Universities face uncertain future without radical overhaul

Universities will not survive the next 10 to 15 years unless they radically overhaul their current business models, according to a challenging report released this week. The report claims that the current university model – a broad-based teaching and research institution with a large base of assets and back office – will prove unviable in all but a few cases.

Although the 30-page report by the international professional services company Ernst & Young refers specifically to Australia’s higher education institutions, its conclusions would apply to those in many other Western countries.

The report, University of the Future: A thousand year old industry on the cusp of profound change, says at a minimum, universities will need significantly to streamline their operations and asset base at the same time as incorporating new teaching and learning delivery mechanisms, “a diffusion of channels to market, and stakeholder expectations for increased impact”.

“At its extreme, private universities and possibly some public universities will create new products and markets that merge parts of the education sector with other sectors, such as media, technology, innovation and venture capital.

“Exciting times are ahead – and challenges too.”

The report identifies the main drivers of change it says will inevitably bring about a transformation of higher education. These are:

• • The democratisation of knowledge as a consequence of massive expansion of online resources.
  
• • The contestability of markets and funding as a direct consequence of declining public investment and the adoption of market design policies to fund and regulate higher education.
  
• • Digital technologies changing the way courses are delivered.
  
• • Global mobility of students and staff.
  
• • Integration with industry to differentiate programmes (through work-integrated learning) and to support and fund applied research.

The report’s author is Justin Bokor, executive director in Ernst & Young’s education practice. Bokor said most universities at present had significantly more support staff than academic staff and this ratio would have to change.

“Current university models are living on borrowed time; government funding is tight and is going to be tighter still in the next couple of political cycles. While they are not exactly businesses, they will have to run like businesses. They need to be lean and mean.”

The report is based on a six-month study by a team of young researchers. This included interviews with more than 40 leaders from universities, private providers and policy-makers. It predicts fierce competition for students and staff in future, arguing that the internet will transform universities in the same way it has the media, entertainment and retail markets.

“One of our interviewees said, ‘Our number one competitor in 10 years' time will be Google – if we are still in business’,” Bokor said.

The report predicts three broad lines of university evolution:

[1] A “streamlined status quo” with some established universities continuing to operate as broad-based teaching and research institutions that will progressively transform the way they deliver their services and administer their organisations, with major implications for the way they engage with students, government, industry stakeholders, secondary schools and the community.

[2] “Niche dominators”: Some established universities and new entrants will fundamentally reshape and refine the range of services and markets they operate in, targeting particular ‘customer’ segments with tailored education, research and related services, with a concurrent shift in the business model, organisation and operations.

[3] “Transformers”: Private providers and new entrants will carve out new positions in the ‘traditional’ sector and also create new market spaces that merge parts of the higher education sector with other sectors, such as media, technology, innovation, venture capital and the like.

“This will create new markets, new segments and new sources of economic value. Incumbent universities that partner with the right new entrants will create new lines of business that deliver much-needed incremental revenue to invest in the core business – internationally competitive teaching and research.”

The report says universities should critically assess the viability of their institution’s current business model, develop a vision of what a future model might look like, and develop a broad transition plan.

“Deliberations on future models need to include which customer segments to focus on, what ‘products’ or services they need, optimal channels to market, and the ideal role of the university within the education and research value chains.

“Support functions will need to be streamlined and in some cases fundamentally reconfigured. Regardless of the path chosen, universities will need to align new directions to their institution’s core purpose and values.”

Belinda Robinson, chief executive of Universities Australia, said the report correctly noted some of the key drivers of change but that the discussion about adaptation was already under way. Universities had been around since the ninth century and had survived any number of catastrophic changes, Robinson said.

“The challenge, though, will be to ensure that we have the policy, regulatory and funding frameworks in place that will enable each and every institution to find their place of best fit in this brand new world.”

The National Tertiary Education Union (NTEU) urged caution in accepting the inevitability of the direction of change set out in the report. The union’s national President Jeannie Rea said responsibility rested with the government to ensure the highly respected public university system was funded to deliver on the expectations of the community and industry.

She said the Ernst & Young report concluded that the current Australian university model would prove unviable in all but a few cases.

The union agreed that some of the drivers of change listed in the report – namely increasing mobility and the impact of technology, the democratisation of knowledge as well as closer links with industry – were inevitable and were already having a profound impact on the way universities delivered their teaching, research and community service obligations.

“The one driver, however, which is not inevitable in Australia is increasing the contestability of markets. While it might be true that universities face ‘an environment where every dollar of government funding is contestable’, it will be government policy choices that determine how much of that funding is allocated to higher education and our public universities,” Rea said.

“We do, however, agree with the report’s finding that a failure to increase public investment in our universities means the current model of higher education is becoming unsustainable.

“The NTEU argues that it is now up to the federal government to decide whether it wants a higher education system comprised of a handful of elite research intensive universities concentrated in Australia’s capital cities or to maintain the current system where 38 public universities deliver a broad range of education, research and community service to students and communities who as little as 20 years ago were denied these opportunities.”