University of the_future_2012

University
of the future
A thousand year old
industry on the cusp of
profound change

Over the next 10-15 years, the current
public university model in Australia will
prove unviable in all but a few cases

2 University of the future

Contents

Introduction and executive summary 4
Drivers of change 6
Evolution of the university model
Current state 14
Case for change 15
Streamlined Status Quo 16
Niche Dominators 18
Transformers 20
Conclusions 22
Implications for universities 24
Implications for policy makers 26
Implications for the private sector 27
Ernst & Young’s framework for assessing and designing a model for the future 28
Ernst & Young Higher Education contacts 29
Methodology 30
Ernst & Young research team 31

University of the future 3

Introduction and executive summary

The current Australian university model — a broad-based
teaching and research institution, with a large base of assets
and back office — will prove unviable in all but a few cases.

Ernst & Young’s view is that the higher education sector is 3. Digital technologies — Digital technologies have transformed
undergoing a fundamental transformation in terms of its role media, retail, entertainment and many other industries —
in society, mode of operation, and economic structure and higher education is next. Campuses will remain, but digital
value. To explore these themes and future directions, we have technologies will transform the way education is delivered
conducted an industry-wide study of the main forces impacting and accessed, and the way ‘value’ is created by higher
the higher education industry globally and locally, and the education providers, public and private alike.
opportunities, challenges and implications for Australian 4. Global mobility — Global mobility will grow for students,
universities. We conducted a mix of primary and secondary academics, and university brands. This will not only intensify
research, including interviews with more than 40 leaders from competition, but also create opportunities for much deeper
public universities, private universities, policy makers and global partnerships and broader access to student and
sector representative groups. Our interviewees included academic talent.
representatives from more than 20 universities, including
15 Vice-Chancellors. The topic attracted immense interest 5. Integration with industry — Universities will need to build
around Australia. significantly deeper relationships with industry in the decade
ahead — to differentiate teaching and learning programs,
Our primary hypothesis is that the dominant university model support the funding and application of research, and
in Australia — a broad-based teaching and research institution, reinforce the role of universities as drivers of innovation
supported by a large asset base and a large, predominantly and growth.
in-house back office — will prove unviable in all but a few cases
The university sector is critical to Australia’s future. Universities
over the next 10-15 years. At a minimum, incumbent
educate our leaders and entrepreneurs of the future, create
universities will need to significantly streamline their operations
new ideas and knowledge, and earn much needed export
and asset base, at the same time as incorporating new teaching
income. Universities provide opportunities for students of all
and learning delivery mechanisms, a diffusion of channels to
backgrounds to increase standards of living for themselves and
market, and stakeholder expectations for increased impact.
future generations. But, to succeed, universities will need to
At its extreme, private universities and possibly some forge new business models that are dynamic, modern and fit for
incumbent public universities will create new products and the decades ahead.
markets that merge parts of the education sector with other
We see university business models becoming more diverse, and
sectors, such as media, technology, innovation, and venture
anticipate three broad lines of evolution.
capital. Exciting times are ahead — and challenges too.
1. ‘Streamlined Status Quo’ — Some established universities will
We have summarised the drivers of change of this brave new
continue to operate as broad-based teaching and research
world into five key trends:
institutions, but will progressively transform the way they
1. Democratisation of knowledge and access — The massive deliver their services and administer their organisations —
increase in the availability of ‘knowledge’ online and the mass with major implications for the way they engage with
expansion of access to university education in developed and students, government, industry stakeholders, TAFEs,
developing markets means a fundamental change in the role secondary schools, and the community.
of universities as originators and keepers of knowledge.
2. ‘Niche Dominators’ — Some established universities and new
2. Contestability of markets and funding — Competition for entrants will fundamentally reshape and refine the range of
students, in Australia and abroad, is reaching new levels of services and markets they operate in, targeting particular
intensity, at the same time as governments globally face tight ‘customer’ segments with tailored education, research and
budgetary environments. Universities will need to compete related services — with a concurrent shift in the business
for students and government funds as never before. model, organisation and operations.


