Whatever Lord Browne of Madingley and George Osborne have in store, universities are now resigned to substantial reductions in their public funding and are contemplating having to do less with less. Yet in many regards, the opportunities for higher education are greater than ever: 150,000 frustrated would-be home students; double-digit growth in transnational education; and £10 billion a year spent on professional and continuing education. The massing of wealthy private providers on the borders of the sector shows that they see huge business opportunities in this market.
However, for universities to grow their share of these opportunities, it is not simply a matter of them turning up the taps marked "international recruitment" or "services to business". First, they need to refocus their working methods and cultures. Decades of steadily rising grant income, central direction and regulation have embedded a funding-led culture into the DNA of university operations. For all their assertions of independent self-determination, most universities are actually run as if they were public-sector bodies.
This culture is reflected in their budgets, management systems and even academic organisation, while their employment practices and cost structures owe more to the Civil Service than competitive enterprise. Until now, this has not mattered too much, since public funding has grown steadily to match the rising costs of "core" teaching and research, sustaining a mutual dependency between government and universities that has benefited both. But that era is ending. The distinctions between the public and private markets for higher education services and provision are rapidly diminishing. Success in the new economics of higher education depends on providing tangible benefits for students, businesses and society - and doing that better than anyone else.
This is not simply a matter of universities becoming more businesslike and enterprising: they must first demonstrate what makes them special among the growing number of competitors. Universities must break out of the dependent mindset that asks: "Who will pay for us to continue doing the excellent things we do?" Instead, they must offer compelling answers to the market-led question: "How can our special capabilities be used to create value for others and thereby sustain our mission?"
There is no doubt that universities can make this leap. The £3 billion earned in 2009 from privately funded higher education services, and the £2 billion of international-student fees, attest to the capacity for enterprise within the sector. But these sums represent less than 20 per cent of UK universities' total income and a small proportion of the potential. The reason they are not realising this potential is that few universities regard competing for privately funded learning, research or other knowledge-based services as crucial to their success.
There is much that universities can learn from privately owned education providers and other competitors for both private and public revenue. In particular, they can show how universities could redesign their internal operations and ways of working to match the demands of a competitive market for higher-level learning (both publicly and privately funded).
The new economics require universities to be more innovative in shaping their services to the needs of different customer groups and much more flexible in matching their resources to the prices that the competitive market will pay. New models of partnership between universities and other service providers will be crucial in meeting both imperatives.
But in doing so, universities must not simply replicate their private and corporate competitors. There is a risk that institutions will lose sight of what makes them special within the higher education market - and abandon the competitive advantages that go with it.
Universities are, and must remain, different from other players in the economy of learning by virtue of their core values, namely: their mission for providing learning and knowledge as public services, accessible for social and economic benefits; their vision of creating, sharing and applying knowledge as indivisible dimensions of advanced learning; and their commitment to learning as an open, collegial process of co-production between academics, students and practitioners.
Sustaining the practical manifestation of these values, while earning a living in a competitive market economy, is the real 21st-century challenge for universities. Spending cuts and tuition-fee reforms are only the catalysts for the transformation that this will entail.
Mike Boxall and Paul Woodgates are education experts at PA Consulting Group. "Universities Through the Looking Glass - Reinventing the Business of Higher Education": www.paconsulting.com/throughthelookingglass
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