Academic Outsourcing: Major in Financing, Minor in Risk

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Most Innovative Value Creation

"This is a true partnership in all regards, especially at the relationship trust level. Both of us have gone beyond the terms of the contract to help and support each other, and we both share in risks and rewards. This is a mutually beneficial relationship built upon the solid commitment of each other's resources."

- James B. Morgan, Director, Business Services Division, University of Florida.

University of Florida

Follett Higher Education Group

Academic Outsourcing: Major in Financing, Minor in Risk
By Kathleen Goolsby, Senior Writer

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Most Innovative Value Creation Winners Outsourcing, at its best, delivers even more value than anticipated by the buyer. This has happened with the University of Florida and its outsourcing partner, Follett Higher Education Group. Although the academic institution initially was worried that outsourcing could have a potential negative impact on customer service, it now views its highly innovative relationship with Follett Higher Education Group as the ideal relationship by which to advance the university's mission.

Part of this mission involved making the university a world-class, multi-channel academic retailer. Although the university had been operating its bookstore effectively before outsourcing, it wanted to move up to the next level in retailing. Doing so would require some external help.

From the start of the Invitation to Negotiate (a 1999 Florida mechanism for negotiations which ensures a contract would not be signed solely based on the lowest-price bid), the university and Follett began building trust in each other.

"The negotiation process provided us the opportunity over five months to really get to know some of the players in the Follett operation, from the CEO, the vice presidents in the different divisions, on down," recalls Jim Morgan, the university's director of its Business Services Division. Both finalist providers had the expertise and the capital to invest in the university. But the five months of collaborating while negotiating clinched the deal for Follett. "It helped build a feeling of how comfortable we would be with them, that they would be a partner with us for a long time, and that they weren't going to be just trying to sell us something," states Morgan. "This process built a sense of trust, integrity, coordination, and collaboration; all of which are important in accomplishing our mission together."

Outsourcing clearly emerged as the best solution for the long-range plans to build a world-class, state-of-the-art bookstore as the primary feature within a new complex to be constructed on campus. Aside from the sale of existing bookstore inventory (worth about $2 million), the university didn't have the funds to carry out its bookstore plans. More importantly, Morgan recalls: "Besides the capital investment, we knew that an outsourcing partner with an excellent reputation and experience in maximizing resources for everything involved in a bookstore was our answer."

Negotiations also led to an ideal solution for the existing bookstore employees. The university insisted that any employees who chose to transition to Follett would have the same options and benefits as if they had stayed with the State of Florida employment system.

Bestseller Deal

Today, the University of Florida Bookstore and Welcome Center facility (opened in August 2003) is comprised of a $12 million bookstore that totals over 50,000 gross square feet, a 372-car parking garage, I.D. Card Services, Business Services Division offices, a new signature Italian dining concept, and a Visitor Welcome Center. The university paid for the floor, ceiling and walls; Follett designed and invested in all other aspects of the bookstore, including flooring, fixtures and overall store design. Its design team was another reason Follett won the outsourcing contract, according to Morgan. "They build and design stores, as well as libraries, all over the country. They also had input with us in selecting the architect and construction management team for the entire facility. In short, they were sitting at the table with us, at every step of the way."

Many benefits and value-creation ideas in their outsourcing arrangement are hinged on a risk-reward pricing arrangement. Follett pays the university an increasing percentage commission for each million dollars of sales generated in the bookstore, keeping the remaining revenue for Follett's overhead expenses and profit.

Their successful collaborative partnership approach on the initial facility soon began extending into joint innovative brainstorming and subsequent new projects. The university, for example, built new Alumni Association Development offices - which now also house a branch bookstore retail operation where alumni can pick up a sweatshirt with the university's logo, or a book about the history of Florida or the university, or other gift items. The university provided the bookstore space within a new building, and Follett invested in building out everything inside.

Collaborative innovation happens at several levels of the relationship, according to Morgan. "Every few weeks, we jointly look at what the university's objectives should be; and we look at Follett's business industry goals, as well as the customer-service-oriented part of the university's goals," Morgan recounts. "We jointly look at every new facility and every new service that is offered at the university and discuss whether and how the bookstore fits into it."