3. ‘Transformers’ — Private providers and new entrants will
carve out new positions in the ‘traditional’ sector and also
create new market spaces that merge parts of the higher
education sector with other sectors, such as media,
technology, innovation, venture capital and the like. This
will create new markets, new segments and new sources
of economic value. Incumbent universities that partner
with the right new entrants will create new lines of
business that deliver much needed incremental revenue
to invest in the core business — internationally
competitive teaching and research.
Faced with this dynamic industry landscape, Australian
universities should critically assess the viability of their
institution’s current business model, develop a vision of
what a future model might look like, and develop a broad
transition plan. Deliberations on future models need to
include which customer segments to focus on, what
‘products’ or services they need, optimal channels to
market, and the ideal role of the university within the
education and research value chains. Support functions will
need to be streamlined and in some cases fundamentally
reconfigured. Regardless of the path chosen, universities
will need to align new directions to their institution’s core
purpose and values.
This document describes our study, key findings and
recommended responses. It covers:
• Drivers of change

• Evolution of the university model

• Implications for public universities, policy makers and the
private sector
• How to play in the future — Ernst & Young’s framework for
assessing and designing a model for the future
• Ernst & Young team and methodology

We hope the paper provides food for thought as universities
chart their journey towards a new future.

Justin Bokor
Ernst & Young


Drivers of change

Five mega-trends will transform
the higher education sector.

Our research and industry discussions
highlighted a number of major forces
impacting the higher education sector in
Australia and internationally. These
forces coalesced around five key drivers
of change. The first section of this paper
explores each of the five drivers and their
likely impact in the decade ahead.

Figure 1. Drivers of change • Ubiquitous content
Democratisation of • Broadening of access to
knowledge and access higher education
• Increased participation in
emerging markets

Contestability of Digital technologies
markets and funding
• Bringing the university to the

Drivers of change
device — MOOCs and the rise of
• Fiercely competitive
online learning
domestic and international
student markets • Bringing the device to the
university — the use of digital
• Challenges to
technologies in campus-based
government funding
learning
• Competing for new
• Blended learning
sources of funds

Global mobility Integration
with industry
• Emerging markets becoming
• Scale and depth of industry-based learning
global-scale competitors in the
international student market • Research partnerships
and commercialisation
• Academic talent increasingly
sourced from emerging markets • Industry as competitors in the certification and
delivery of content
• Emergence of elite, truly global
university brands


Democratisation of knowledge and access will drive a global
‘education revolution’ of a scale never before seen, creating
both new opportunities and new sources of competition.

“Teaching methods have 1. Democratisation of knowledge education participation rate more than
and access trebled from 8.0% to 25.9% in the first
to change. We can’t rely decade of this century, and is likely to
Traditionally, universities held the key to
on delivering content knowledge, in both a physical and
double again in the next 10-15 years1.

anymore — it’s all about philosophical sense. University libraries, Participation rates are growing rapidly in
faculty domains and research institutes a host of other economies and regions:
contextualisation, ways were where knowledge was created, Latin America, ASEAN, the Middle East
of thinking, and the stored and shared. The staff working in and North Africa. Participation rates are
student experience.” those domains typically held a privileged also now growing steadily in sub-
status as originators and keepers of Saharan Africa, after decades of
University Provost knowledge. Now knowledge is open to negligible growth.
anyone globally with a device and
This expansion of access will drive a
connectivity — not just facts and figures,
global ‘education revolution’ of an
but also analysis, interpretation, and
unprecedented scale, transforming
curation of knowledge.
societies by creating opportunities for
Access to universities has traditionally millions of people and their families to
been dominated by a modest proportion increase their standards of living. For
of society in developed markets — 20-30% universities, this will drive new
of post-secondary students — and a very approaches to teaching and learning,
narrow proportion of society in emerging create opportunities for entry to new
markets, typically the elite. markets and new global partnerships,
stimulate new distribution approaches
Today, access is expanding both in
— such as low-cost distribution in rural
developed markets, such as Australia,
areas — and also create new sources
and even more fundamentally in
of competition.
emerging markets. China’s tertiary

Figure 2: Tertiary education participation rates (Proportion of 18-22 years olds in post secondary education)

80.0%
Note that the OECD figure represents an
75.0%
approximate average across developed
2000 countries within the OECD and excludes
OECD developing countries such as Mexico.

2010

40.5%

29.0% 30.0%
25.9%
22.6% 21.0%
17.9%
15.8%

8.0% 9.4% 6.8%
4.3%

OECD East Asia & Paciﬁc China India Latin America MENA Sub-Saharan Africa

Source: World Bank, Ernst & Young analysis. MENA — Middle East & North Africa; OECD — Organisation for Economic Co-operation & Development

1 See, for example, Outline of China’s National Plan for Medium and Long-term Education Reform and Development (2010 — 2020), China Ministry of Education (www.moe.gov.cn).


Drivers of change

Contestability of markets and funding will deepen both in
Australia and internationally, with any growth in funding
coming from highly competitive, non-government sources.

