals and objectives each year. relay the objectives solicit input The dean was expected to of the APP&R to the departments from these subordinate departments prior and to deciding on the process the college would follow to realize these objectives. Based chairperson strategic, her unit. goals of on of the objectives set a department may tactical, For and operational example, increasing faculty and students. some by the of the conduct long-range decisions for his or departments recruitment dean, women had and long-range minority A tactical decision that derived from that might call for increased cooperation with historically black colleges or increased cooperation with minority 23 faculty and staff at MSU. from the female preceding assistant graduate An operational decision resulting decision professor students. could and Strategic call for enrolling plans of recruiting two a a minority department are contained in the department's long-range planning document. Tactical plans are reflected in the completed departmental APP&Rs, while the departmental annual budget shows its operational decisions. Though departments received a lot of directives from the institution that they were expected to implement, they still had substantial leeway within the bureaucracy decide "what to do" and how they would do it. a department cooperate could with decide the central reallocation efforts. would retrench from the extent to to For example, which administration's it would budget It could also determine the items it its budget as well as programs to strengthen, reduce, or eliminate. During R-cubed, the APP&Rs directed units to: . Describe the transition funds they needed to effect a permanent reduction of their budget at the various targets. . Describe significant changes in the future intentions or current commitments of units as necessitated by the current economic circumstances. 24 . Describe planned general-fund personnel and programmatic actions as well as the anticipated consequences necessary to meet the reallocation target range. . Describe emerging areas of multi-disciplinary collaboration and cooperation. . Describe their cost-containment and efficiency strategies and the revenue enhancements to be pursued. . Describe accomplishments that units have achieved with allocated funds. . Identify changes units plan for accommodating conversion to a semester system, msu idea initiatives, and lifelong education. . Identify continuing or new, unmet space needs. . Specify for each year, dollar savings, personnel changes, qualitative changes in programs, deviations from the 1988-89 course and section offerings, and the overall instructional capacity. . Describe trends in program quality in three areas: instruction, research and public service. . Describe centers of excellence in the department. 25 . Describe changes in the department's concept of faculty "work load" and unit productivity (Academic Program Planning and Review Documents, Michigan State University, 1988-92) 1.5 Statement of Problem Many studies have been done on institutional response to fiscal stringency. A few of these studies focus on organizational decision making in times of fiscal stress. Very few of these however, department level. how departments study the issues at the academic The purpose of this study is to examine make decisions in times of fiscal stringency. 1.5.1 Purpose of the study This study will examine and explain decision making in academic departments at Michigan State University during the R-cubed period of fiscal stringency (1988-89 to 1991-92). 1.5.2 Significance of the study. The study of decision making is important because of the vital role organizational decisions life. people make determine, The type play and in individual quality of and decisions to a large extent, whether they will 26 succeed or fail. This is also the case for institutions, especially in periods of fiscal stringency. A department is the most basic academic administrative and budgetary unit of a university. A disciplinary department is one in which all faculty members are trained, have common backgrounds, (Tucker, 1984) . and teach in the same discipline Institutional strategic plans ultimately "operationalized" at the departmental level. is important to understand how departments make are It decisions regarding the implementation of institutionally formulated response basic to units fiscal stringency because departments of an institution. Such are the understanding is important to institutional policymakers because even a welldesigned strategic plan will fail if the departments which are supposed to implement it decide to sabotage it. The decisions made at the department level ultimately affect the welfare of the parent institution. The findings of this research will also inform readers about how two departments at MSU planned and implemented strategies in an effort to assuage fiscal difficulties in their units. The study may also furnish some information on the impact of those strategies on the financial condition of the departments studied. 