External funding is a means, not an end

Everyone in modern higher education is under pressure to get more external funding. After all, grants, donations, and commercial revenue pay for new faculty, doctoral students, equipment, and experiments—as well as generating overhead to run the rest of the university.

But in our conversations with university administrators, we are constantly bewildered by the lack of clear strategies for external funding. Sometimes what leaders describe as strategies are simply commitments to dedicate resources to research support units tasked with finding grant opportunities and developing successful applications. Or, often, they are just targets, seemingly pulled from nowhere or from dubious comparisons with supposed peer schools. The economics of university prestige also motivates “strategies” of increasing the share of a university’s external funding that comes from highly valued sources.

Often units are told to raise 10% more external funds just because everyone is doing it – or because outside parties insist on it, such as education ministries, research and innovation offices at states or economic development offices. One university we know of each year enters into “performance contracts” with the ministry that stipulate external funding targets, set through opaque negotiations between university directors and bureaucrats.

True strategies, on the other hand, are carefully designed plans to solve important problems in ways that benefit the organization and leverage its core strengths. Producing graduates, publishing research papers, and increasingly various third-mission activities are purposes unique to the university. Trustees need to ask themselves the fundamental question: how much funding do we have need to achieve these ends? If needs are relatively low, setting funding targets can be counterproductive.

This misconception of funding as an end rather than a means sometimes leads to absurd consequences – at least for business schools. At two of our universities, senior management pushed hard for external funding. The faculty responded, but so much was raised that the university found it difficult to spend it, as the faculty were busy with other projects. Surplus funds ended up being used for less valuable activities.

In some disciplines and in many universities, tenure and promotion decisions are based not only on research results (publications and student learning), but also on the funding received. But professors who are equally productive but don’t need expensive equipment, postdocs, or data collection are marked off, as if they were less valuable to the university.

While administrators themselves are under pressure to have their universities successfully engage in external fundraising, they must consider all the costs. A successful scholarship, especially for prestigious funds, is hard work, and low acceptance rates mean most of it is wasted. Applications often require enormous multi-stakeholder cooperation efforts. An application for a €4 million grant that we know of involved five senior professors from four universities, 64 iterations of the application texts, three two-day workshops and a strong involvement of co-researchers, support units at research and research assistants.

Most US research universities employ dozens of grant writers, grant administrators, and grant support staff just to handle the paperwork. Professors are spending more and more time monitoring budgets, writing reports and carrying out similar activities. Since large grants typically require interdisciplinary participation, professors are often called on as co-investigators simply to “check the box,” even if their contributions are not particularly valuable.

Of course, some of these costs might be acceptable if the system allocated funds to the best projects. However, there is evidence that he often fails to do so, in part due to his susceptibility to various biases, especially against originality and creativity. This is why some agencies opt for lottery selection processes instead.

In some countries, it is worth considering channeling some funds that were previously competitively allocated directly to universities. However, this must be analyzed carefully. While this may reduce internal costs, there is a risk that universities will not prioritize the additional funds enough and even spend them on overhead.

However, universities themselves need to rethink their attitude towards external funding. To begin with, the humanities, social sciences and professional disciplines should not be compared to STEM fields: their research programs, methods and costs are completely different, making funding a particularly irrelevant benchmark.

Second, setting funding targets and allocating them among units without justification or explanation does not motivate faculty and staff. Strategies are more likely to succeed if they emerge from collaboration among administrators, faculty, staff, and external stakeholders, rather than being designed and implemented from the top down. Universities should undertake department- or group-specific needs assessments, then develop action plans showing how external funding meets clear needs – and how external funds should be raised.

This bottom-up arrangement may increase internal costs, but it will allow deans and chairs to better understand the real needs for external funding, especially from organizations and businesses. More importantly, it will give everyone within the universities a sense of real purpose, instead of silent resentment.

Nicolai J. Foss is a professor at Copenhagen Business School. Peter G. Klein is a professor at the Hankamer School of Business at Baylor University. Phillip Nell is a professor at the Vienna University of Economics and Business.

Shirlene J. Manley