“We will come under 2. Contestability of markets Contestability of funding for teaching and
and funding research will likewise deepen, both in
increased pressure on
The introduction of a demand-driven Australia and internationally. Mining
Government funding, funding model in Australia in 2012 has boom Mark I drove the 2006-07 and
whichever way you driven whole new levels of competition. 2007-08 Australian budget surpluses
A number of universities that had that filled the coffers of EIF2. However,
look at it.” previously felt secure in their market the fiscal boost of mining boom Mark II
appears over before it even began. The
Head of university shares found themselves confronted by
losses in share of 5-10% or more as government faces a mighty task to return
representative group the budget to surplus, and both sides of
2011 first preferences and 2012
enrolment data started to come politics have spending commitments that
through. In Victoria, for example, four will take every spare dollar and more well
universities lost 3.5% market share or into the next political cycle.
more — see Figure 4 below. Universities in Australia will need to
While future Australian governments prepare for an environment where every
may seek to limit the fiscal implications dollar of government funding is
of growth in enrolments, the deepening contestable and any growth in funding
of market contestability is unlikely to be comes from non-government sources
reversed, either in Australia or — students, industry, philanthropists, and
internationally. The genie is well and global collaborations — that are all
truly out of the bottle. fiercely competitive.

Figure 3: Australian government fiscal surplus/deficit, Figure 4: Market competition
Financial Year (FY) 2005 to 2013 Percentage change in market share of first preferences
(A$ billion ) 2011 vs 2010 — Victorian market (universities de-identified)

21 21.4%
17
15
11
13.8%
3
FY09 FY10 FY11 FY12*
FY05 FY06 FY07 FY08 FY13*
6.2%
4.6%

1.6%
0.1% G H I J
A B C D E F
-30
-3.8% -4.2%
University
-42 -7.7%

-53 -52 -11.5%
Source: Based on Treasury data — Commonwealth of Australia Budget Source: Ernst & Young analysis of market data.
Papers 2006-07 to 2012-13.
* Figures are estimates from the May 2012 paper

2 EIF — Education Investment Fund. For more information see deewr.gov.au/HigherEducation/Programs/EIF


Digital technologies will transform the way education is
delivered, supported and accessed, and the way value is
created in higher education and related industries.

“Our major competitor in ten 3. Digital technologies Digital technologies will also
fundamentally transform the way value
years time will be Google… Digital technologies and innovation have
is created within higher education and
disrupted all manner of established
if we’re still alive!” industries — media, retail, entertainment
related industries. For example, new
technologies will enable public and
University Vice-Chancellor and many others. While online education
private providers to specialise in parts
has been around since the 1990s, it has
of the value chain — content
been in the last 2-3 years where the
generation, content aggregation, mass
pace and disruptiveness of change has
distribution, certification,
really accelerated.
commercialisation and so on.
Digital technologies will not cause the
New technologies will enable media
disappearance of the campus-based
companies to enter the university
university. Campuses will still exist as
sector, either in partnership with
places of teaching and learning,
incumbents, or potentially in their own
research, community engagement, and
right. The so-called Massive Open
varied forms of student experience —
Online Courses (MOOCs) are an early
assuming universities can deliver a rich,
stage example of the search for new
on-campus experience. But digital
models. Some of these models will
technologies will transform the way
decline and fail, others will create very
education is delivered and supported, for
substantial economic value. Winners
example through applications that
are likely to be a mix of new, pure play
enable real-time student feedback, and
online businesses and traditional
the way education is accessed in remote
businesses with powerful online models
and regional areas — both in the
and capability.
developed and developing world.


Drivers of change

Global mobility will continue to grow for students, academic
talent and university brands, with the likely emergence of a
small number of elite, truly global university brands.

“There will be 15-20 4. Global mobility Global mobility of academic brands is a
newer phenomenon, but is also growing
independent, global Global mobility will continue to grow
in importance. ‘MOOC-based’
for students, academic talent, and
brands … the rest will be increasingly for university brands.
distribution of content by the likes of
Harvard, MIT and others is creating a
playing for the silver medal.” International students have been the
global brand impact, if not revenue at
lifeblood of the Australian higher
University Vice-President education industry over the last 10-15
this stage. International branch
campuses (IBCs) are also growing: there
years. The international student market
are 200 globally now, with 38 more
is growing rapidly (global growth of 6.6%
planned in the next two years.
per annum over the last decade), but will
fundamentally change in structure in the The likely outcome over the next 10-15
coming decade and beyond, as years is the emergence of a small
traditional source markets — China, number of elite, truly global university
Malaysia, South Korea and others — ‘brands’. These global brands of the
increasingly become global-scale future will include some of the ‘usual
destinations for international students. suspects’ — a subset of Ivy League and
Oxbridge institutions — as well as a
Likewise, the sources of academic talent
number of elite institutions from China.
will become more diffuse as academics
China’s ‘C9’ institutions have the
from emerging markets become
resources, government support and
increasingly mobile and in demand,
intent to achieve global elite status. This
providing a growing source of talent for
will drive new partnership opportunities
universities in both developed and
and new sources of competition for
developing economies alike.
Australian universities.

