The impact of the change in the Carnegie classification system on empirical research in higher education finance.

Adams, Olin L., III ; Guarino, A.J.

ABSTRACT

This study is an extension of previous research in higher education finance for which the 1994 classification of institutions by the Carnegie Foundation for the Advancement of Teaching was a key independent variable. The Foundation changed its classification of institutions in 2000, and the authors investigated the resultant impact of the change on their prior empirical research in higher education finance. The results of this study suggest that the change in the Carnegie classification system is substantive. However, the findings of prior research were not so fundamentally altered as to corroborate critics of the system who claim that the revised classification destroys the comparability of institutions. Upon the occasion of its centennial year in 2005, the Carnegie Foundation can be expected to continue improvement of a system so influential in the conduct and the results of institutional research.

INTRODUCTION

The first author was the principal investigator on research in higher education finance for which the 1994 classification of institutions by the Carnegie Foundation for the Advancement of Teaching was a key independent variable. The Foundation changed its classification of institutions in 2000. The new system emphasizes teaching, specifically the number and type of degrees an institution awards, rather than the conduct and external funding of research. The former categories of Research and Doctoral institutions have been replaced by a new taxonomy of Doctoral--Extensive and Doctoral--Intensive institutions. The classifications of master's and baccalaureate institutions remained in place (Basinger, 2000). Most of the published scholarship on the 2000 classification has focused on community colleges, ignoring four-year institutions.

The instant study explores the extent to which the results of prior empirical research in higher education finance changed because of the new classification system. Past research in higher education finance conducted by the first author focused on managerial accounting practices in colleges and universities, leading issues in higher education finance as perceived by college and university chief financial officers (CFOs), and outsourcing practices in higher education institutions.

MANAGERIAL ACCOUNTING PRACTICES

Approaches to planning and control in the accounting systems of organizations may be defined as "managerial accounting practices". These internal accounting practices include systems of budgeting, costing, pricing, and performance measurement, as well as initiatives in outsourcing and efforts to change organizational behavior through fiscal policy. Effective budgeting systems address outputs of institutions (DeHayes and Lovrinic, 1994), planning for cash (Schwartz, 1992), and planning for the acquisition of long-term assets (Mangan, 1993). Successful approaches to budgeting also provide the flexibility to deal with changes in the volume of operations (Reed, 1992) and to make adjustments to budgets during the fiscal year (Howell and Sakurai, 1992).

Costing is the accumulation and analysis of cost information for an organization and its constituent parts. Costing remains, for most higher education institutions, in a developmental stage. More institutions, however, are recognizing the need to assign indirect costs to academic and administrative units, in order to arrive at a full cost of operations for the unit (Dempsey, 1997). A few institutions have embraced the activity-based costing model.

Pricing practices in colleges and universities vary by the extent to which an institution can subsidize price through reserves of institutional wealth or appropriations from a state (Winston, 1997). Many institutions, particularly private colleges and universities, have raised tuition and buffered the effect on affordablility by offering discounts in the form of institutional financial aid (Lapovsky and Hubbell, 2003). Institutions are sensing the limits of this approach. While tuition at most private and public institutions has risen in recent years (Farrell, 2003), a few institutions have lowered tuition (Speck, 1996). Noting that in competitive markets prices fall toward costs, Winston and Zimmerman (2000) warn that colleges with large endowments could afford to break the tuition spiral, increase subsidies, and engage in price competition. While a nexus between price and the consumption of resources rarely has been evident in higher education, the first intimation of a trend toward differential pricing can be observed in the technology fees some institutions are placing as a surcharge on tuition.

Institutions of higher education have demonstrated greater interest in measuring performance and funding academic units on the basis of performance. Leading institutions (e.g., Indiana University and the University of Southern California) have adopted responsibility center management (RCM), under which a large measure of fiscal authority is shifted from the central administration to individual academic and administrative units (Stocum and Rooney, 1997, and Wilms, Teruya, and Walpole, 1997). This decentralized model of management places greater responsibility for cost control and self-sufficiency on organizational units. A central tenet of RCM is that organizational behavior is based on fiscal policy and is amenable to change.

