Any other business – Are governors asking the important questions?

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The current pace and volume of change makes for an exciting time for higher education. And to make things even more interesting, universities are falling out of favour in some political debates.

Doing ‘the right thing’ for students, for industry, for local and global communities is often the right answer to such uncertainty, irrespective of the current government’s perspective. But with so many changes on the horizon, many of which are outside an institution’s control, universities are faced with difficult decisions. This makes it all the more important for institutions to fully understand their context and consider what they can do to best navigate the uncertain road ahead.

To explore some of the key issues facing the sector, and pose some thought-provoking questions for governors, Wonkhe’s Ant Bagshaw spoke to Andrew Bush, an experienced Advisor and Internal Auditor with KPMG, to get his take on how universities could deal with the most pressing issues. On an optimistic note, Andrew thinks that “there’s always opportunity in times of change.” The good news is that “there is a great deal of scope for individuals, groups and institutions to manage change and uncertainty in better, more creative ways.”

Most university boards will have – we hope – a good sense of the key challenges currently facing the institution. That includes thinking about the relative significance of the issues and exploring the range of opportunities available for action. Governors have a critical role to play in asking the right questions of themselves, and of their executive teams, in order to get to the heart of these matters.

Here we digest that discussion, which covered a range of themes, challenges and opportunities facing the sector, and identify some of those critical questions.

Weighing up the numbers

Home undergraduates, the mainstay of most universities’ fee income, are unlikely to continue to increase in aggregate across the sector in the short term. We’re experiencing a demographic dip for 17- and 18-year-olds. While the proportion entering universities has increased over time (which softens the dip), there is some scepticism about whether participation rates will increase further before the numbers of students pick up again in the early 2020s.

When it comes to international students, another key source of fee income, the Government has restated its commitment to reducing net migration, and that could include further restrictions on students. International students contribute significant sums to the UK, both to institutions and the wider economy, and no amount of lobbying on the part of universities, businesses or politicians has yet served to get the government to soften its stance.

Traditional universities may also need to contend with a rise in the number of challenger providers. Such growth should accelerate given the government’s stated intentions. Many of these organisations are likely to seek to compete in subject areas where there are students in large numbers and where courses can be delivered in a cost-effective way, delivering higher margins.

Chipping away at universities’ provision in these areas will result in less capacity for the cross-subsidies on which many institutions’ business models rely. It’s also possible that the apprenticeship levy – particularly growth in degree and master’s apprenticeships – will disrupt traditional higher education provision as some students opt for work-based earn-while-you-learn routes which also result in a qualification. While it’s too early to know the impact that this will have, it is reasonable to assume that it will be the source some disruption.

There are responses that universities can make to these changing conditions. They can look at their marketing, at the relevance of their portfolio of programmes, at ways of increasing the number of applications converted into acceptances, at innovating in their methods of delivery, and at reducing costs and increasing efficiency. Governors should ask: how exposed is the university to competition from new providers? Which subject areas might see the most significant competition? What impact might that have on the university? And what is the University’s response to address these issues, should they be identified?

Dealing with disruptive forces

While Brexit will disrupt many (if not all) sectors, there isn’t yet much by the way of positive news for higher education. That said, EU students have had their loans guaranteed for the next few years and they’ll be allowed to stay to complete their studies. Alongside forces external to HE, there’s been a lot of change within the sector itself. There are new information sources for students, through the Teaching Excellence Framework and the Longitudinal Education Outcome data which may influence applicants’ choices about where and what to study, although it’s very early days for both and it will be some time before we understand their full impact. The government’s Industrial Strategy and devolution agenda also offer opportunities for the HE sector, but do institutions have a clear plan in these areas?

While the individual disruptive factors are understandable, their cumulative effect may amount to something particularly challenging. Room for strategic manoeuvre in universities may also be restricted, or hard to achieve quickly: most institutions have a relatively high fixed-cost base and borrowing commitments are still on the rise, which requires a higher minimum cash level to be maintained.

Changing conditions may push some providers to the limits imposed by their lenders’ covenants, an area to which universities have had to pay closer attention in recent years. While effective management can enable institutions to overcome these challenges, have governors agreed contingency plans for addressing what, for many, had been previously unthinkable scenarios?

These market changes will affect different institutions in a range of ways. It may be that some of the larger, mostly older, universities are less severely affected as their scale and reputation dampen volatility. Smaller providers with niche provision may also be better shielded by their specialism, although some institutional consolidation may be needed. But universities of all shapes and sizes need to think about these issues as it may be difficult to cope with too many shocks in combination.

Much of this comes down to the business model. Take research, for example: it has a major influence on reputation, can also be a risky area as external funding is highly competitive and the infrastructure required for it can be costly. On the horizon, there is concern about the impact of Brexit on research funding and the risk of a brain-drain. Governors should be debating the risks arising from Brexit, and the institution’s response. Questions around the cost, as well as the benefit, of research should be asked. To what extent can, and should, your university subsidise research activities? Have governors debated the balance of funding sources for research alongside its research ambitions? If the level of funds available to cross-subsidise research reduces, what will be the University’s response?

Interrogating the way in which the university runs now, and considering how it might best be run in the future, is essential for good governance.

Time to ask

Universities aren’t known for being particularly agile in their decision-making or quick to implement change. But it is now increasingly important to reconcile ‘the way we’ve always done it’ and the future market conditions. Governors should be asking questions about the specific issues facing their institution and should interrogate the response to these issues and opportunities. They should also consider whether they as governors, plus senates and academic boards, and the teams running the institution, have the capacity and the right level of skills and expertise to enable the university to thrive. Are the right people in place? Are the governance and decision-making processes ‘fit-for-purpose’? If there were ever a time to ask searching questions, it’s now.

 

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