Figure 5: Top 10 source and destination countries for Figure 6: Top 10 source countries for tertiary education students
international branch campuses in 2011 (2009 figures and comparison to 2005)
(total established IBCs = 200; total planned IBCs = 38)
Source country Destination country
Malaysia
Australia’s share of students

35% 58
from the country (2009)

USA 78 13 UAE 37

UK 25 8 China 17 7 25%

France 27 2 Singapore 18 3 Turkey India
15% China USA
211
India 17 2 Malaysia 7 7 568 Russia
South Korea
Australia 12 Qatar 10 5% Morocco 127 55
Germany
France
68 105
3 54 72 62
Iran 6 India 5 4 0% 2% 4% 6% 8% 10% 12% 14%
1
Netherlands 6 UK 6 1 Annual growth in students from source country (%)
3
Malaysia 6 South Korea 2 Note: Size of bubble denotes number of students studying abroad in 2009 (‘000)
1
Canada 4 Mauritius 5
Source: Education at a Glance 2011, OECD Indicators
3
China 1 Canada 4 1

Planned IBCs Current IBCs
Source: International branch campuses — data and developments,
The Observatory on Borderless Higher Education, January 2012


The relationship between the higher education sector
and industry will deepen — industry will be a key partner,
and also a competitor in specialist professional programs.

“The big game will be 5. Integration with industry established by the University of
Queensland4 and the University of
co-investment with the The relationship between industry and
Western Australia5.
the higher education sector is changing
private sector.” and deepening. Industry plays multiple Research commercialisation will go
Head of university roles: as customer and partner of higher from being a fringe activity to being a
education institutions and, increasingly, core source of funding for many
representative group as a competitor. For universities to universities’ research programs.
survive and thrive, they will need to build Already, venture capitalists, industry,
significantly deeper relationships with and entrepreneurs are increasingly
industry in the coming decade. Scale and being brought together to
depth of industry based learning and commercialise university research; for
internships, for example, will become example, the Knowledge and Innovation
increasingly critical as a source of Communities being established by the
competitive advantage for those European Union6.
universities who have the industry
Finally, industry will increasingly
partnerships and pedagogy to do it well.
compete with universities in a number
Research higher degree programs and of specialist professional programs.
applied research will increasingly be run Accounting industry bodies already
in partnership with industry — like for provide a range of specialised post-
example the Australian Technology graduate programs (CPA, CA, CFA etc).
Network of Universities’ new industry- Other industry groups, for example
based PhD program3, and the mining engineering associations and pharmacy
industry research partnerships guilds, may play an increased role as
certifiers and deliverers of content.

InnoEnergy — Creating the world’s largest innovation factory
Launched in May 2010, the massive European initiative InnoEnergy brings
• 5-year plan... together industry, research centres, universities and business schools — a total of
29 partners — to:
• €700 million budget
a) Deliver post graduate education in the area of sustainable energy, with each
• 60 new companies program including training in innovation and entrepreneurship

• 100 new products b) Develop and launch innovative sustainable energy technologies

c) Spin off new enterprises to commercialise InnoEnergy’s new technologies
• 80 patents
The intent is to spur innovation and commercial activity in Europe, while at the
• 3300 graduates same time helping to solve global energy problems. InnoEnergy is one of three
large-scale, cross-border Knowledge and Innovation Communities established by
the EU’s European Institute of Innovation and Technology7.

3 ATN Industry Doctoral Training Centre (atn.edu.au/IDTC)

4 Sustainable Minerals Institute (smi.uq.edu.au)

5 Energy and Minerals Institute (emi.uwa.edu.au)

6 See eit.europa.eu/kics

7 KIC InnoEnergy (kic-innoenergy.com)


Drivers of change

These drivers of change will transform the higher
education industry landscape, forcing universities
to adapt their business models.