LEADING ISSUES IN HIGHER EDUCATION FINANCE

Respondents to the survey in this study answered an open-ended question on the three most important issues in higher education finance. The respondent chief financial officers considered technology and the related issue of distance learning especially important. The respondents also identified the pricing of tuition and the discounting of tuition, considered above in the literature of managerial accounting practices, as leading issues in higher education finance.

Outsourcing

Outsourcing is common in institutions of higher education, but its adoption by colleges and universities has been documented less than its acceptance in business organizations. The experience of higher education institutions with outsourcing parallels that of businesses. Colleges and universities are outsourcing not only to achieve cost savings, but also to focus on core competencies. Dining operations and bookstore operations were generally the first functions outsourced by higher education institutions (Nicklin, 1997). The greatest challenge confronting colleges and universities that outsource activities is the impact on employee jobs and the concomitant effect on institutional collegiality (Bartem & Manning, 2001).

METHOD

The study population was comprised of CFOs in four-year colleges and universities. The Ohio University Office of Institutional Research selected from a population of 1,377 four-year institutions a random sample of 582 institutions, stratified by institutional control and the 1994 Carnegie classification.

Information collected for analysis in this study was obtained with a survey instrument developed by the author. The survey instrument included in the first section 14 questions concerning the six topic areas of budgeting, costing, pricing, performance measurement, organization behavior practices, and outsourcing. Four of the 14 questions have subordinate parts. All 14 items in the first section require respondents to choose the extent to which specific managerial accounting practices are observed at their institutions, ranking on a Likert-type scale from 7 points to 1 point.

A second section of the instrument inquires as to whether the institution of the respondent has adopted outsourcing in six functional areas, listed alphabetically: bookstore operations, computing services, custodial services, dining operations, grounds maintenance, and security services. Additional space is available for the respondent to report other outsourcing activities. The survey instrument also included an open-ended question on the most important issues in higher education finance. Finally, the instrument requested demographic information on the respondent.

Two mailings and other follow-up efforts generated a total response of 310 CFOs, 53.3% of the study population. There was at least one response from each state within the United States, representing a true national study.

A summary of the population, sample, and response, stratified by institutional control and the 1994 Carnegie classification, appears in Table 1. This table is recast according to the 2000 Carnegie classification in Table 2.

RESULTS

Managerial Accounting Practices

A multivariate analysis of variance (MANOVA) was performed on six dependent variables: Budgeting (Budget), Costing (Cost), Pricing (Price), Performance Measurement (PM), Organization Behavior (OB), and Outsourcing (Out). The independent variable was Carnegie classification. The 1994 Carnegie classification included the following four groups: Research, Doctoral, Master's, and Baccalaureate. There was a significant main effect for the 1994 Carnegie classification, F (4,282) = 2.51, p < .001, partial eta squared = .052.

Analyses of variances (ANOVA) on each dependent variable for 1994 Carnegie classification were conducted as follow-up tests to the MANOVA. Table 3 presents means and standard deviations of the managerial accounting practices by 1994 Carnegie classification.

The ANOVA was significant for Budgeting, F(3,302) = 3.17, p = .025, partial [[eta].sup.2] = .031. Post-hoc tests using Least Significant Differences (LSD) indicate that Research institutions adopted budgeting practices significantly more than did Masters and Baccalaureate institutions. There were no significant differences between Research and Doctoral institutions.

The ANOVA likewise was significant for Costing, F(3,302) = 4.08, p < .01, partial [[eta].sup.2] = .039. Post-hoc tests based on LSD indicate that Research institutions adopted costing practices significantly more than did Doctoral and Masters institutions. There were no significant differences between Research and Baccalaureate institutions.

Finally, the ANOVA was significant for Organization Behavior, F(3,302) = 3.49, p = .016, partial [[eta].sup.2] = .034. Post-hoc tests using LSD indicate that Research institutions adopted Organization Behavior practices significantly more than did Masters or Baccalaureate institutions. There were no significant differences between Research and Doctoral institutions.

The 2000 Carnegie classification encompassed four groups: Doctoral--Extensive, Doctoral--Intensive, Master's, and Baccalaureate. The results of the MANOVA for 2000 Carnegie classification indicated a significant effect, F (18,290) = 2.64, p <.001, partial eta squared = .053. Analyses of variances (ANOVA) on each dependent variable were conducted as follow-up tests to the MANOVA. Table 4 presents the scores among the 2000 Carnegie classifications on the dependent variables.

