Strategic planning is a much more comfortable process when the future is reasonably predictable. The higher education sector has benefitted in the past from offering an established model of education, loose enough to accommodate innovation in practice without really having to change significantly how things are done.
Historically university strategies have too often been exercises in consultation without moving the dial on university activity: be it because it is hard to challenge the status quo from inside, a lack of a driver to make change (“if it ain’t broke…”) or a lack of an external burning platform.
Of course none of us had any idea that a disruption of the magnitude of Covid-19 would hit us with a sucker punch to the solar plexus, challenging every notion of what a university does within a scant few weeks. The role of boards will be critical in the next few months in providing oversight, support, and challenge to executive teams making decisions with imperfect information, significant uncertainties, and without a road map of established practice.
At KPMG, we’re using the terminology of React; Resilience; Recovery; Renewal and New Reality to help us think through the different time horizons for decision making and the actions that might be required at each stage.
In most cases, universities are now moving from the React stage to Resilience – having secured the continuation of teaching in some form for the summer term, universities are now assessing the short, medium and long term financial impact of the pandemic and thinking through how to manage those losses without irrevocably damaging the long-term sustainability of the university or its mission.
This is not without its challenges. There remains significant uncertainty about the extent, and how soon, universities will be able to operate a full on-campus offer; if, when and in what numbers overseas students will return and what will UK students choose to do, whether returning or entering the university sector for the first time. All of which make it difficult to know for how long current cash reserves, cost savings and finance facilities will protect institutions.
The availability of additional debt finance to address liquidity shortfalls is not a foregone conclusion, even if universities are eligible to apply for government-backed lending schemes. Robust assessment of external financing requirements and satisfaction around the university’s ability to service and repay (or refinance) debt and comply with covenants remains at least as relevant from a governance perspective now as it should do in normal market conditions. A real grip on costs and cash flow will be required to assure lenders, and potentially any central intervention, that everything possible has been done before the university has sought additional financing.
We now know the scale and scope of the government support package announced earlier this week which, while welcome, will not, on its own, be enough to ensure the long term sustainability of the sector. Some of the regulatory caveats also add another complexity for governing bodies in considering their responses. In Scotland, and elsewhere, government sources have floated the likelihood of forced mergers as a condition of a bailout and DfE’s explicit mention of a “restructuring regime” for higher education perhaps poses more questions than it answers for boards considering future options.
How do we move forward?
All this is enormously preoccupying, but as governors we must keep one eye on the here and now (React and Resilience) while also looking towards the medium term (Recovery) and the longer term more substantive pressures on the sector (Renewal and New Reality).
This will mean taking potentially far-reaching decisions in far shorter time frames than boards have been used to. As executive teams grapple with scenario planning where there are multiple “known unknowns” and “unknown unknowns”, boards will need to get to grips with the data and scenarios at a granular level to understand the impacts on our institutions. It will mean objectively considering the likelihood of the different scenarios and thinking outside of the current organisational boundaries (and with some imagination) about the art of the possible.
Governors need to be able to balance challenge and risk management in board/council meetings and this cannot fall to the chair alone; the collective skills and experience of the whole board must be brought to bear. We do not have a crystal ball, but inevitably not all decisions will turn out to be the correct ones. Governing through the coming months will require managing an inevitable level of risk, holding our collective nerve and being absolutely clear on the rationale for each decision taken, especially when it appears other universities may have gone down different routes.
The current crisis will bring to the fore some of the deep-seated cultural issues that have meant change in universities has, to date, been on the whole incremental (and if we are honest, even that hard to deliver). But the really positive activity in the React phase shows that universities can mobilise in extraordinary ways and with speed and agility when they need to.
The last few weeks also helps us see, in the context of all of the wider changes we knew were out there, how the existing model could be disrupted. We would not be very creative leaders if we were not able to imagine a range of different potential futures and our responses to them.
As we do this, we need to keep four questions in our minds:
- HOW are we delivering our core mission – and does how we deliver it need to change?
- WHO is the “customer” (students, employers, government, partners in our region and globally) and what are their needs, now and in the future?
- WHAT kind of education and research is (and is not) needed – and what could that look like in the future?
- WHY does what we do now continue to be the right answer – or where do we need to update our thinking?
As we look forward to a New Reality, these questions should remain at the heart of the issues that boards and councils need to consider. Across all university activities there will come a decision point where, for each activity governors need to support and challenge universities to answer those key questions, especially the WHY is what we do now the right answer going forward? For some activities the answer will be “yes, this continues to be the right thing for X reasons” and so the challenge becomes building enough resilience into the system so that that the activity remains sustainable.
Through this crisis there will also be the opportunity to explore new avenues and perhaps address some of the shibboleths that have endured. Does the university need to do all of the activities across the frontline, middle and back office itself? Is now the time to proactively explore the role of collaboration – or even merger – activity, perhaps in anticipation of government action? Is the portfolio mix the right one and how can the university balance the need to reduce cost, generate revenue and, most importantly, meet the needs of the wider economy post-Covid-19, as well support strong recovery in the places where the university operates?
As governors, again the fundamental question is: what is absolutely core to our institution and therefore needs to be kept sacred? Then, where might we collaborate, share, stop, or even merge activities with others?
To enable these discussions there are some practical steps boards can take:
- Ensure that there are robust and accurate cash flow forecasting protocols in place together with cash committees and initiatives for cash generation/preservation
- Ensure that there is a comprehensive and very structured approach to cost reduction so that every ounce of effort to reshape the organisation in these difficult times is captured.
- Ensure that there is appropriate scenario planning considering the “what if” scenarios for the university
- Review the governance approach in a time of rapid change to ensure governors are engaged in agile constructive challenge and support of management much more regularly, while decisions are being made, rather than being a rubber stamper when it is really too late to make a difference
- Support management by ensuring they have the right programme of skills and oversight in place to deliver the things they need on time: perhaps consider bringing in co-opted members with key skills needed to support the organisation and management in specific areas
- Make sure the board is looking at decisions through different lenses and timeframes: some activities will be for the here and now (react) but others could have long-term implications that need to be assessed depending on the path taken at those critical decision points (the online teaching strategy for September being a good example).
If the strategy does pivot – and it undoubtedly will in some areas – what activity will any new organisational structure be there to support? There may be potentially some quite significant structural changes to the way universities operate and so challenges for the board as leaders include:
- How to consider the different student experience across what might become very mixed learner cohorts?
- How do you create the academic flexibility and agility required to meet those potential demands?
- What could it mean for professional services; the estate; the systems and indeed the workforce of the future?
I think we have discovered, as have many sectors, that providing the best education, research and civic engagement – fulfilling the ambitions of what it is to be a university – can be threatened by disruption, just as in any other industry.
Indeed, there has probably never been such a strong imperative to really step back and think about the different options open to a university to meet current and future societal and economic needs as we enter the New Reality. Some of which may well lie outside of the university as it is currently structured.