For example, a major renovation and addition to the College of Law - located a mile from the center of the campus where the main bookstore is - was recently added to the outsourcing partnership's list of initiatives. The College of Law will provide space (walls and roof) for a bookstore in its new addition (in 2006), and Follett will build out a state-of-the-art legal bookstore.

Their cooperative efforts at innovation extend even to bookstore décor. An 800-gallon aquarium is the focal point in the university's main bookstore facility. "Traditionally in a bookstore, people think of a fireplace and get some chairs and put them around a fireplace. We wanted to do something different here," Morgan said. A student participating on the design committee came up with the idea of an aquarium with all of its vegetation and thousands of fish being native to Florida. Several organizations in the state and at the university donated the tropical fish. "It's gorgeous!" Morgan says. "Those who come into the store typically gravitate to the fish tank and marvel at the variety and bright colors of the fish." Even though Follett - which is responsible for every aspect of the bookstores - is, of course, not in the care-and-feeding-of-fish business, the outsourcing provider collaborated on this innovative idea.

Extracurricular Activities

Undoubtedly, the most striking example of their exceptional joint approach is the coffee shop in the facility. The university asked Follett to collaborate with Aramark, the academic institution's outsourcing provider handling campus food services. Together, the two outsourcers were tapped to come up with creative delivery of services to the university's customer base.

The coffee shop, which serves university-branded coffee, was the result of both outsourcing providers pooling their expertise. Located at the bookstore entrance, it generates traffic and cross-promotional opportunities such as flyers on tables to let students know that it's book buy-back time; or it provides food and beverages at a book-signing event. "To partner this way," says Morgan, "we all have to be part of a team." At one book-signing event, 300 books and probably a few cups of coffee were sold in less than two hours - clearly, a win-win-win situation.

In the next couple of years, Follett and the university will be jointly working on additional innovative services beyond the scope of their original outsourcing contract in order to meet challenges in the world of textbooks as more and more students use Web-based methods of accessing course materials. The university mitigates its risk in entering into these competitive-advantage projects because of Follett's technology resources and its expert knowledge of emerging trends in this area.

In addition to the planned eLearning modules on the horizon, an eCommerce solution -- eFollett.com -- has been developed to accommodate the university's customer base preferences for online purchasing and administrative functions. Students can log on, view their class schedules, and purchase all required textbooks and course materials with just one click.

From Savings to Seed Money

The outsourcing provider also instituted longer daily hours at the bookstore and expands operations for special events and football weekends. Notably, Follett expanded the selection of academic, reference and faculty-authored books and has increased the number of used textbooks available. Morgan says the university's view is that, by jointly ensuring with Follett that the institution has all the right services and products, as well as good customer service, competitive pricing and the most up-to-date technology, it will directly impact the outsourcing investment with high value outcomes.

Value creation includes how the university uses its commission percentage of revenue from bookstore sales. First, they paid off the entire $12 Million investment for the University of Florida Bookstore portion of the facility in three years. The debt was paid by the time they opened the doors. Currently, bookstore revenue is used to help fund development, implementation and support of an ERP program for the entire university - made necessary when the State of Florida devolved its universities from its system starting in 2004.

Other colleges and universities have taken note of what the University of Florida and Follett are achieving together, says Morgan. He adds: "I enjoy dealing with Follett! We're a good partner with them. This outsourcing relationship works well for both parties."

View on Relationship-Building:

"Follett's bookstore manager is now considered a member of the university. She sits on the university's Business Services Division's management team as a major director of operations. We don't deal with her any differently than we do with the directors of operations that are not outsourced at the university. She has a vote on things, and we talk about what's going on, and she lets us know what Follett might or not be able to do in a certain situation. That is very helpful because we, as a higher education organization, don't always look at things in a business way like an outsourcing provider does."
"We don't just look at what the contract says or get lawyers involved in what it says. We go well beyond the contract and look at what's the best way that we can really maximize our delivery of services to our customers - our students, faculty and staff, and the community."
"When we set this outsourcing arrangement up, we asked if the bookstore should say Follett. But they said, 'No, we're part of the University of Florida.'"

Publish Date: June 2004

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