The ANOVA was significant for Budgeting, F(3,303) = 3.267, p = .022, partial [[eta].sup.2] = .032. Post hoc tests based on LSD indicate that Doctoral-Intensive institutions adopted budgeting practices significantly more than did Masters or Baccalaureate institutions. There were no significant differences between Doctoral-Extensive and Doctoral-Intensive institutions.

The ANOVA also was significant for Costing, F(3,303) = 3.31, p = .02, partial [[eta].sup.2] = .03. Post-hoc tests using LSD indicate that Doctoral-Extensive adopted costing practices significantly more than masters. There were no significant differences among other classifications.

Finally, the ANOVA was significant for Organization Behavior, F(3,302) = 3.85, p = .016, partial [[eta].sup.2] = .034. Post-hoc tests based on LSD indicate that Doctoral-Extensive institutions adopted organization behavior practices significantly more than did Masters or Baccalaureate institutions. There were no significant differences between Doctoral-Extensive and Doctoral-Intensive institutions.

LEADING ISSUES IN HIGHER EDUCATION FINANCE

The results of the MANOVA indicated significant effects for both 1994 and 2000 Carnegie Classification on leading issues in higher education finance, F(12, 799) = 4.61, p <.001, partial eta squared = .057 and F(12, 780) = 3.56, p<.001, partial eta squared = .085, respectively. Follow-up ANOVAs for the 1994 classification indicated statistically significant differences between and among institutions for the issues of technology, discounting, and salaries and research support. CFOs in Research institutions were significantly less likely to cite technology as a leading issue than were CFOs in Doctoral or Master's institutions. CFOs in Baccalaureate institutions identified discounting as a leading issue significantly more than their counterparts in Research, Doctoral, and Master's institutions. CFOs in Research institutions were significantly more likely to name issues of salaries and research support than were CFOs in Doctoral, Master's, and Baccalaureate institutions. Table 5 presents the percentage of respondent institutions within the 1994 Carnegie classifications citing the leading issues below.

Follow-up ANOVAs for the 2000 classification likewise indicated statistically significant differences between and among institutions on the issues of technology, discounting, and salaries and research support. In a close parallel of the analysis for the 1994 classification, CFOs in Doctoral Extensive institutions were significantly less likely to name technology as a leading issue than were their peers in Doctoral Intensive or Masters institutions. CFOs in Baccalaureate institutions identified discounting significantly more than did CFOs in Doctoral Extensive institutions. Finally, CFOs in Doctoral Extensive institutions reported issues of salaries and research support significantly more than did CFOs in Doctoral Intensive institutions. Table 6 presents the percentage of respondent institutions within the 2000 Carnegie classifications citing the leading issues below.

OUTSOURCING

No statistically significant associations between the 1994 Carnegie classification and the various outsourcing activities were identified in a one-way ANOVA. One relationship approached significance: the observed significance level of the association between 1994 Carnegie classification and the outsourcing of bookstore operations, F(3,306) = 2.39, p = .068. Under the 2000 Carnegie classification, the relationship between classification and the outsourcing of bookstore operations is significant. The results of an one-way ANOVA indicated significant differences among the groups, F(3,299) = 3.31, p = .021.

CONCLUSION

Managerial Accounting Practices

Prior research found that the 1994 Carnegie classification has a significant effect on the dependent variables of Budgeting, Costing, and Organization behavior. CFOs in research institutions reported a stronger commitment to budgeting practices than did CFOs in master's and baccalaureate institutions, and CFOs in research institutions indicated a higher adoption of costing practices than did CFOs in doctoral and master's institutions. The research suggests that CFOs in research institutions also have the highest adoption of organization behavior practices.

The 2000 Carnegie classification likewise has a significant effect on Budgeting, Costing, and Organization Behavior. Institutions classified as and doctoral--intensive reported a higher commitment to budgeting practices than did master's and baccalaureate institutions. Doctoral--extensive institutions indicated a higher adoption of costing practices than master's institutions and a higher observance of organization behavior practices than master's and baccalaureate institutions.

