Performing to Make Money—Making Money to Perform

John V. Lombardi writes about the "endless Sisyphean task of explaining university finances to many audiences" and works hard to describe the difference between the "business model" and the "university model."

Universities are indeed business enterprises, we can explain. They earn and spend money, they produce and sell a wide array of products, and they compete for student customers and high quality faculty employees. They produce teaching and research, they require students and faculty, and they judge their performance on the quality work both perform. Most people in our audiences will recognize all this as more or less appropriate and right. Then we come to the money.

Universities, we can tell them, are revenue engines with a business model fundamentally different from our corporate colleagues. The business world constructs enterprises to produce and sell products or services with the goal of making money. A successful business earns a profit that it distributes to its owners. The business measures its success by the amount of money (or value) created for its stockholders or owners. This is simple. If the business cannot make the product and sell it for a profit, it stops making that product and makes a different one that it can sell at a profit, because the point of the exercise is the profit not the product.

In the university however, we do something different. We engage in an intense and focused search for money so we can produce teaching and research (with all of its associated benefits). The more money we can generate the more and the better teaching and research we can do. The purpose of the money is to purchase quality teaching and quality research and support a quality university environment. We compete with each other not to make a profit but to acquire quality. We define the successful university by the total amount of quality it can accumulate (demonstrated by its products) within its boundaries.