[DiogenesKynikos]

A university department is a research community, which is much more valuable than just some bureaucratic overhead.

A group of professors, postdocs and grad students regularly interacting with one another, attending talks by visiting researchers, going to journal club every week to discuss new papers, etc. will be much more intellectually productive, in general, than the same set of people dispersed and trying to work by themselves.

Of course, the university does also perform bureaucratic functions, like running payroll, making sure the grant money is used on what it's supposed to be used on, and very importantly, organizing classes for undergraduate and graduate students. However, the university is also an intellectual community.