Leading Issues in Higher Education Finance

Both the 1994 and 2000 Carnegie classifications had a significant effect on leading issues in higher education finance. Under the 1994 classification CFOs in Research institutions reported technology as a concern less than did CFOs in doctoral and master's institutions. Similarly, under the 2000 classification, CFOs in doctoral--extensive institutions named technology as a leading issue less than did CFOs in doctoral--intensive and master's institutions. Using the 1994 classification for analysis, CFOs in research institutions cited the issue of salaries and research support more than did CFOs in doctoral, master's, and baccalaureate institutions. Under the 2000 classification CFOs in doctoral--extensive institutions reported salaries and research support as a concern more than their counterparts in doctoral--intensive institutions. Baccalaureate institutions, dominated by small private liberal arts colleges, were more likely to name discounting as a leading issue than were other institutions, a result consistent across Carnegie classification systems.

Outsourcing

No statistically significant associations between the 1994 Carnegie classification and the various outsourcing activities were identified in a [chi square] analysis. One relationship approached significance. The observed significance level of the association between 1994 Carnegie classification and the outsourcing of bookstore operations was .064. Under the 2000 Carnegie classification, the relationship between classification and the outsourcing of bookstore operations is significant, p < 01. Although no clear pattern emerges, mid-size institutions tend to outsource bookstore operations most often.

Implications

The Carnegie classification system is utilized extensively in institutional research. When changes in the classification of institutions are made, as occurred between the 1994 and 2000 systems, one would anticipate that the results of research based on the Carnegie classification system would change. The foregoing study, comparing the results of empirical research in higher education finance under the 1994 and 2000 classification systems, reflects that premise.

The shuffling in the deck of institutions was observed most among institutions of the highest complexity, viz., institutions classified as research and doctoral institutions under the 1994 system and institutions classified as doctoral--extensive and doctoral--intensive in the 2000 system. The results of this study suggest that the change in the Carnegie classification system is substantive.

However, the findings of prior empirical research were not so fundamentally altered as to corroborate critics of the system who claim that the revised classification destroys the comparability of institutions. Upon the occasion of its centennial year in 2005, the Carnegie Foundation for the Advancement of Teaching can be expected to continue improvement of a system so influential in the conduct and the results of institutional research.

REFERENCES

Bartem, R. & Manning, S. (2001). Outsourcing in higher education. Change, 33(1), 42-47.

Basinger, J. (2000, August 11). A new way of classifying colleges elates some and perturbs others. The Chronicle of Higher Education, A31, A34, A42.

DeHayes, D.W., & Lovrinic, J.G. (1994). Activity-based costing model for assessing economic performance. New Directions for Institutional Research, 82, 81-93.

Dempsey, W.M. (1997). The devil is in the details. Trusteeship, 5(1), 16-20.

Farrell, E. F. (2003, October 31). Public college tuition rise is largest in 3 decades. The Chronicle of Higher Education, pp. A1, A35-36.

Howell, R.A., & Sakurai, M. (1992). Management accounting (and other) lessons from the Japanese. Management Accounting, 74(6), 28-34.

Lapovsky, L., & Hubbell, L.L. (2003). Tuition discounting continues to grow. Business Officer, 36(9), 20-27.

Mangan, K.S. (1993, May 9). From light bulbs to power plants, colleges move to cut energy costs. The Chronicle of Higher Education, A29-A30.

Nicklin, J.L. (1997, November 21). Universities seek to cut costs by 'outsourcing' more operations. The Chronicle of Higher Education, A35.

Peterson's register of higher education (3rd ed.). (1998). Princeton, NJ: Peterson's Guides.

Reed, W.S. (1992). Shrinking by design. AGB Reports, 34(2), 23-26.

Schwartz, M.A. (1992). Cash budgeting. The National Public Accountant, 37(8), 6.

Speck, S.W. (1996). Tuition: how we made the cut. Trusteeship, 4(2), 6-10.

Stocum, D.L., & Rooney, P.M. (1997). Responding to resource constraints: a departmentally based system of responsibility center management. Change, 29(5), 50-57.

Wilms, W.W., Teruya, C., & Walpole, M.B. (1997). Fiscal reform at UCLA: the clash of accountability and academic freedom. Change, 29(5), 40-49.