“The traditional university Conclusions These changes will force universities
to adapt in a number of ways:
model is the analogue of The sum total of these drivers of
change will be a significantly different • Breadth of programs — Universities
the print newspaper… higher education industry landscape will need to consider whether they
15 years max, you’ve got 15 years from now. We see the sector can continue to maintain a
developing as follows: competitive position — domestically
the transformation.” and internationally — across a broad
• Universities will be compelled to
University Vice-Chancellor create new, leaner business models
range of programs, or whether to
concentrate resources on a smaller
as competition increases for staff,
range of programs.
students, funding and partners.
• Target customers — Universities
• Public institutions will increasingly
will need to have a clear strategy
be run like corporations, while
and execution around target
seeking to maintain the freedom
student segments and their
of inquiry and academic rigour
specific needs and preferences.
that their long-term reputation
Today, most universities’
depends on.
segmentation is broad at best
• Private institutions will exploit (for example — school leavers,
profitable market niches, while mature age, and international).
others will create new markets and Universities that do not become
sources of value; for example, by more focused on segments will be
specialising in select parts of the exposed to competitors with
education value chain. targeted student propositions.
• Policy makers will seek to maintain • Channels to market — Universities
steady growth in access to will need to rethink the role of
university education. They will digital channels and third party
search for policy levers and partnerships in recruiting students
programs that put the higher and delivering teaching and
education sector at the centre of a research programs.
genuine knowledge economy
• Back office — The asset base and
integrated into the Asian region,
university administration will need
while inevitably tightening the
to be significantly leaner than it is
public purse strings for higher
today. Most universities at present
education providers.
have significantly more support
staff than academic staff — this ratio
will have to change.


Evolution of the university model —
current state…
The dominant university model in Australia is a broad-based
teaching and research institution, supported by a large asset
base and a large, predominantly in-house back office.

Figure 7: Current model — established universities

Customers Domestic students International students Industry

Product offerings Vocational and further
Higher education Research
education and training

Arts Engineering Science Business Medicine/health Law
Education disciplines
IT Design Other Other Other Other

Sales Schools Open days Agents Road-shows Digital Other Other

Delivery On campus Digital Partnerships

Student services Student administration Career centre Other Other Other

Back office HR IT Finance Legal Other Other Other

Source: Ernst & Young

Legend Current area of focus
In the current model most Australian universities:
• Serve a broad mix of student segments • Deliver and manage the vast bulk of
— school leavers, mature age students, student services and back-office
and international students. functions (HR, IT, payroll, finance,
• Offer a broad range of disciplines —
procurement and so on) in-house.
health sciences, arts, science, There are, of course, exceptions to this
technology, business, economics, broadly defined current model. For
education, law and more. example, some of the technology
• Deliver teaching and learning programs universities have progressively oriented
primarily on campus in Australia, their institutions around a focused set of
supplemented by various online disciplines or industry domains. But, at
offerings, franchise arrangements, the moment, these institutions are the
twinning partnerships and international exception, rather than the rule.
branch campuses.


…and case for change

We expect a significant transformation of university
business models in the coming decade and beyond,
despite the historically slow pace of change in the sector.

“Universities face their Given the forces of change impacting the We side with the latter. We cite the
higher education sector, we expect a Darwinian force of the market and
biggest challenge in significant transformation of university innovation. The printing industry
800 years.” business models in the coming decade prospered for the better part of six
and beyond. However, the industry centuries after the invention of the
University Vice-Chancellor leaders we spoke to were divided in their printing press — but there is not a single
views on the extent of change that part of that industry that has not been
Australian universities will undergo. disrupted in the last decade. Longevity
is no guarantee of permanence.
A number of industry leaders felt that
Australian universities, especially public At a minimum, incumbent higher
universities, will continue with broadly education institutions will need to
similar models to those of today. They significantly streamline their operations
cited the slow pace of change: and asset base, at the same time as
“universities haven’t changed much in a incorporating new teaching and learning
thousand years” was a common refrain. delivery mechanisms and a diffusion of
They also believe that policy and funding channels to market, and adapting to
uncertainties make it difficult for stakeholder expectations of increased
universities to adapt their business impact and 24/7 engagement.
models with confidence about the likely
The following section explores how the
outcomes. Several university executives
current model might evolve in the
also highlighted the new regulatory
following decade and beyond.
regime being implemented by TEQSA as
a potential brake on the speed of change.
Others saw change as inevitable, citing
drivers of change similar to those
described in this paper, as well as the
economically fragile state of many
incumbent institutions in the sector.

Where does your institution sit in the debate
on the extent of change… will ‘steady as she
goes’ work for your institution?


‘Streamlined Status Quo’
Some universities will continue to operate as broad-based
teaching and research institutions, but will transform the way
they deliver their services and administer their organisations.

