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English universities¡¯ cost cuts must be strategic and transformational

<ÁñÁ«ÊÓƵ class="standfirst">The financial woes can¡¯t be solved without job losses; the key issue is to ensure they set the university up for a realistic long-term future, says Malcolm Prowle
November 27, 2024
A man trims his hedge into a shape, symbolising strategic cuts
Source: SerhiiBobyk/iStock

So we now know that the only change in?the financing of?universities in?England ¨C for the moment, at?least ¨C will be the small increase in?tuition fees announced in?the recent budget. And, as?the chair of?the Office for Students, Sir?David Behan, , this will?not be?enough to?pull many universities back from the financial cliff edge amid falling student numbers and rising costs.

About 40?per cent of?English universities expect to?be in?2023-24. Some are already facing severe cash-flow problems, and there is?endless speculation that some might go?under.

Behan suggests that universities should consider ¡°a?transformation of their offer¡±, as well as greater collaboration and perhaps even mergers. He is quite right to call for radical thinking. Local authorities were in a similarly perilous position around 2017 as austerity bit. And while some have negotiated the problems reasonably adeptly, others have (and is facing the prospect).

So what are the options? Some universities might attempt to generate more income, but this might prove difficult in the current climate. Others, as Behan suggests, will consider merging with another university ¨C but this is?no?panacea.

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That leaves cost reductions. Traditional approaches include freezes on recruitment and building maintenance, voluntary redundancies and a requirement for all departments to make a standard percentage reduction in their budgets. But there are two problems. Such cuts might not generate the level of savings needed because the low-hanging fruit has already been picked. And they risk imposing higher costs in the longer term.

What is required is sustainable cost reduction, based on a strategic plan that is transformational, rather than just more of the same. This should define which activities the university will undertake, and how, based on realistic (not over-optimistic) scenarios around the economic, policy and student recruitment environment.

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In recent decades, many universities have invested heavily in fixed assets, especially buildings. This incurs ongoing running, depreciation and financing costs. But the move away from in-person lectures means that buildings could be substantially underutilised in future. A hard-headed assessment of this could open up the option of selling ¨C or renting out ¨C some buildings.

Another option is to identify the loss-making activities ¨C academic or commercial ¨C that any university in deficit must have. Not all have to be cut, but maintaining an activity implies an acceptance that the (properly quantified) losses will be subsidised by profitable activities. This should be acknowledged and kept to a minimum.

There will be several types of running costs incurred by most departments ¨C such as marketing, premises, energy and small items of equipment ¨C that add up to a lot. Examining specific types on a university-wide basis can identify duplication and highlight where more coordinated procurement might result in substantial overall savings.

There is also a case for universities to agree to reduce marketing spends. Something similar was adopted in the health service some years ago, when it was noted that internal health markets were prompting NHS trusts to divert significant sums from patient care into competitive marketing.

Whatever cost savings might be made elsewhere, the reality is that more than half of university costs are in staffing, so it is inevitable that these must come under review, too. Universities are generally large and complex organisations, whose structures and working methods have evolved over many years and might no?longer be strategically appropriate even today, let alone in the years ahead.

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How many academic schools/departments are really needed? Is there the potential to delayer their management structures? Are there processes that might be simplified so that ¨C perhaps coupled with investment in technology ¨C they require fewer staff?

In many organisational types, including universities, expenditure on central departmental functions?is sometimes excessively large compared with the costs of front-line functions. Moreover, such costs tend to creep up when times are good. An organisational review should consider which of these functions can be described merely as ¡°nice-to-haves¡± in the current financial climate.

Make no mistake, to be done robustly, a strategic approach to cost reduction will be complex, time-consuming, disruptive and painful. Universities will need to involve stakeholders; gather relevant data; analyse and document processes and structures; ask questions about the value each of those activities actually generates; and benchmark against other universities (and other organisations) before identifying and implementing possible improvements.

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Implementation can also be tough. The changes might have major implications for the university, students and employees, so it is important that the process is managed effectively. There needs to be internal transparency about the size of the challenge and the wisdom of the response.

Finance needs to be made available to implement any technological solutions and to fund compensation packages. And financial planning and management needs to be enhanced to ensure that the proposed cost savings are sustainable and actually achieved. Quite often, they are?not. I?have known many organisations (including at?least one university) to agree to voluntary redundancies for people later discovered to be fulfilling critical roles, requiring them to be rehired on much higher consultancy rates.

Strategic cost reduction is a challenging agenda for universities, which must be undertaken while ongoing academic activities are being maintained. But it can provide the basis for a successful future.

is professor of performance management at the University of Gloucester. He was previously a senior financial manager in several organisations and a management consultant in the higher education teams of two international consulting firms.