Winston, G.C. (1997). Why can't a college be more like a firm? Change, 29(5), 32-38.

Winston, G.C. & Zimmerman, D.J. (2000). Where is aggressive price competition taking higher education? Change, 32(4), 10-17.

Olin L. Adams III, Auburn University

A. J. Guarino, Auburn University

Table 1: Population of Four-Year Institutions, Number and Percent of
Institutions in Sample, and Number and Percent of Respondent
Institutions, by Institutional Control and 1994 Carnegie
Classification

Control and 1994 Four-Year Institutions Respondent
Carnegie Classification Institutions in Sample Institutions

Public Research 82 82 (100.0) 46 (56.1)
Public Doctoral 66 66 (100.0) 39 (59.1)
Public Master's 273 100 (36.6) 57 (57.0)
Public Baccalaureate 87 11 (12.6) 4 (36.4)
Private Research 40 40 (100.0) 21 (52.5)
Private Doctoral 43 43 (100.0) 17 (39.5)
Private Master's 249 79 (31.7) 45 (57.0)
Private Baccalaureate 537 161 (30.0) 81 (50.3)
All Institutions 1377 582 (42.3) 310 (53.3)

Note. The percentage of four-year institutions in the sample appears
parenthetically following the number of institutions in the sample.
The percentage of institutions in the sample that responded appears
parenthetically following the number of respondent institutions.

Table 2: Number of Respondent Institutions by Institutional Control
and 2000 Carnegie Classification Control and 2000 Respondent

Carnegie Classification Institutions

Public Doc. Ext. 55
Public Doc. Int. 36
Public Master's 50
Public Baccalaureate 4
Private Doc. Ext. 25
Private Doc. Int. 17
Private Master's 54
Private Baccalaureate 62
Total Institutions 303
Special and Other Institutions 7
All Institutions 310

Note. Doc. Ext. denotes Doctoral Extensive institutions. Doc. Int.
denotes Doctoral Intensive institutions.

Note. Of the seven institutions not identified as one of the four
principal Carnegie classifications above four were classified as
special institutions such as health, engineering, business, and
teachers colleges. Two institutions were classified as other
and one institution closed.

Table 3. Means and standard deviations of the managerial accounting
practices by 1994 Carnegie classification.

 Research Doctoral Masters Bachelors

 M SD M SD M SD M SD

Pricing 4.27 .28 4.39 .29 4.15 .21 3.91 .54
Outsourcing 5.06 .17 4.89 .17 4.71 .13 4.75 .34
Budgeting 4.70 .16 4.43 .16 4.07 .12 4.36 .31
Costing 3.86 .24 2.99 .24 2.87 .18 2.65 .46
Performance 3.79 .21 3.69 .21 4.04 .15 3.47 .39
 Measures
Org. Behavior 4.93 .17 4.67 .18 4.27 .13 4.17 .34

Table 4. Means and standard deviations of the managerial accounting
practices by 2000 Carnegie classification.

 Doc. Ext. Doc. Int. Masters Bachelors

 M SD M SD M SD M SD

Pricing 4.26 .26 4.46 .31 4.15 .21 3.901 .55
Outsourcing 5.04 .16 4.85 .19 4.71 .13 4.14 .34
Budgeting 4.53 .15 4.57 .18 4.08 .12 3.84 .32
Costing 3.70 .22 3.03 .26 2.81 .17 3.18 .47
Performance 3.66 .18 4.02 .23 3.92 .15 3.37 .39
 Measures
Org. Behavior 4.92 .16 4.62 .19 4.2 .13 3.86 .34

Table 5. Leading issues reported by percentage of respondent
institutions under the 1994 Carnegie classifications.

 Research Doctoral Masters Bachelors

Technology 28% 58% 54% 4%
Discounting 6% 24% 25% 45%
Salaries and 24% 02% 12% 11%
Research Support

Table 6. Leading issues reported by percentage of respondent
institutions under the 2000 Carnegie classifications.

 Doc. Ext Doc. Int. Masters Bachelors

Technology 32% 62% 55% 37%
Discounting 10% 23% 31% 41%
Salaries and 19% 5% 14% 7%
Research Support