Call for radical solutions on global mid-tier’s ‘vicious cycle’

Universities must stop being “OK” in many different areas and instead develop world-class specialisms if they are to be financially sustainable, authors of a new report claim.

While elite universities across the world are in a relatively safe financial position, the EY and Times Higher Education report looks at the challenges facing mid-tier institutions in Australia, Canada, the UK and the US.

Researchers interviewed 11 university leaders across the four countries and all expressed concerns about their long-term financial sustainability, citing student recruitment pressures, ongoing inflation challenges and cost-of-living crises.

The report outlines several traditional strategies that need a “radical” rethink in order to combat the “vicious cycle” the sector is caught in.

“Financial sustainability is often required to raise revenues and capital, but raising revenues and capital is required to achieve financial sustainability,” the report says.

Researchers discovered that university finances were being stretched in all three continents surveyed, even before the impact of the Covid-19 pandemic was felt.

They noted a general decline in government funding for domestic students everywhere, along with a decreasing pool of prospective students in Australia, the UK and the US.

However, relying on international students was not deemed to be a sustainable solution due to the risks involved.

“As recent history proves, unexpected government policy changes can remain in place longer than a university can remain solvent,” the report says.

Speaking at the launch of the white paper, Matt Robb, EY-Parthenon UK and Ireland strategy leader, said strategic distinctiveness was “absolutely essential” as one radical solution in a marketplace environment.

He said universities were typically “too OK at everything” when instead they should specialise in the type of students they wanted to serve, the geography in which they were located, or a particular subject.

“You’re going to need to be world class at something and that means not investing in stuff you’re not good at,” he said.

“That’s the painful bit. The easy bit is to say we’re going to be world class at this – the hard thing is to disinvest in things you are not that good at.”

Redesigning a course portfolio was one radical method highlighted in the report that could help universities achieve longer-term financial sustainability.

The typical practice of most universities was to take money from their small number of surplus-generating departments and spread it across their “long tail of loss-making departments”, said Mr Robb.

Instead, an institution that starts to struggle financially should take a critical look at the courses it offers and stop putting money into loss-making departments, he argued.

The white paper also calls for “bold action” on creating and capturing the cost and network benefits of scale, investing in change capacity and deploying digital technology to enhance teaching and learning.

Diana Beech, chief executive of the London Higher umbrella body, which represents about 50 universities and higher education colleges in the city, said if universities wanted to embrace the “hybrid world” of remote learning they needed to increase digital capacity – but that was not cheap.

“It’s like a chicken-and egg situation,” she said.

“Sometimes you need the student to be able to get the money to do the technology first, not the other way around.

“We’re yet to square that circle, but I think we definitely need that investment before we are able to move forward.”

The report is available to download.

patrick.jack@timeshighereducation.com