XLRI's Cost Optimization

I: Let's say XLRI is our client. They want to optimize their costs. How would you go about it. 

C: This sounds interesting. I would first divide XLRI's costs into two major buckets, fixed and variable. Fixed would primarily include infrastructure and variable would include utilities, compensation for faculties, costs associated with students' residents, research, etc.

I:  For now, focus only on faculties compensation. 

C: Understood. I think the compensation structure for faculties should have two components, one fixed and other variable. The variable aspect should depend on their teaching performance, research, admin work among other things.

I: Please tell me more about the KPIs you mentioned for variable pay.

C:  Sure. The component to deciding variable pay can be divided into teaching and non-teaching activities. Teaching can include a range of things like student feedback, grades, and key learning outcomes among other things. Non-teaching can further be divided into academic and non-academic. Academic can include research output which can be measured based on papers published, conferences, etc. Non-teaching and non-academic can be administration-related work, consulting and advisory gigs.

I: Will student feedback be a good measure of a faculties teaching performance?

C: Feedback alone would not be sufficient but can be one of the measures. Other measures can be student grades, improvement in student performance, independent audit of key learning output among students, etc.  

I: Since your variable pay is dependent on so many things, won't the teaching faculty go to some other b-school with less complicated compensation schedule? How would you prevent that?

C: This is a fair concern. XLRI can address this by first understanding the price that its competitor b-schools are paying and then plan their fixed and variable in such a manner that from all b-schools, a faculty will earn the most if they max out XLRI's variable pay component. 

I: Is there any other XLRI specific advantage that you can leverage here?

C: I can think of two things. First, unlike most other top b-schools, XLRI is private institution. This allows it to have a far more flexible pay structure as compared to its government funded competitors. Next could be the Jamshedpur-Delhi campus duo. 

I:  How would you use the two campus as an advantage?

C: XLRI's Delhi campus has a location advantage which can be leveraged. For instance, Jamshedpur faculties can be offered a role in Delhi campus for a pay cut if they wish to move to a metric city like Delhi. 

I: Alright. So, you want to optimize XLRI's costs by managing faculty compensation. Let's say you want to decrease the existing salary of your professors without any attrition. How do you do that?

C: I think we can find a solution in our faculty costing structure. For instance, if we are decreasing the fixed pay to decrease the overall salary, we can use other variable components to fill up the gap. For instance, we can provide faculties institutional support to take up more research grants and external consultancy gigs.

I: Alright. We can end the case here. Thank you for the discussion.