27 Finally/ this the decision-making processes utilized by academic departments. Those who make decisions for study will reveal departments can apply the lessons they learn from this research toward making more effective decisions in the future. This study will also contribute to a better understanding of decision making in higher education during periods of fiscal stringency. It will also contribute to the literature on the rational decision making model. 1.5.3 Limitations of the Study The research depends Facts on that a case study documents and were documented Interpretation extent. is of not the Therefore, of past recollections results some or is of events, it participants. recalled subjective, investigator and were to biases lost. a large may be introduced. 1.5.4 Overview of Interpretive framework The focus of this research is on ascertaining whether the decision-making process regarding departmental responses to fiscal stringency during R-cubed was rational. Thus, the analysis of data and conclusions drawn from the findings of this research will concentrate on determining the occurrence 28 or absence of the rational model. Therefore, I will compare the attributes of the decision-making process found in the departments with that predicted by the rational model. most of the major attributes of the two sets match, If then I can conclude that the process departments used in making the particular decisions was essentially rational. However, if there is no match, or if some important attributes of the decision making process are inconsistent with the rational model, then I will ascertain if these are consistent with those political model). of The alternative models pattern of (such as responses of the the departments will be compared to those found in literature to determine whether departments responded in a manner consistent with literature. 1.5.5 Key Research Questions The overarching research question for this study is: Did academic departments at HSU respond rationally to fiscal stringency during the R-cubed period? This is divided into two key questions: 1. What were the responses of academic departments at MSU to institutional fiscal stringency during R-cubed? 29 2. Through what processes select their responses did academic to fiscal departments stringency, and did these processes conform to the rational decision-making model? 1.5.6 Definition of Terms Allocation of resources: apportionment of resources. Budget or financial maintaining flexibility: sufficient the prudent financial liquidity practice so that of if revenues fall or expenditures increase unexpectedly, monies can be found to fill the gap (Fielder, 1983, p. 7). Declining enrollment: The decreased production of student credit hours at a specific institution as reported by that institution to the Department of Management and Budget. Evidences includes of merit: awards or The number of evidences prizes given to faculty students for teaching excellence, scholarship, of or merit graduate research, or other creative activities. Fiscal year enrollment equated used to student provide measure of enrollment institutions. (FYES): A a unit consistent of and among the Michigan public Undergraduate total student FYES figure. comparable four-year credit production is divided by 31 student credit hours compute the undergraduate student Graduate hour (SCHs) to I student 30 credit hour production is divided by 24 student credit hours (SCHs) to compute FYES at Graduate I level. Graduate II SCHs are divided by 16 to compute Graduate II FYES. Faculty Support: issues: space, clerical and resources(a broad range of infrastructure technology, technical travel, support) supplies MSU makes and services, available to support faculty in instruction, research and service. Fiscal stringency: A condition of limited state revenue and escalating costs of providing services to clientele, that necessitates an institution to curtail or eliminate planned or existing programs. Institutional fiscal year: A time period that extends from July 1 of a given year to June 30 of the following year. The state appropriation calculated by for institutional capturing 75% of the fiscal state year fiscal is year appropriation plus 25 percent of the previous state fiscal year appropriation. Major administrative unit (MAU): An organizational unit that comprises a group of offices. For instance in MSU, Financial Aids the are part A director manages the unit. offices of of a major the Registrar's administrative and unit— Enrollment Services. Major professional accomplishments: The number of major professional accomplishments includes consulting, service as 31 an elected officer, member of a dissertation committee (Office of Planning and Budgets University Data Book, 1992, P. 1) Mortgage a position: prior to (for retirement. A department will give up a position instance two years) a faculty member's In such a situation the department will give up the individual's salary to the college. The college will then give that money to the provost, but it will then borrow money from the provost for those two years. department receives actually retires is for the two The money the years before a temporary non-recurring the faculty allocation. When the faculty retires, the position is given up. No Tenure: Number of academic staff in the tenure system without tenure (Michigan State University Office of