Figure 8: Potential future model — ‘Streamlined Status Quo’

Customers Domestic students International students Industry


Education disciplines

Road-
Sales Schools Open days Agents Digital Partnerships Other
shows



Back office In-house Outsource


In this model, the university:
• Continues to serve a broad mix of • Forms a range of sales and delivery
Area de-scoped or reduced
in focus in future models student segments. partnerships with public and private
• Continues to offer a broad range of
higher education providers, TAFEs,
Increased area of focus in
future models disciplines, but discontinues a small secondary schools, industry partners
number of sub-scale/unprofitable and other institutions that can open up
disciplines (or merges those disciplines new markets — or more efficiently
with a ‘competitor institution’ to access and serve existing markets.
achieve scale) — providing the • Outsources some back-office functions
resources required to maintain to realise lower operating costs, and/or
international competitiveness in drives efficiencies through shared
other disciplines. services arrangements with like-
• Invests heavily in digital sales and
minded institutions.
delivery channels, both ‘pure play’
digital channels and blended models.


Universities have ample scope to increase the efficiency of
their organisations, including reducing the ratio of support
staff to academic staff and using assets more efficiently.

“We’re not businesses… Most universities have ample scope to Organisations in other knowledge-based
streamline their business and operations. industries, such as professional services
but we need to be run Figure 9 charts the ratio of support staff firms, typically operate with ratios of
in a business-like way.” to academic staff across a sample of 15 support staff to front-line staff of 0.3 to
Australian universities — three from each 0.5. That is, 2-3 times as many
University Vice-President of the four representative groups, and front-line staff as support staff.
three non-aligned universities. Universities may not reach these ratios
in 10-15 years, but given the ‘hot
Only one of the universities — a Group of
breath’ of market forces and declining
Eight university — has a ratio less than
government funding, education
one. All the rest have more support staff
institutions are unlikely to survive with
than academic staff. Four of the
ratios of 1.3, 1.4, 1.5 and beyond.
universities have 50% or more support
Where does your staff than academic staff, and more than Use of assets is also an area with scope
half (8 of the sample of 15) have at least for much greater efficiency. Most
institution fit in this chart? 20% more support staff. universities own and maintain a sizeable
Is your institution’s ratio of asset base, much of which is used only
for four days per week over two
support staff to academic
13-week semesters — not much more
staff sustainable? than 100 days per year.

Figure 9: Ratio of support staff to academic staff, sample of 15 Australian universities
All ratios based on Full Time Equivalent (FTE) staff data, reported as of September 2012

University A
Universities
Innovative
Research

University B

University C

University D
Group of Eight

University E

University F

University G
Technology
Australian

Network

University H

University I

University J
Universities
Regional

Network

University K

University L

University M
Non-aligned

University N

University O

0.0 0.5 1.0 1.5 2.0
Sources: University statistical reports; Ernst & Young analysis


‘Niche Dominators’
Some universities will fundamentally reshape and refine the
services and ‘markets’ they operate in, with a concurrent
shift in their business model, organisation and operations.

Figure 10: Potential future model — ‘Niche Dominators’

Domestic students International students Industry professionals Other education
Customers providers
Executive
School leavers Mature age High-end Mass market B2B
education
Illustrative segments



Education disciplines Illustrative focus


Road-
Sales Schools Open days Agents Digital Partnerships Other
shows



Back office In-house Outsource


In this model, the university:
• Chooses particular customer • Builds deep alliances with industry
Area de-scoped or reduced
segments to focus on — for example, in its chosen fields, including
in focus in future models
mature age distance learning partnerships to support R&D,
Increased area of focus in
students, international mass market commercialisation of research
future models
or industry professionals — enabling and innovation, professional skill
the targeted development of course development, and lifelong learning.
offerings, sales channels, delivery, • Like Streamlined Status Quo,
and related services, such as industry streamlines its back office, including
based learning, career placement using outsourcing and/or shared
and outreach, and embedded services models to drive efficiency and
research programs. economies of scale.
• Significantly reduces its range of
education disciplines, creating a
focused set of areas of genuine
domestic and global strength
and credibility.


The drive towards this model will come from the challenge
of staying competitive — in domestic and international
markets — across a broad range of disciplines and segments.

“The big change will be The drive towards this model will come However, this constraint assumes the
from the challenge of maintaining a current asset base and operating model
partnerships with industry competitive position — in domestic and of the typical Australian university.
around niches…” international markets — across a broad Universities that move to a significantly
range of disciplines and segments. Jack streamlined asset base and operating
University Vice-Chancellor Welch’s ‘rule of two’ will increasingly model — for example, utilising physical
come to bear: you’re either number one assets across the year rather than two
or number two in your chosen field, or 13-week semesters — will make the Niche
you exit — either by choice or driven by Dominator model increasingly feasible.
market forces8.
Private providers and new entrants will
Some leaders we spoke to raised the also carve out market positions using
need for scale as an inhibitor of the Niche Dominator models, building fit for
growth of the Niche Dominator model, purpose, segment-focused businesses
citing 20-25,000 students as a base without the constraints of legacy assets
number to maintain an economically and workforce structures; for example,
viable Australian university. BPP University College in the UK.

