Deadwood, UK: up to half of courses need cross-subsidy to survive, analysis discovers

Surpluses must be invested in vocational subjects to ward off for-profits, study says. Simon Baker writes

May 12, 2011

Credit: Michael Dwyer/Alamy
Loss leaders: arts and humanities courses are often subsidised by subjects such as business studies, design and nursing

At least a third and perhaps up to half of all university courses in the UK are loss-making, and many teaching-led universities have departments with no "meaningful existence" that are being kept afloat by profits from other areas.

These are among the findings of an in-depth analysis of university business models by The Parthenon Group, an international consultancy firm, which says that a large number of institutions have "multiple departments" that are financially unsustainable.

The situation will worsen if new competitors enter the market, it adds.

Writing in this week's Times Higher Education, Matt Robb, senior principal at Parthenon, says: "Most institutions have a small number of popular courses (for example, business studies) that make huge margins and subsidise the rest, including large numbers of courses that whet little student appetite but are of great interest to academics."

The company's analysis, which uses data on university costs from the Higher Education Statistics Agency, shows that for a group of about 50 general teaching institutions, a large chunk of their activity is focused on offering five subject areas - business, IT, design, teacher training and nursing.

The rest of their resources are spent on several other departments, which are "almost certainly" losing money, Parthenon says.

Mr Robb told THE that the situation had arisen because "budget-based accounting" prevails over commercial thinking; as a result, surpluses from successful courses are invested in "whatever is interesting to academics".

With the prospect of a more competitive market on the horizon, he said, such surpluses should be re-invested to strengthen popular vocational areas before for-profit and other alternative providers take a greater share.

At the same time, loss-making departments should be considered for merger or closure, he added.

The analysis comes in the wake of London Metropolitan University's controversial decision to cut its course offerings by 70 per cent, axeing subjects such as history, philosophy, performing arts and Caribbean studies, as it prepares for the new funding environment.

Last week, the credit ratings agency Moody's warned that "mid-tier and more marginal universities" might have to face up to "rationalising" some programmes and "trimming" weaker offerings.

The key themes identified by Parthenon are similar to those highlighted by a sector-wide project being led by the universities of Plymouth and Teesside, which has found that many institutions are spreading themselves too thinly and failing to carve out unique missions.

Julian Beer, pro vice-chancellor for regional research and innovation at Plymouth, agreed with Parthenon's conclusion that courses might have to close as universities sharpen their focus. However, he added that some loss-making departments were still vital for "strategic" reasons.

Mr Robb, who accepted that cross-subsidising departments sometimes made strategic sense, said there was no "fundamental reason" why any institution should fail in the UK's new funding environment.

But he added: "The question is, can (struggling universities) act quickly enough to get rid of the dead weight that is dragging them down?"

He said some faced a bigger challenge than others because they were already in the "strategically terrible position" of not attracting enough students to achieve economies of scale on normally popular courses such as business management.

Noting that research reputation is currently the main basis for competition in the UK, the Parthenon study also says there may be tough decisions ahead for a group of smaller research-led universities.

Mr Robb said some departments in these institutions were "trading on the reputation" of counterparts that brought in a lot of research income.

The analysis concludes that a broad academic curriculum is unsustainable for such universities unless breadth forms a distinctive part of their brands.

However, David-Hillel Ruben, professor of philosophy at Birkbeck, University of London, said a broad education was important in all universities because it helped to develop socially rounded individuals with transferable skills.

"It is that interaction in a university - even for vocationally minded students - that is so crucial; and you only get that if you have lots of subjects that are not positive profit centres," he said.

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