Planning and Budgets University Data Book, January, 1992, p. 1). Operational resources planning: (financial, The planning material, and and human) management of during a future time frame (spanning more than one year) with the objective of being flexible and adapting during a period of change (Fielder,, 1983,p.7). R-cubed (Rs) period: The period from 1988 to 1992," when Michigan State University embarked on a long-range strategic plan designed to help the university carry out its mission 32 efficiently and effectively and demonstrated its readiness to improve and change. Program discontinuance: The termination of program consisting of more than one course an academic (Fielder, 1983, P- 7) . Proposals: The number of submitted for funding, and continued proposals proposals proposals newly from includes proposals funded or renewed, the previous year (Michigan State University Office of Planning and Budgets University Data Book, January, 1992, p. 1). Ranked faculty: professor, The associate total academic professor, staff assistant appointed as professor or instructor (Michigan State University Office of Planning and Budgets University Data Book, January, 1992, p. 1). R-cubed strategies: Rebalancing, stringency a set and Refining, during the of strategies— Refocussing, used by MSU to adapt to fiscal R-cubed period. R-cubed strategies were used by MSU to achieve its goals. Refereed papers: The number, of publications appearing in print during the calendar year including single author, co­ author, or edited (Office of Planning and Budgets University Data Book, January 1992, p. 1). Refocus: looking at the institution's priorities mission and goals). (i.e., its 33 Refining: ensuring that the quality of MSU's meet the academic programs are high. Rebalancing: reallocate resources to needs of priority areas. Reallocation: A fiscal event that redirects resources (L. Glenny, 1974# p. 9). SS&E: Supplies# services and equipment. State fiscal year: A time period that extends from October 1 of a given year to September 30 of the following year. State appropriations year and are recommended in terms of a state fiscal later converted to an institutional fiscal year (Fielder, 1983, p. 7). Student credit multiplied by hour: the Number number of of semester students credit taking the hours course (Fielder,# 1983, p. 7). Temp: The appointment number of (Michigan academic staff with State University Office temporary of Planning and Budgets University Data Book, January, 1992, p. 1). Tenured: Number of academic staff with tenure (Michigan State University Office of Planning and Budgets University Data Book, January, 1992, p. 1) Transition funds: a type of non-recurring funds given only on a one-time basis to accomplish a particular goal, outcome as part of R-cubed. It could be used to with support 34 programs with temporary high enrollments. It could be used to support a newly hired faculty who will replace one who will retire in a year's time. It will pay the new hire until the retirement occurs. 1.5.7 Overview of Dissertation Sections This rest of this dissertation is divided into four chapters. An extensive review of the relevant literature is found chapter in two. This chapter theoretical framework for the study. methodology used for the study. selecting sources the of sample, data, contains the Chapter three is the It contains the method for development procedures also of for research data questions, collection and analysis. It also contains a description of the departments being studied. Chapters four and five report the findings of the study for each of the two departments in the sample. Chapter six contains the future. the conclusions and implications for Chapter 2 Literature Review 2.1 Overview In this chapter I review the literature pertinent to my study and the model through which I will analyze my data, the rational decision making process. The literature reviewed in this chapter fall into three broad categories: past studies on institutional responses to fiscal stringency; departments; colleges and literature on literature on and departments the structure of decision making in periods of fiscal academic in academic stringency. This review is given in section 2.2. The second section of this chapter interpretive framework for the study. in the rational (2.3) deals with the It contains the steps decision making process, findings that may confirm the occurrence of the rational model, criticism of the model; findings that may discredit the rational model, and strengths of the rational decision making process. 2.2 This Review of Relevant Literatures review covers three literatures which are respectively in subsections 2.2.1, 2.2.2, and 2.2.3. 