Posted tagged ‘sustainable universities’

Diversifying the university ‘business’

February 1, 2016

While some of the most prominent universities internationally have an array of activities that include teaching, research, consulting, managing intellectual property and so forth, and while their financial accounts often reflect this diversity, overwhelmingly most universities are heavily dependent on income from one particular activity and one source of revenue: teaching undergraduate students, funded by the state. In this role universities are public agencies providing a vitally important and strategic service to national goals.

But they are also financially highly vulnerable. Their organisational health depends on the ability of their key funder to keep increasing their income in line with both inflation and the university’s strategic development goals – but almost no state can guarantee that kind of financial stability, and pressures on public money will quite regularly force governments to cut higher education funding, usually moving the funding baseline downwards as they do so. In the meantime the reliance on teaching prevents the institutions from developing a high profile reputation globally, which is really only achievable through high value research. Therefore a teaching-focused university threatened by public funding pressures has little with which to market itself to other potential funders or customers. The same may even be true of a privately funded teaching-only institution, which would still be vulnerable to market shifts affecting its customers and a lack of alternative products.

The answer to this problem is to behave, at least in some respects, more like the prominent high value research universities – while at the same time managing to find a set of priorities and values that distinguish them from those institutions. This view of how universities should behave in order to be sustainable was suggested in a recent comment on the US system in the Washington Post. The author, a former editor of the Chronicle of Higher Education, suggested that ‘the strongest universities are those that depend on more than just students for their revenue’, and that institutions should in particular ‘double down on their research efforts to attract new dollars.’ Of course there are many different ways of tackling a research strategy, and there are other ways also of developing revenue streams based on skills and knowledge; for example an increasing number of universities are now presenting themselves as commercial consulting firms.

It has been suggested for some time that an increasing number of universities may be financially at risk. To avoid slipping into this state and to ensure sustainability, higher education institutions would do well to diversify and to ensure that their portfolio is not excessively focused on just one particular activity.

So is your university sustainable?

June 7, 2011

One aspect of higher education that is fundamentally different today from what it was historically is that nobody can be sure any more whether a university that is here today will still be there tomorrow. In part this is because various questions are now asked about the need to rationalise various higher education sectors; but universities are also now much less financially secure than at any other time over the past century or so. In England there are constant warnings, some rather apocalyptic, that several universities may be facing insolvency, and in other jurisdictions universities also appear hugely vulnerable when you look at their balance sheets.

In this climate a special group – the Financial Sustainability Strategy Group – was established in England, and it has now published a paper, Assessing the Sustainability of Higher Education Institutions. This document looks at a basket of indicators that will allow governing bodies and funding agencies to assess whether an institution is properly solvent and sustainable. But in the end the key determinant is money, and what the document reminds us is that no institution is financially safe unless it is able to record an operating surplus. Traditionally the minimum surplus for such purposes was thought to be between 3 and 5 per cent of revenues, a target that most UK universities failed to achieve in recent years. In Ireland the funding model until recently actually discouraged the achievement of any surplus (or even punished the universities by seeing it as a sign that funding was too generous), but as this assessment changed funding was also cut so dramatically that the recording of any surplus at all was totally beyond the capacity of the institutions (most of whom actually went into deficit). Right now I don’t believe that a single Irish university, assessed objectively, could be said to be financially sustainable.

It is tempting for universities to see sustainability as an output of funding, or indeed of public funding, but in governance terms that is not satisfactory. Financial models cannot in the end be built around income that an institution feels it should receive, as distinct from the one it actually gets. On the other hand, universities may need to get better at securing sustainability by diversifying sources of income. In short, a whole new financial model may need to be developed. Then again, governments should not undermine this by seeing sustainability as a product of tight regulation, which may in the end discourage innovation and reward excessive caution. This is a difficult balance to get right.

As for the general public, it should be disturbed that higher education institutions, across much of the developed world, are now increasingly at risk. The old view that governments, institutions and companies may come and go but universities last for ever may no longer be valid.