Q&A ON UNIVERSITY OF CALIFORNIA RESTRUCTURING EFFORT

Q&A ON UNIVERSITY OF CALIFORNIA RESTRUCTURING EFFORT

April 2007

Q. What is the University doing?

A. We are embarking on the next phase of an organizational restructuring effort by launching a systemwide review and restructuring of our administrative functions. This project will focus on what work should be done at the Office of the President and at the campuses and will re-examine how our finance and administrative operations should be structured overall.

Q. Why is this being done?

A. For several reasons: To better define roles among the Regents, the Office of the President, and the campuses. To achieve greater operational efficiencies and better customer service. To achieve cost savings that can be redirected to academic priorities. And to meet our commitments to the Legislature, which called last year for such an organizational review.

Q. Hasn’t this been done already?

A. Not on this scale. In the first phase of the University’s restructuring effort, the consulting firm McKinsey & Co. last year conducted a preliminary, pro bono organizational assessment of the University. The McKinsey review led, in the short term, to a restructuring of business and administrative positions at the upper levels of the UCOP leadership. But the McKinsey review also called for a more extensive organizational assessment and realignment, focusing on what work should be done at UCOP and at the campuses, re-examining how our finance and administrative operations should be structured overall, and achieving new efficiencies and cost savings while supporting the academic mission. It is this longer-term, more extensive review and realignment that we are initiating now.

Q. Why now?

A. The sooner we realize operational and cost savings, the better. In addition, we have a commitment to the Legislature to provide a report on the organizational assessment this summer.

Q. Who is going to guide the process?

A. Monitor Group, a global management consulting firm, has been selected to guide the University through this assessment and realignment process. This firm has experience working with both for-profit and not-for-profit organizations of very broad scale and complexity, including a multi-hospital health care system, the R&D functions of major pharmaceutical and biotechnology companies, and the governments of several small countries. A steering committee of UC representatives and outside advisors, co-chaired by Board of Regents Chairman Richard Blum and UC President Robert Dynes, will oversee the effort.

Q. Isn’t UC hiring two new executive vice presidents to do this work?

A. As a result of the McKinsey preliminary review, the Regents created the positions of executive vice president for business operations and executive vice president and chief financial officer. The creation of these positions was a short-term action to address “who does what” at senior levels of UCOP. The larger restructuring effort is a long-term look at “what work is done” by the Regents, UCOP, and campuses, respectively. This effort is much larger than two individuals could perform on their own, especially given that they will have significant operating responsibilities. In addition, having objective outsiders guide the process is important. Both of the new executive vice presidents, once on board, will be deeply involved in the process.

Q. How was Monitor Group selected?

A. A competitive RFP process was conducted, attracting five bids. A group representing Regents, UC administration, and the Academic Senate selected Monitor Group as offering the best overall value across criteria which included experience and expertise in restructuring large, complex organizations, ability to interface well with University faculty and administrators, and price. A key factor in the selection of Monitor was its commitment to a highly participatory process in which the firm will develop options for the University’s consideration and then facilitate UC decision-making processes, rather than telling the University what to do.

Q. What is the cost of the contract?

A. This is a multi-phase project. The initial phase will cost an estimated $1.87 million, plus expenses not to exceed 14.5% of project costs. The contract contains provisions allowing termination at any time for any reason. If all phases of the contract are performed, including implementation of the recommendations, the maximum cost would be $6.9 million, plus expenses not to exceed 14.5% of project costs.

Q. Where will this money come from?

A. The project will be funded by a one-time internal loan from University endowment funds that will be repaid by the savings generated by improved administrative efficiencies. The endowment funds to be loaned for this project are neither state funds nor student fee funds and cannot be used for general ongoing costs.

Q. Is this a wise use of University resources?

A. We expect this restructuring effort will achieve operational efficiencies and cost savings that will more than compensate for the cost of the contract. We expect those savings will not only cover the cost of the contract but also free up resources to address other pressing University academic priorities – which is critical given the constrained funding environment for UC.

The University already has experience with restructuring efforts that have achieved real savings. For instance, the University’s strategic sourcing initiative, which aims to reduce the total cost of purchased products and services by fully leveraging the University’s systemwide purchasing power, has already generated an estimated $32 million in annual savings. And in the area of debt restructuring, a general revenue bond refinancing recently undertaken by UC achieved about $70 million in present-value savings. So, real savings are possible from realignment efforts.

Q. What are the expected outcomes of the process, and how long will it take?

A. The process with Monitor Group is expected to take about 12 months, though a full organizational alignment will be a multi-year effort for the University. The initial year will include: (1) an organizational assessment involving analysis, interviews and surveys to identify and prioritize key organizational effectiveness issues; (2) development of options for designing an updated role for UCOP relative to the campuses; (3) redesign of several cross-system administrative functions identified as highest priority in the initial organizational assessment; and (4) redesign of UCOP’s organizational structure in accordance with the findings of the review, including the potential relocation of activities within the system, elimination of duplicated activities, and/or addition of new activities. At the end of this work, the University will decide whether it wishes to undertake the redesign of additional cross-system administrative functions on its own.

Q. What will be the impact on employees?

A. This effort is not aimed at cutting jobs – it is aimed at creating an organizational structure in which roles and relationships are better defined than they have been in the past, and where administrative processes across the system are more efficient and effective. It is certainly possible that there will be some employee impacts, including shifts in the nature or focus of the work that some people in the UC system do. While the precise impacts cannot be predicted until the process identifies them, the University will make every effort to keep employees informed of the progress of the project and likely impacts on employees.

Q. What principles are intended to guide the effort?

A. The work should support the University’s strategic academic planning; should recognize and preserve the current strengths of the University; and should use a highly participatory, bottom-up process that includes the Academic Senate and solicits input at all levels of the University.