35 discussed 36 2.2.1 Literature on Institutional Responses to Fiscal Stringency The Carnegie Report in 1975, titled "More Than Survival," recommends that during periods of slowed, no growth or declining growth institutions should adopt the following strategy: Institutional leaders should analyze their institutions to determine the current situation and factors shaping its future course. These analyses should be used to inform their colleagues and constituents and should be part of a larger effort designed to create attitudes receptive to, and conditions conducive to, change. The authors of the report further stress that inflexibility is a major concern to institutions and systems, and that reallocation is the main source of flexibility when income growth ends. But, that reallocation under no growth raises the issues of centralized planning and authority and decision suited. making, They for add which colleges that though are not particularly decentralized forms of governance may be effective during a growth period, in decline they are more likely to paralyze the organization than help define it. Successful reallocation must involve peer review and participation. The authors add that they expect reallocation to become a way of life for most institutions. To facilitate adapting existing resources to new needs, they 37 suggest that guidelines for reallocation be developed by the boards of guidelines campus and trustees be or sensitive provide regents. They to procedural objective bases that requirements for "financial exigency" and "program need." stress such of concepts the the as They would like peer reviews to shift the burden of defending the status quo onto the departments. Other proposals include: . withdrawing funds (about 1 to 3% annual]y) from existing campus programs... for a self-renewal fund to be directed to new or expanded programs. . The provision of greater incentive for effective use of resources by altering budgetary procedures to induce cost-saving changes/ giving special attention to the possibilities of permitting departments and schools to carry over from year to year significant portions of unspent balances in their budgets, and of permitting them to retain a portion of the budgetary savings resulting from innovation or investment in more efficient equipment (p.75 ) In the "The Three R's of the Eighties," Mortimer and Tierney (1979) probed the issue of institutional responses to reductions in growth rates and budget bases. The study included case studies of three institutions: the University of Michigan, the University of Pennsylvania, and the Pennsylvania State College System. The inquiry was divided into two major segments. first part addressed the future conditions under which The the 38 institutions will operate. Those conditions include: declining numbers of college-age students, changing trends in institutional instructional revenues, inflation expenditures. The rates, and second part of trends the in study reviewed the predominant strategies institutions employed to cut expenses. rates, These strategies include: reductions in growth internal reallocations, program review, staff reductions and dismissals, and program discontinuance. In the first part, Mortimer and Tierney predict enrollment declines between 1980 and 2000 for colleges. buttress their position, which include Cartter's the they cite several articles, Chronicle (197 6) forecast. of Higher Education To two of and A. The first article predicted that between 1980 and 1990, there would be a 19% national decline in the number of 18-year-olds, while Cartter estimates that the decline in the traditional college-age cohort(18-21-yearolds) would be approximately 15%. Mortimer and Tierney add that if one were to look beyond 1990, college students will response to Bowen's have (1975) the potential pool of dropped by 6-15% by that it would In point that older students would offset the decline, they cite Cartter and Soleman contend 2000. take approximately students to replace one traditional, five, (1976) who part-time full-time student; and 39 that it was doubtful that there would be enough nontraditional students to offset the decline in traditional students. Mortimer and Tierney note that matriculation rates fell by 50% in several states and reflected an ebb in attendance. that matriculation trends They blamed these phenomena on the end of the draft and lessening economic incentives for college attendance. Other factors they mention that affect enrollment were population shifts within the United States and increased tendency of students towards career or vocational education. They assert that population shifts are of greater concern to colleges than the national attendance pattern. In-migration was occurring in the sunbelt region while out-migration was occurring in the industrial-oriented northeast section of the country. To respond to rising student demand for vocational education, they advise colleges to change to job-oriented changing trends in institutional curricula. Regarding revenue, Mortimer and Tierney argue that an increase in tuition would likely decrease college attendance, though institutions claim that they were enrollments. unsure of effects of tuition J. Jackson and G. Weathersby increase (1975) on also say that increased tuition costs would decrease the likelihood of college attendance. A second source of revenue for 40 institutions was the federal government. The main point of this subsection was that federal aid to higher education was on the increase, but at a slow rate. A third source of institutional revenue identified was state appropriations. However, higher education was no state budget, Magarrell (1978) states longer a high priority within gifts was the