Since 2012 English universities have had to rely on income from student tuition fees to finance a host of activities that were formerly supported with government grants. For a while the switch worked because the £9,000 fee cap initially represented a significant uplift in per-student funding, to the extent that the Treasury came to view the sector as “awash with cash”.
That period of apparent prosperity is now a fading memory as the falling real value of capped tuition fees is further eroded by rising costs, increased regulatory conditions and flatlining student demand.
All the signals indicate that this squeeze will become even tighter over coming years and that the fee cap might even be cut, at least for some courses. As a result, confirmed by the latest report from the Financial Sustainability Strategy Group, most universities find themselves struggling to make their economic sums add up, prompting growing speculation about the viability of some providers and leading others to fast-forward cost-cutting and other retrenchment measures.
What we are seeing is a widening polarisation between institutional winners and losers, with most universities experiencing worsening finances while a minority have managed to remain resilient and relatively profitable.
This raises two key questions: how have some institutions managed to prosper despite the adverse trends affecting their peers? And what should others be doing to secure their futures in a hostile funding environment?
Many institutions have sought to counter austerity with more austerity, by rationing non-core activities and cutting back ruthlessly on their operating costs. There is plenty of scope for efficiency gains of this kind as outmoded systems and processes often cost more than modern best practice. But improving efficiency is not sufficient to restore the sustainability of a broken business model, and simply doing less of the same is hardly an adequate strategy for responding to changing times.
To compensate for falling income and loss-making research funding, universities need to build their positions in areas of growing opportunity for their distinctive capabilities. There is no shortage of such opportunities as the prosperity of individuals, businesses, public services and communities comes to depend more than ever before on purposeful, cutting-edge learning.
Whether reflected in the government’s commitment to raise research and development spending to 2.4 per cent of GDP or in the place-based priorities of the Industrial Strategy, demands for advanced knowledge building are set to spiral.
In this world, universities must learn how to earn their living by sharing in the value they help create with others. Some are already committed to this new model: Aston University and Cranfield University have entered into partnerships for business innovation, the University of Northampton has set up social enterprises with public service providers, London South Bank University is convening local partnerships for skills pathways and Newcastle University is partnering within civic and regional development programmes.
This trend of outcome-based, partnership working offers a basis for universities to reduce their traditional reliance on state-regulated education or publicly-funded research provided that they can grow viable earnings in these areas. But it brings with it fresh challenges. For universities to build sustainable and resilient business partnerships demands levels of organisational agility that the sclerotic structures and processes of traditional university operations struggle to cope with.
This legacy of organisational inertia is a real threat to the responsiveness of universities to new challenges and opportunities. In recent PA Consulting surveys UK vice-chancellors have lamented weaknesses in their institutions’ capabilities and systems – especially in digital working – and the lack of agile and collaborative working practices.
These constraints are partly structural and partly cultural. Some, like Coventry University and the University of Sunderland, have addressed restrictive staffing practices by setting up separate operating units to serve different student or employer groups. Meanwhile, Sheffield Hallam University has realigned its governance structures to its outward-facing strategic themes.
However, developing organisational agility must extend beyond structural reforms. It demands changes in behaviours right across the system, not least to free the necessary time, capacity and energies to introduce reforms.
In just about every institution the tyranny of regulatory impositions and the upward delegation of day-to-day decision making swamps leadership teams and governing bodies. Strategic transformation becomes almost a “nice to have”, once the distractions of more urgent but far less important demands have been resolved.
At the same time, imaginative and enterprising initiatives are frequently trapped in pockets around the institution, often recognised more outside the university than within. Progressive universities are finding ways to identify and encourage these examples of guerrilla innovation, and use them to build new futures on the best of what they are already doing.
Mike Boxall is a higher education expert at PA Consulting.
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