Aalto and BPP University College — a focused set of disciplines
Can your institution
maintain a strong Officially launched in September 2010, Aalto University was formed by merging
three Helsinki-based universities in technology, art and design, and economics9.
competitive position Aalto’s mission is to contribute to solving global issues through a multi-disciplinary
across a broad range approach to research and teaching and to support the internationalisation and
competitiveness of the Finnish economy.
of disciplines?
Even after merging three separate institutions, Aalto has a focused range of
programs. Aalto seeks to strengthen and differentiate these programs through its
multi-disciplinary approach, partnerships with industry, design hubs and programs
that promote innovation and entrepreneurship. Aalto aims to use strengths in its
chosen fields to achieve a place among the world’s top universities by 2020 and
seed a new generation of innovators.
In the UK, BPP University College10, a for-profit provider of higher education
degrees owned by Apollo Global, focuses on providing profession-focused
higher education programs in accounting, banking and finance, law, marketing,
and human resources. BPP focuses on students seeking professional
qualifications and therefore builds teaching programs and industry partnerships
linked to the professions.

8 See “The Competitor: Jack Welch’s Burning Platform” by Amir Hartman, ftpress.com, 2003

9 Aalto University (aalto.fi/en)

10 BPP University College (bpp.com)


Evolution of the university
model — ‘Transformers’
Private providers and new entrants will carve out new
positions in the traditional sector, creating new markets that
merge parts of the higher education sector with other sectors.

Figure 11: Potential future model — ‘Transformers’

Domestic students International students Industry professionals Other education
Customers providers
Executive
School leavers Mature age High-end Mass market B2B
education

Parents Content wholesalers Content consumers Service providers

Higher education Research Mass distribution

Content aggregation Entertainment Financial services Other

Sales Other Digital Other Other

Delivery Digital Partnerships Other Other

Student administration, career services, other (outsourced)
Student services

Customer relationship management (cloud)

Back office Outsourced


Potential areas of focus for The model in Figure 11 represents a range of possible market positions to be pursued
Legend
new models by innovators, rather than representing a ‘model’ of a single institution. In this world,
the innovators:
• Extend the definition of a higher • Build a sales model that is
education ‘customer’ to include predominantly digital and build delivery
content wholesalers, content models that combine digital services
consumers, financiers, employers and specialist ‘face to face’ services
and parents. sourced from partners.
• Disaggregate the value chain to create • Outsource student services, while
new areas of specialisation, such as retaining ownership of their customer
content aggregation, mass distribution, relationships, using cloud-based
assessment and certification. customer relationship management
• Combine traditional education services
tools and techniques.
with services in related industries, such • Outsource their full suite of back-
as media and entertainment, financial office functions.
services and venture capital.


The key for public universities in this world is to cut
the right deal — a deal that builds in brand protection
and a reasonable share of the value created.

“We’re all looking In our view, the evolution of the The challenge for public universities in
Transformer model will be led by private this world is to cut the right deal — a
for additional sources providers and new entrants, not deal that builds in brand protection and
of income.” incumbent public universities. This level a reasonable share of the value created.
of ‘disruption’ is hard to lead from the The answer might lie in a consortium
University Vice-Chancellor inside. However, savvy public approach, especially if the prospective
universities will seek opportunities to partner has the market weight of a
create value in this space in partnership global technology or media company.
with private providers and new entrants.
For public universities that get this
Incumbent public universities bring two right, the rewards will be high:
critical assets to this model: credibility increased global reach of the core
and academic capability. In an age of mission and brand, not to mention
ubiquitous content, ‘content is king’ no much needed incremental revenue to
longer applies. Credibility is king — and support internationally competitive
increasingly ‘curation is king’. education and research programs.
Universities are uniquely positioned to
bring credibility and to act as curators
of content.

Venture Garage
What impact will
innovation and new models In 2009, a group of students convinced Aalto University in Finland to grant
€500,000 to establish Venture Garage, a hub for entrepreneurs and start-ups
in higher education have based on one of Aalto’s main university campuses11.
on your institution? What Venture Garage combines physical space and virtual communities to promote
opportunities will they entrepreneurship in Aalto University and to promote venture capital and innovation
in Finland. Venture Garage provides links to venture capitalists in Europe and the
open up? US, links to academics and research within the university, and a space for young
entrepreneurs to develop and launch companies.
Venture Garage runs entrepreneurship programs and competitions to encourage
and find the most-promising start-ups, rewarding them with access to facilities,
investors, and coaching from experienced entrepreneurs.