fourth source of revenue. economy. the and that this was reflected in the decreased state appropriations to colleges and universities. the that In a buoyant economy Private They fluctuate with they periods of economic recession, decreased. increased and in Changes in tax laws were also mentioned as affecting this source of institutional income. Endowment income was a fifth source of revenue. predict that practices, without careful management and They reinvestment the value of the endowment would diminish. The sixth source of income for institutions "other income" was of peculiar importance to research institutions. Other income is described of as including sales and services educational activities (sales of scientific and literary publications, the products of dairy creameries, food technology divisions, and poultry farms), the recovery of indirect costs, and incidental fees and rentals. In Mortimer their discussion and Tierney argue of institutional expenditures, that projecting expenditure was 41 more reliable than projecting revenue, were growing at a rapid pace. in expenditure were: and that expenditures Three reasons for this growth inflation, increased responsibilities, and the nature of educational technology and Wynn, 1970; and Balderson, 1974) . (Bowen, 1969; Jenny They explain that the increase in costs for goods at the institutions was higher than the increase of the consumer price index, because colleges consume specialized goods whereas the public consumes general goods. Increased responsibilities involved in high- cost research programs and graduate studies also contribute to the high costs. Federally mandated contributed to the high costs. And programs since have the also educational enterprise was labor-intensive, rather than capital-intensive, it was unable to affect costs by increasing technology. Cost per-student They increased relative to costs in general. contend that cost efficiency was difficult to achieve in a period of stable or declining enrollment. increased during a period of declining Cost per student enrollment due to increasingly "fixed" labor costs. In part institutional exigency. rates, program two, Mortimer strategies These reduction review as employed and in response strategies include: in base, budget resource Tierney to reductions internal reallocation, discussed financial in growth reallocations, staff reductions, 42 staff dismissal, discontinuance. staff retrenchment, and program They comment that institutional expenditures are 70-80% salary costs; and that the reduction of a salary increase in any given year will have a long-term effect on the institution's budget. Mortimer and Tierney identify reduction of budget base. two The first primary areas for area relates to changes in staff composition at an institution. They discuss the advantages and disadvantages of increasing the number of parttime faculty: Part-timers may not be as familiar with the college's missions, philosophies, and academic policies. It is difficult to meld part-time and full-time faculty into a cohesive college faculty, especially if multiple locations are involved. It also is quite difficult to coordinate course content, develop uniform standards of student performance, and establish continuity of instruction when part-time faculty are used excessively, (p. 27) Other techniques composition rely on Institutions have used they suggested the promotion a variety of for and changing staff tenure policies. techniques, including extending the pre-tenure period, increasing the proportion of non-tenured positions to tenured positions, and establishing early retirement programs. The second way to student-facuity ratio: reduce budget increase base is the number of to increase students and 43 hold the numbers offaculty constant, faculty and hold the numbers of reduce the number of students constant, or a combination of the two. Mortimer and Tierney state that studied also responded to the financial institutions stringency increasingly reallocating their internal resources. they through They cite Pennsylvania State University (Penn State) as an example; it responded to its revenue-expenditure expenditure base. accomplished through They explain internal gap that budget by reducing this its feat was reallocations. Penn State began a five-year planning and budget process in 1977 to guide its Tierney, budgetary the plans decisions. were As based found on projections for the planning period. by Mortimer income and and expense The institution required each college and major administrative unit (or college) to plan on the basis of budget targets it assigned them. Another internal Fund" example was the reallocation plan which and consisted of (1%) of each unit's established a central fund. new programs, was a continual Under the "Priority Fund" percent University of called the Michigan's "Priority reallocation process. the institution reallocated one base budget, then used it to When units needed to establish improve equipment, or adjust a program, they could request increased funding from the "priority fund." 44 Mortimer and Tierney observe that the priority fund altered University cycle: of Michigan's approach to the to reflect a planning mode versus