How universities can rise to the financial sustainability challenges of today

This article was informed by conversations with Professor Sir David Eastwood and his opening address at the 2024 UK UniForum conference. The opinions and analysis are those of NousCubane. Sir David is former Vice-Chancellor of the University of Birmingham and now UK chair of the Fulbright Commission. 

Universities across the Anglosphere are facing fundamental changes in their operating and policy environment. Over the past five years, there have been significant shifts in public perception, government policy and funding, student and industry expectations, as well as the technology landscape and operational cost drivers. Critically, for many universities the ability to grow revenues has become more constrained, putting added pressure on operating costs.  

However, during the pandemic universities demonstrated the ability to act boldly, pragmatically, and at pace in response to major change. While the drivers for change this time are less abrupt, they will have long-lasting effects. Responding effectively will necessitate equally enduring shifts in operations to ensure universities can best fulfil their academic missions in financially sustainable ways.

In this article we share insights from UniForum on how universities can position themselves for long-term financial sustainability in a revenue constrained environment. 

The operating environment for universities has changed

Globally, universities are experiencing major shifts in their operating environment, in revenue, cost and policy terms. The assumptions that have underpinned university strategy and financial planning have changed, and are unlikely to be the same again.

In the UK, Australia, and Canada, we are seeing shifts towards more constrained policy settings, characterised by increased regulation, tighter funding conditions and more controls. Previously, universities have been able to rely on the real value of domestic tuition fees rising (whether through increased enrolments or government grants), steady research funding flowing to all universities, and buoyant international student enrolments. Now, we see domestic tuition fees declining in real terms, a much tighter focus around research funding, and, of course, significant challenges around securing overseas and postgraduate students. 

In terms of operating costs, universities face the triple bind of rising input costs (staffing, energy, estate), less financial flexibility to borrow for investment, and delivering on a broader range of mandates. This increasing complexity comes through in UniForum data showing that universities have been investing in areas such as diversity, sustainability, cybersecurity, and data analytics to keep up with a socially conscious and digital-first world. Following the pandemic, additional investments have been made in teaching support, particularly around learning technologies and supporting academics in delivering online or tech-enabled teaching. All of this results in a higher cost base, and begs the question of how to fund more activity when resources are constrained.

Lessons from UniForum highlight ways universities can achieve sustained improvement

Thriving in a revenue constrained environment will involve revisiting key strategic choices and operating costs to sustainability manage spend while enabling investments that deliver on institutional priorities and the academic mission. While achieving scale through growth can deliver some gains (as we explored in this article), the reality is that many universities will need to reduce their cost base, or at the very least keep it from increasing.

What this means for individual universities will vary. Some universities may need to undertake institution-wide transformations to substantially reduce costs. Others will need to adopt a continuous improvement approach linked to process improvement, role redesign, and targeted systems investments to support cost containment.

Whichever mode of change is chosen, the experience of UniForum members who have sustainably improved their operations points to three key ingredients for lasting success:

  1. Good data is a pre-requisite

    Achieving sustainability is not a one-off exercise, it’s a mode of working that requires university leaders to make optimal decisions on where to invest and how to deploy resources. Good, transparent data helps create a common understanding of a university’s operating model and the levers for change, and enables university leaders at all levels to make better decisions. Lessons from UniForum tell us that:

    • Data needs to take account of all the activities performed across the institution, to establish a clear baseline for how resources are expended, and whether they are aligned with university strategy and operational needs.
    • Socialising data is critical, as it helps to move the conversation to an evidenced based one and away from anecdote or embedded assumptions.
    • Good cost management requires greater transparency and discipline around budgeting decisions and business planning.
    • Adopting a “zero-based budgeting” mindset can help ensure resourcing is appropriately managed and investment is directed to essential activities and those necessary to drive excellence.

  2. Start with improving processes, staff experience, and simplifying

    It is notable that since the pandemic, large numbers of universities that worked to reduce their cost base have seen those costs return, and in some cases exceed where they were in 2019. This has often occurred for valid reasons, such as when investment was necessary, but it has also resulted from the difficulties of “doing more with less”. 

    Universities that have sustained improvement first focused on the people and process, and importantly, reduced the work required to achieve service priorities. This also helps make future digital change easier, by reducing complexity. They have done this by:

    • Taking an end-to-end view of role and service design, to minimise role fragmentation, reduce process duplication and handovers, and clarify service ownership.
    • Making quick win policy changes that can reduce workload requirements (e.g. number of approvals required for a payment).
    • Simplifying transactional work to enable investment in specialist capability needed to deliver on increasingly complex priorities.
    • Re-imagining service delivery in a user-centric manner by listening to service users and understanding what matters to most to them (read more about this point here). 
    • Benchmarking service experience and delivery costs to avoid gold plating services beyond core user and regulatory requirements, particularly where they are not strategic differentiators.

  3. Invest to improve productivity and quality

    After having simplified and streamlined processes, investing intelligently in service model changes will support scaling improvements across the university while maintaining quality and user experience. When done well, moving to more holistic and integrated approaches to service delivery, such as shared services models, can improve service delivery at a lower marginal cost. 

    These services changes then allow the institution to maximise benefits from technology investments, whether major systems implementation, targeted automation or AI enabled support. This Insights article covers the key actions to getting the most from system implementations.

    Equally important is building the capabilities needed to drive change and embed a continuous improvement culture. In some institutions this may look like service delivery units held accountable by KPIs, with dedicated service improvement teams tasked to improve performance measures year over year. Regardless of the approach taken, incentives need to be in place to encourage alignment to shared goals while continuing to reward innovative thinking. This may require looking at how budgets are allocated and the flexibility available for universities to respond to strategic opportunities.  

    The key, of course, is acting early and not waiting until a fiscal or operational crisis becomes acute. The University of Auckland, for example, found that when the pressures of the pandemic hit, the work done over the preceding months and years – introducing a centralised staff contact centre, standardising roles to remove unnecessary fragmentation, embedding a data-driven approach – placed them in really good stead to respond quickly and flexibly to the crisis (see here for more on this).

Making this a reality will require energy and a commitment to change

To respond effectively, universities need to recapture the energy, pragmatism, and willingness to embrace change that they did in the pandemic. The problem, is that however ‘real’ the current financial challenges are, they’re not as immediate and obvious as the threat of COVID-19 – nor are the implications as readily understood across all stakeholder groups. 

Successfully mobilising around the need to act will require ambidextrous leaders who can effectively manage change and run a business at the same time. It will also require taking members of your community with you on the journey in way that builds genuine support and momentum: as every university leader knows, lengthy consultation or, at worse, tokenistic engagement will sound the death knell for any change program. Achieving this type of change will require three fundamental conditions:

  1. Buy-in from university leadership: It goes without saying that the full leadership team will need to be committed and able to communicate the vision and goals to capture the hearts and minds of the university community.
  2. Alignment between administration and the academy: universities are first and foremost academic institutions and require academic leaders such as deans to work hand-in-hand with functional experts on delivering sustainable operations.
  3. Employing the right skills and capabilities: meaningful change does not take place without the dedicated capacity of experts in communication, programme management, digital, change management, etc. Delivering change “off the side of desk” will not be good enough.

The experience of leaders of change at the University of Exeter is directly instructive on these points. As explored in a recent case study, Exeter’s change team worked hard to find the right solution to its strategic challenges with academic stakeholders, from the word ‘go’. 

UniForum has supported numerous universities to better manage and sustainably improve their operations. In future NousCubane Insight articles, we will explore in depth how universities have put in place the foundations that will enable them to achieve financial sustainability and deliver on their academic missions.