Coursera
Coursera is an online university enterprise created by two computer science
academics from Stanford University12. In April 2012, Coursera secured $16 million
in venture capital funding, seeking to make “the best education in the world freely
available to any person who seeks it”13. More than 30 international universities
offer online courses on the Coursera platform, with the University of Melbourne the
first Australian university to sign up. As of September 2012, Coursera claimed to
have 1.4 million students and is growing rapidly. The long-term outcome of
ventures like Coursera, edX and Udacity remains unclear, but the impact on the
sector will be profound.
11 aaltovg.com

12 coursera.org

13 coursera.org/about


Evolution of the university
model — conclusions
Hybrid models and other models are also possible;
regardless of the model and direction they choose,
universities face the most interesting of times.

“It’s going to be a Conclusions Smaller universities will become
increasingly focused on a narrow range
tough decade.” The models described above present
of research programs. To make this
three lines of evolution of university
work, they will need to explicitly tie
University Vice-Chancellor business models. There are, of course,
education programs and industry
other potential models, including:
partnerships to these focused programs
life-long learning models, global
— as per the ‘Niche Dominator’ model
alliance models, multi-disciplinary
— or invest in a distinct student
models and hybrid models. A number
experience for teaching and learning
of the leaders we interviewed spoke of
programs not tied to research.
a ‘model 1-model 3’ hybrid. That is,
continue with a leaner version of their It may be that in 10-15 years time a
current model, while looking with small number of Australian universities
interest at the possibilities presented have evolved to become specialised
by selectively playing in a tertiary education teaching institutions,
‘Transformer’ world. with no research programs at all.
However, at this stage, we see it more
Many of the leaders we spoke to saw
likely that even the smaller universities
teaching-only institutions as
will find ways to maintain at least 2-3
inevitable. Interestingly, not one of
targeted research programs, potentially
them — and we spoke to leaders of
in partnership with other institutions.
more than 20 universities in Australia
— saw their own university becoming a Regardless of the model and direction
teaching-only institution. The policy chosen, universities in Australia face the
makers we spoke to were also most interesting of times. The following
sceptical of this model. section explores the above implications
further, covering the challenges that
We share this scepticism. It would be
universities will need to overcome to
brave step for a university in Australia
enable them to implement new models,
to completely relinquish research as a
key considerations for policy makers,
stated aim or part of its business.
and opportunities for the private sector.
Nevertheless, research will become
increasingly concentrated in
universities that can demonstrate
excellence and impact.


Implications for universities

To build a successful model into the future, public
universities will need to address a number of
challenges, regardless of their chosen model.

Future challenges a) Quality and academic excellence c) Commercial skills
Regardless of the target segment — As higher education markets become
• Quality and academic metropolitan students, regional increasingly competitive and consumer-
excellence students or international students — driven, public universities will need to
and the pressure on institutional deepen their commercial skills and
• Academic talent and finances, universities will need to find capability — both in the administrative
ways to maintain academic excellence and academic workforce. This will be
workforce structure
and deliver quality teaching and needed, not just to secure market share
• Commercial skills research. Some in Australia worry that in undergraduate and postgraduate
quality will suffer in a competitive student markets, but also to enable
• Change management market. This may happen at the universities to cut the right deals with
and speed to market margins, but over time those that private providers and new entrants.
cannot maintain quality will lose
• Relationship with market share and relevance. d) Change management and speed
government to market
b) Academic talent and
The new models that universities
workforce structure
develop and implement over the
The academic workforce in Australia is coming decade and beyond will
aging, significantly more so than the require significant change. Universities
rest of the workforce. A quarter of have traditionally been resistant to
Australia’s academic workforce is aged change, typically citing the need for
55 and over, compared to 15% for the academic independence and the purity
rest of the workforce in Australia14. For of the mission. University leaders will
the 45 and over age group, the need to find ways to stay true to the
percentage is 54% for the academic mission, maintain academic integrity
workforce compared to 38% for the and independence, and at the same
rest of population. Significant time change their business and
proportions of this workforce will operating models.
retire in the coming decade.
A critical component of this change will
Universities will need to attract new be the need for speed to market. As the
talent to replace this workforce, and at market becomes increasingly
the same time build a new workforce competitive domestically and
structure that can support new internationally, universities will need to
business models, deliver increased be first to market with new teaching and
productivity, and accommodate research programs and innovative
non-traditional operating models — for student experiences.
example, tri-semesters and northern
hemisphere timetabling.

14 Hugo, G., “The demographic outlook for Australian universities’ academic staff, CHASS Occasional Papers, 2008.


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