reporting of expenditures. budget-planning an after-the-fact Through "priority funding" the university was able to maintain financial flexibility during the reallocation of its resources. Harold T. Shapiro, vice- president for Academic Affairs at the University of Michigan (1977), notes that: financial flexibility is no more than the conventional and prudent practice of maintaining sufficient financial liquidity so that if revenues fall or expenditures increase unexpectedly, monies can be found to fill the gap. That gives the organization time to adjust; it avoids crisis management and sudden disruption in operations which might cause permanent and irreparable damage, since for most institutions real growth as a source of flexibility will no longer be the case. (p. 21) Program review is also often resources in colleges and universities. argue that it was used to establish used reallocate Lee and Bowen (1971) the expanded programs. Mortimer and McConnell the process decision-making to institutions need for new (1978) should or recommend follow reviewing programs: 1. The process and criteria must themselves be the subject of early consultations before alternatives become rigidified. 2. The procedures should be jointly formulated by both faculty and administrators. in 45 3. Where possible/ there must be adequate time to conduct reviews. 4. The information must be freely available to all persons concerned with the review. Those who would restrict the free flow of information should bear the responsibility for justifying the restriction. 5. Once reviews have been conducted, there should be adequate feedback concerning the results. 6. Any decisions reached should be communicated widely, (p. 35) Finally, Mortimer and Tierney describe staff reductions, dismissals, retrenchment, and program discontinuance as other measures institutions used to respond to fiscal stringency. Program discontinuance was perceived as a certain consequence of budget gaps. Mortimer and Tierney (1979) conducted a very extensive study on the subject of institutional responses to financial difficulty. Their work has made a remarkable contribution to knowledge about the topic. A missing piece of the puzzle is the academic understanding budget reductions. of how This is a departments topic my study respond to intends to explore. James College, a Patrick's (1991) research focused on Maryville small, Catholic, women's liberal arts college in St. Louis that was on the brink of closure in 1971 due to extreme financial exigency in the late 1960s and early 1970s. 46 In the College: historical The Will case to study that Survive," was titled Patrick "Maryville investigated the following questions: 1. Did the college change to make itself more marketable to prospective students? 2. Did the leaders of the college use a participatory management style to effect change? 3. Was a lay board of trustees established to serve as a bridge to the community? The author found that to attract more students, Maryville altered its mission by enrolling male students and becoming a "career-oriented liberal arts college." During the period of financial exigency, the three-member management team of the than institution participatory, used a benevolent-authoritarian, management style. A lay rather board took control of the college and helped improve relations between the college and the St. Louis community. the institution heritage, survived and might as by He concluded that sacrificing a result be a suffering part an of its identity crisis. James Patrick's work on Maryville is quite different from mine because of differences in our units of analyses. Yet, his work contributes to a better institutional responses to fiscal stringency. understanding of 47 However, there are some methodological problems with his study. It collection: depends the inordinately interview, for a on one source historical of case data study. Moreover, sole reliance on recollections of human memory also raises doubts memories of about events the accuracy become more of the unreliable findings, with since time. An additional source of data would have strengthened the validity of his findings. Like other studies, Patrick's leaves a major knowledge gap: "responses of academic departments in periods of fiscal stringency." The interest in how colleges and universities cope with fiscal distress has grown with time, as declining public support for higher education has left many scrambling for ways to make ends discussion lessons her meet. of how Sherry to survive Penny fiscal (1993) advances stringency by listing institution— the University of Massachusetts Boston— learned from four years of fiscal stress. the at According to her, the problems began in 1988 when the state's faltering economy began its steep decline. "During the next four years, state support for our institution shrank by 40% or $33 million (adjusted for inflation). We suffered 10 separate reductions, many of which came without warning... During a one-month period in 1990, we lost $6.5 million, more than 12% of our 48 budget" (p. Bl). She gives a litany of lessons of which a few are relevant to my discussion: 1. Typically, the state's public colleges the and universities are ordered to cut their budgets by same percentage. State budget cuts do not take into account how such across-the-board cuts affect individual campuses, or what their impact will be on enrollment figures, academic programs, research, or community-service higher education projects. This means that institutions must learn to manage on the edge. 2. Communication harder to achieve. relevant information, is critical, and understanding Intensely focused discussions, work better is based on than too much uninformed talk over a long period because solutions generated will have more impact. 