U's Kaler: It's all about return on investment

University of Minnesota President Eric Kaler often speaks to service clubs and other groups, and he usually works in a variation of this: "For every state dollar invested in us, we return $13.20 to Minnesota's economy."

Dropping that line on an audience is part of Kaler's standard pitch to remind folks of the university's deep economic impact.

It's a curious sign of past and future battles over state budget priorities that anybody in Kaler's position would undertake a campaign to point out something so obvious: An organization like the university has an enormous impact on the regional economy, given that it has a $3.2 billion annual budget.

In a recent conversation, Kaler talked a lot about return on that investment, and it's his plan to increase the ratio by raising the economic impact in that calculation, not chopping the amount invested. His is a growth strategy, not a cost-control strategy.

Our conversation came about after I heard Kaler use that $13.20 figure twice this year. Turns out, the figure is from a study commissioned before Kaler assumed his post last year.

"It's important for me to steadily and clearly articulate the value of the U," Kaler said. "And sometimes I am frustrated that it seems to get caught up in other messages."

And he is far from alone among big university leaders in that effort.

In fact, the Pittsburgh-based Tripp Umbach consulting firm, which produced the U's study, arrived at $8.6 billion based upon direct and indirect impacts of employment, purchasing, and other activities for the fiscal year ended in 2010. Tripp Umbach's approach did not really calculate return on investment as an executive would do while allocating capital in a business. The $13.20 number was simply dividing the $8.6 billion by that year's state support of $651.3 million.

Vice President for Research Tim Mulcahy, who participated in the conversation with Kaler, called Tripp Umbach's 2011 economic impact study a "blunt instrument." Critics may quibble with its methodology, Mulcahy added, but they should also acknowledge that the university's leadership is responding to calls for greater accountability for results.

But if you talk to business folks in an audience when Kaler is speaking, as I have, most of the grumbling has little to do with the university's big economic footprint in the state. Instead, they say, why can't the university do its job cheaper? Does it really need all of its more than 25,000 employees?

"The U is a great big place, and most people associate great big places with inefficiency," Kaler said. "I talk to people who know the university and have also worked in private industry, and they tell me that we do things pretty effectively and efficiently. We do that because we don't have any money to do anything else."

Kaler leads an effort among his senior staff called operational excellence. The university takes pains not to call it an initiative, but an ongoing part of management of the university. One result was the review kicked off when Kaler learned that the university had 265 institutes and academic centers.

"If you take the sum of the state appropriations and tuition revenue per capita in 1997 it came to about [$15,000]," Kaler said. "If you take that same ratio in 2012, in constant dollars, it's about 13 percent lower. Does that equate to some easily demonstrable increase in efficiency? Yeah, I think so."

Using more online teaching tools and other information technology? Kaler is interested, but to improve learning outcomes, not necessarily to cut costs. He said the for-profit, online education delivery model "is not a magnificent new paradigm that is going to save the world."

Eliminate or reduce the one-on-one nature of graduate-student work with faculty? Not smart, Kaler said. "The economy would feel that in dramatic ways in a short amount of time," as the best candidates for graduate schools go elsewhere and those the U sends into the Minnesota workforce are less qualified.

Cut back on research infrastructure? Kaler said the U is the eighth-largest public research university in a state that is 21st in population. And, he added, the capital coming for externally funded research is "fresh investment" new to the state.

Compensation is another issue Kaler described as "touchy," and he put his approach this way:

"I'm going to go with B."