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<ÁñÁ«ÊÓƵ class="pane-title"> Related articles

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<ÁñÁ«ÊÓƵ class="pane-title"> Reader's comments (10)
Treating universities like a provincial business has been a failure. No mention here about their essential and primary teaching/ research function and the need to prioritise and advance them, and the country's need to compete with the best universities in leading countries around the world. Successive governments and much of our population seem to think we can get by with underfunded, mediocre institutions aimed at teaching practical skills. Unambitious declinism in other words, like much else in the UK. What happened to the buzzwords, 'world leading', 'global', 'innovation' etc etc? At least there was a vision there, which may have lead to breakthroughs, global impact, etc.
Thanks for your comment I am just about old enough to remember the University Grants Committee which made financial disbursements to universities to do with what they sort fit. No student fees, no student recruitment targets, no REF etc. For better or worse, that world is long gone. Universities are not businesses, but the reality is that they do have to operate in a businesslike manner by earning enough income to cover their costs. In fact, it is essential that they make a financial surplus (or profit). This profit is not distributed to owners/shareholders, which would be the case in a business, but is retained as an essential source of funding for new developments such as equipment, building improvements, staff development etc. Of course, a university must pursue its teaching and research function but that has to be done on the basis of the financial resources available. Of course, higher education would like more financial resources, but the public finance position of the UK is well-known and has been heavily publicised following the budget. There are huge problems with services like the NHS, social care, prisons, immigration etc. Whether we like it or not, in my view, the political reality is that HE is not seen as a prime candidate for more public funding. What I have tried to set out briefly, in this article is the actions universities need to take ? to ¡°survive¡± ? To have a sustainable future It is a long hard road but there isn¡¯t really any option
I think the key problem here is "Another option is to identify the loss-making activities ¨C academic or commercial ¨C that any university in deficit must have." The fact of the matter is that the answer to the question "which activities are lots making? " is "all of them". All activities a university undertakes (or at least, all the activities they are constituted to perform) are loss making. As for "how many departments does a university need" - we've just gone through a merger from three departments to one school. In the process we've gone from three executive committees to one. Which sounds great until you realise that almost all of the committee members have at least one and sometimes 2 deputies, and what might have been a 20% FTE role is now a 50% FTE role. And we might have one school, but it is divided into 5 clusters. Each with its own executive. So far from "delayering", we've actually added a layer. But of course this was obviously going to happen. There are 140 academics in the school that's far to many to have everyone as a direct report of one head of school. They're is an opportunism here that perhaps technology will help, with reference to the rise of on line lectures. We went back to fully in person, and thank God we did. This years third years are the first to have had almost all their teaching in person, and it only needs 5 minutes with them to realise how much more on top of things they are than the cohorts that had substantial on line teaching.
It is sad that so much of the UK HE community has now resigned itself to decline, mediocrity and ¡°making do¡±. This used to be the nation of Nobel winners and ambitious thinkers, now the sector is run in the style of a provincial high street. The only criteria for a university embracing any activity now appears to be that it can be used to make a few shillings.
Universities have always needed to create a surplus to be sustainable, and this article appropriately addresses internal cost management and efficiency - the elephants in the room. Although it's true that the changes needed will be painful at an institutional and human level, the alternative of a sector wide collapse should be unthinkable.
It's a good article, but the fundamental point is here: "Another option is to identify the loss-making activities ... that any university in deficit must have. Not all have to be cut,..." At the moment loss-making activities include all teaching of UK students, and all noncommercial research. In other words, the existential core of British Universities. So if we do what you suggest we stop doing UKRI- and charity- funded research, and develop a new teaching model with more restricted teaching. The latter we can do, though students and the country won't like it. The former is absolutely existential - it's the reason most of the staff signed up - departments that don't support that type of research will lose their intellectual cores pretty quick.
Indeed. I am not saying and would never say that all loss making activities must be discontinued forthwith. However, the deficits must be recognised and not hidden. This is my point about internal transparency in the last section of the article. In the short/medium term it may be deemed acceptable to subsdise loss makers from activities which are making a surplus such that the institution retains overall profitability. Commercial firms do this all the time. However, care is needed with such cross-subsidisations in the longer term. It is indeed sad that the university sector has got to this state of affairs. Many of the factors which have caused this are utside our control. However, universities are not blameless and we all know examples of cavalier decision making
Well said.
There is no mention in this article about the rise in Exec salaries and bonuses, along with the increase in the number of senior staff now at that level. The author states "Make no mistake, to be done robustly, a strategic approach to cost reduction will be complex, time-consuming, disruptive and painful. Universities will need to involve stakeholders; gather relevant data; analyse and document processes and structures; ask questions about the value each of those activities actually generates; and benchmark against other universities (and other organisations) before identifying and implementing possible improvements." But does not suggest who will be doing all of this along with their time consuming and 'day job' which, in many cases has been expanded due to the last review of staffing requirments. Of course, the answer could be that the University Exec turn to external and very expensive consulants, the overuse of which to make business decisions could be a factor in the current financial predicament.
Two comments It is legitimate to question executive salaries. However, you could get rid of the whole executive team and that would hardly dent the financial shortfalls that universities are facing. In the business world, executive salaries might be linked to performance but you would have to be clear about what performace constitutes and is it sustainable. This would seem to be a more equitable arrangement so that staff can see why executive salaries are rising when theirs arent. I dont think its is a situation for management consultants except for some small specialist issues. There would need to be a nominated project manager responsible for the whole process of change and that would be a full time job. The reality is that much of the workload will fall on senior managers and there is no point in hiding the fact that it will be hard. I was one involved in the merger of two further education colleges. Omce the merger was complete,two of the executive team had substantial perods of sick leave caused by stress. However, what is the alternative. Government will not come tothe rescue as the Budget indicated, the other options may be unpalatable to say the least
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