3. The problem solvers, including faculty members, must adopt a university-wide perspective. During bad times, there was a tendency to blame others for the budget problems. Having a strong statement of mission— one that is broadly supported throughout the campus— helps because it provides the basis for a strong institutional, non-parochial perspective. 4. Resistance to change must be dealt with. for instance that one's college had become Recognizing "state-assisted" 49 instead of state-supported," and that this new fiscal reality demanded a more flexible approach to planning. 5. Building consensus is important, but leaders sometimes must act even if they cannot reach consensus. 6. Centralized decision making is essential in irrational times. 7. Focus on the future and build while still cutting. Some forward motion in key areas was necessary to protect the university's mission of meeting the educational needs of undeserved populations and a very diverse student body. Avoid creating an impression of the university going downhill, instead maintain excellence in areas key to the institution's mission. 8. Learn to deal with stress. despite all you do to arrive at fair, Accept the fact that rational decisions on where to cut and how much, some people will be angry with you. Those managing decline must accept and live with the reality of not being popular. Risk taking may be necessary, but in fiscal hard times it is often not immediately rewarded, nor are all decisions supported by faculty and staff members or students (pp. B1-B3). Penny describes took to alleviate the fiscal stress: reduction in personnel size (by 260 employees) the actions through layoffs, her institution attrition and partial freeze 50 on positions; merging of advising centers; cut in course sections; increase in the size of some courses; reduction in equipment and supply purchases; curtailment of professional travel for faculty and staff; and cutback in maintenance and purchases of books and periodicals. The result was that these cuts hurt administrative efficiency and morale, but, programs were preserved and more doctoral programs were added. She concludes that the institution changed and the budget became stable. welcome Faculty, change as staff and administrators a harbinger for have begun renewal, instead of to a premonition of death. Typically from the perspective of a practitioner, article offers a list of do's and don'ts for managing fiscal stringency in a university. this successfully The article gives some useful advice especially for decision making when faced with fiscal distress. Her contention that her institution is now "state-assisted" rather than "state-supported," is germane to many public institutions today. Again, one gap in the report is that it is silent on how the academic departments at the University hardship during of Massachusetts its four resolved years their (1988-1991) financial of fiscal stringency. In his Institutional dissertation Responses to titled Condition "Case of studies Fiscal of Stringency 51 1974-1979 by three Michigan Universities and State Colleges," James Fielder (1983) examined strategies three institutions (University of Michigan, Saginaw State Valley University, and Oakland University) used to respond to fiscal stringency. He describes G. Milliken the period issued two as one in which executive Governor orders that William reduced state appropriations to Michigan higher educational institutions. The governor of a state is responsible for balancing the state budget annually. Thus, when projected state revenues below the projected expenditure patterns, fall an executive order may be issued to reduce mid-year expenditure patterns. He collected his data through the following methods: review and analysis state of published Michigan of institutional Department institutional of data reported Education; documents; and (c) (b) to (a) the review of semi-structured interviews with administrative staff of institutions studied. Some interesting findings come out of his case studies: (a) The three institutions experienced fiscal stringency during the period under inquest; (b) they used a variety of cost-reduction measures to respond to fiscal stringency; they used, activities and encouraged (tuition enrollment mix, subunits increases, to increase alteration (c) fundraising of student- aggressiveness in acquiring research grants) in order to augment state appropriations; (d) they moved from 52 pure operational a planning budgeting to combination strategic planning (short of (long-term), term) and operational and incremental planning inclusion of and budget planning into the