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

But in our conversations with university administrators, we are consistently puzzled by the absence of clear strategies for external funding. Sometimes, what leaders describe as strategies are simply commitments to throwing resources into research support units tasked with finding grant opportunities and developing successful applications. Or, often, they are just targets, seemingly plucked out of thin air or from dubious comparisons with supposed peer schools. The academic prestige economy also motivates ¡°strategies¡± that involve increasing the share of a university¡¯s external funding that comes from highly valued sources.

Often, units are told to raise 10 per cent more external funds simply because everybody is doing it ¨C or because it is insisted on by outside parties, such as ministries of education, state-level bureaux of research and innovation, or economic development offices. One university we know enters into yearly ¡°performance contracts¡± with the ministry that stipulate external funding targets, set through opaque bargaining between university managers and bureaucrats.

Real strategies, by contrast, are carefully conceived plans for addressing important problems in ways that benefit the organisation and draw on its core strengths. Producing graduates, publishing research articles and, increasingly, various third-mission activities are proper ends of the university. Administrators need to ask the fundamental question: What funding do we need to attain these ends? If the needs are relatively small, setting funding goals may be counterproductive.

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This misconception of funding as an end rather than a means sometimes leads to absurd consequences ¨C at least for business schools. At two of our universities, top management strongly pushed for external funding. Faculty responded, but so much was raised that the university struggled to spend it, as the faculty were busy with other projects. Surplus funds ended up being used on lower-valued activities.

In some disciplines and at many universities, tenure and promotion decisions are based not only on research outputs (publications and student learning) but also on funding received. But faculty who are equally productive yet don¡¯t require expensive equipment, postdocs or data collection are marked down, as if they were less valuable to the university.

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While administrators themselves face pressure to make their universities engage successfully in external fundraising, they should consider all the costs. Successful grantsmanship, particularly for prestigious funds, is hard work, and low acceptance rates mean most of it is wasted. Applications often require huge, multi-party cooperative efforts.?One application for a €4 million grant that we are familiar with involved five senior professors from four universities, 64 iterations of the application texts, three two-day workshops and heavy involvement of co-investigators, research support units and research assistants.

Most US research universities employ dozens of grant writers, grant administrators and grant support personnel just to handle the paperwork. Faculty spend an increasing amount of their time monitoring budgets, filing reports and similar activities. Because large grants typically require interdisciplinary participation, faculty are often pulled in as co-investigators simply to ¡°check the box¡±, even if their inputs are not especially valuable.

Of course, some of those costs might be acceptable if the system allocated funding to the best projects. However, there is evidence that it often fails to do so, partly because of its susceptibility to various biases ¨C including against originality and creativity. That is why some agencies are moving to lottery selection processes instead.

In some countries, it is worth thinking about channelling some funds that have previously been competitively allocated directly to the universities. However, this needs to be analysed carefully. While it may reduce internal costs, there is a risk that universities would not sufficiently prioritise the additional funds and may even spend them on overheads.

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Either way, universities themselves need to rethink their attitudes towards external funding. For a start, the humanities, social sciences and professional disciplines shouldn¡¯t be compared with STEM fields: their research programmes, methods and costs are completely different, making funding a particularly irrelevant benchmark.

Second, setting funding targets and breaking them down across units without justification or explanation does not motivate faculty and staff. Strategies are most 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 and then develop actionable plans showing how external funding addresses clear needs?¨C?and how the external funds are to be raised.

This bottom-up arrangement may increase internal costs, but it will give deans and presidents a better understanding of the real needs for external funding, especially from organisations and business. More importantly, it will give everyone within universities a sense of genuine purpose, instead of quiet resentment.

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

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