strategic planning framework in order to increase major budget flexibility; (e) a difficulty all institutions encountered in trying to resolve fiscal stress was in internal communication; the advantages evenly (f) institutions reported that and disadvantages balanced; and of finally, fiscal (g) stringency were all institutions successfully assuaged their fiscal stringency. Some of the institutions also established special funds to increase budget flexibility for academic units. For instance, at the University of Michigan, the most significant deliberate action taken was the implementation of the priority fund in 1977-78. The fund was established to provide increased budget flexibility through reallocation. The guidelines for the fund: 1. Academic units were to turn back .5% to .66% of the allocated general fund budget to the priority fund each year for three years. 2. Nonacademic units were to turn back 1 percent of the allocated general-fund budget to the priority fund each year for three years. 3. Each unit had the option of proposing programs for funding from the priority-fund. 4. Each unit in the institution was in competition for priority-fund allocation. 53 5. All proposals for funding were reviewed by the VicePresident for Academic Affairs, the Deans Council, and the Budget Priority Committee. 6. Final authorization to allocate funds from the priority fund was given by the vice-president for Academic Affairs. 7. The priority fund was established as a management tool with open access for institutional groups. Fielder University notes that of Michigan owing to successfully the priority reallocated fund funds the from non-instructional units to instructional units, and from lower priority instructional units to higher priority instructional units. The author concludes with recommendations: a need for further examination of whether the period of fiscal stringency continued after 1978-79; and if it did, for interested parties to find out acknowledged what that the the institutions breadth of did his should respond. He study precluded intensive examination of the universities. similar studies to any He advised that focus on an in-depth analysis of a single institution. In summary, this report contains some important findings and recommendations for higher education administration. Its chronicle of strategies institutions used to allay financial shortages might be helpful to colleges these days of incessant budget reductions. and universities in Like other studies 54 reviewed in this chapter, this one does not "departmental responses to fiscal stringency." examine The study is also silent on the issue of decision making in times of fiscal stringency. Another response to contribution fiscal Stewart (1975). use to stringency literature is the on work institutional by Harvey and They address strategies that institutions can "survive significantly." alternative approach decline. to They The authors for coping with budget criticize the propose an and enrollment physical-continuity goal of institutions as too limiting for colleges and universities, because the important. achievement According of to institutional them, in aims pursuit of institutions tend to lose sight of significance. respond with retrenchment, is equally survival, They usually which tends to focus on reducing institutional inadequacies rather than affirming its positive qualities. Retrenchment focuses on efficiency, costs, and weaknesses. "It examines where the institution is in the light of where it has been. In contrast, institutional affirmation focuses on effectiveness, on what might be in light of the future" (retrenchment and affirmation) (p. 273). These are not mutually exclusive responses to the problem of survival. In order universities have to survive to become significantly, clearer about colleges their and individual 55 purposes and distinctive qualities. This means that in the face of declining numbers of traditional college students and increasing decision diversity about of potential students, the new clientele will institutional become an important element in their significant survival. They reiterate that to survive significantly, institutions must change their curriculum and services. must also follow programmatic changes with They developmental program for faculty and administrators to help them rethink their responsibilities in light of such survival. In their paper "Significant Survival: a Synthesis," Harvey and Stewart recapitulate five guidelines to increase significance and avoid simplistic solutions to enrollment and budgetary declines. These guidelines are supposed to focus on the long-term concerns of the institution, unlike efficiency and cost-cutting devices which focus on short-term survival. 1. Colleges and universities need an effective radar system to alert policymakers of impending danger. Planning and institutional research are the warning systems. They give institutions facts about where they are heading and foresight about what they may encounter as a result. 2. Institutions have to maintain high quality in order to attract able students and faculty. quality they must do three things: Toward achieving high (a) decide what is 56 important to do;