21 st Century Universities: Performance and Sustainability IUA Symposium, Dublin

1. Higher Education - Looking ForwardAn Educator’s Perspective: A thousand year old industry on the cusp of profound change • 21st Century Universities: Performance and Sustainability • IUA Symposium, Dublin • 29th September 2014

2. Contents

3. The EY Education Team • Professor Stephanie Fahey • Oceania, Education Lead Partner • Formerly DVC Global Engagement Monash University, Melbourne • Stephanie.Fahey@au.ey.com • Local EY partners, Dublin • John Higgins • John.Higgins@ie.ey.com • Colm Devine • cdevine@uk.ey.com • More than 300 staff globally with education expertise

4. The University of the Future

5. The University of the Future • The higher education sector is undergoing a fundamental transformation in terms of its role in society, mode of operation, and economic structure and value. • To explore these themes and future directions, EY worked closely with the University sector to identify and categorise the main forces impacting the higher education industry globally and locally, and the opportunities, challenges and implications, primarily for the University sector in Oceania. • The output from this process was a publication - ‘The University of the Future’ (2012) - which both identifies the drivers of change in this brave new world and anticipates three broad lines of evolution for institutions responding to these challenges. • Our primary hypothesis is that the dominant university model: a broad-based teaching and research institution, supported by a large asset-base and in-house back-office, will prove unviable, in all but a few cases over the next 3 to 5 years (we underestimated the pace of change in our 2012 report). • At a minimum, universities will need to streamline their operations and asset base, and at the same time add new teaching/learning delivery mechanisms. Explicit stakeholder expectations for increased impactwill increase • At its extreme, private providers (and possibly some public universities) will create new products and markets which effectively blur the line between education, media, technology, innovation and venture capital • What is worrying is that institutions appear to be in denial about the magnitude and the inevitability of the changes ahead • What I would like to do today is review some of these challenges with a particular focus on the implications for universities and policy makers in Ireland. My aim is to be provocative.

6. The Drivers of Change

7. Drivers for Change

8. 1: Democratisation of Knowledge and Access • Traditionally, universities held the key to knowledge, in both a physical and philosophical sense. • University libraries, faculty domains and research institutes were where knowledge was created, stored and shared and universities held a privileged status as originators and keepers of knowledge. • 50 years ago access to universities in developed countries was restricted to modest levels of about 5% of school leavers but with the ‘massification’ of HE, it has grown to comprise 40-50%. In emerging economies, access is still restricted to a very narrow proportion of society, typically the elite. • Today, access is expanding both in developed markets but even more fundamentally in emerging markets • In China participation trebled from 8.0% to 25.9% in the first decade of this century, and is likely to double again in the next 10-15 years. Five years ago there were no Chinese universities in the top 200; now there are six. With $250b a year being invested in Chinese universities, it is only a matter of time before these universities enter the top 100. • The ‘massification’ of higher education is driving a global ‘education revolution’ within societies by creating opportunities for millions of people and their families to increase their standards of living. • Increasingly knowledge is open to anyone globally with a device and connectivity — not just facts and figures, but also analysis, interpretation, and curation of knowledge although credentials are still controlled mainly by the institutions. • For universities, this is driving new approaches to teaching and learning, creating opportunities for entry to new markets and new global partnerships, stimulating new distribution approaches — and also creating new sources of competition and sustainability challenges.

9. 1: Democratisation of Knowledge and Access Implications for the University Sector in Ireland • The importance of equity of access, both as a foundation stone of social mobility and a means for realising Ireland’s higher education skills targets is recognised both by the Hunt Report (2011) and in the recent Higher Education System Performance Report (2014) • The challenge for the University Sector in Ireland, as elsewhere, will be to maintain and grow student numbers in this environment (as required by their performance compacts) but at the same time maintain quality • Democratisation of knowledge and access, especially as it ripples through the developing world will create significant opportunities for those Universities who are globally competitive • The compelling challenge for the Irish University Sector will be to address the opportunity that this creates in an environment which is currently heavily fiscally constrained • While the Higher Education System Performance Report explicitly recognises the need for Irish Universities to be globally competitive, less clear to an outsider is how this will be funded and how this can be delivered in an environment where student numbers and staff:student ratios are both on the rise.

10. 2: Contestability of Market and Funding • Since the global financial crisis, most developed economies have experienced a decline in State funding per student, some more rapidly and deeper than others • The UK experienced one the most dramatic increases in the proportion of private expenditure on tertiary education from 2000-2011 (30-70%). The USand Australia showed marginal increases but were already about 65%. • In 2011, Australia ranked 24th out of 30 OECD countries for public investment in tertiary education (OECD 2014) but is still above the UK and the US. The proportion dropped between 1995-2000 with the introduction of student funded HEC. • In Australia Government introduced a demand-driven funding model in 2012 in order to increase access, drive competition and differentiation - numbers increased and distribution shifted. • A number of mainly lower ranked universities that had previously felt secure in their market shares found themselves confronted by losses of 5-10% as some of the more highly ranked universities and those in niche areas increased their intakes to take advantage of marginal gains. Competition is set to intensify if/when proposed deregulation of fees for domestic undergraduate students is introduced by the current Coalition Government. • While efforts may be made to limit the fiscal implications of growth in enrolments, the deepening of market contestability is unlikely to be reversed, either in Australia or internationally. The market will drive much of the pace of change - not just government policy – unfortunately this  is not well understood across the sector. • While the University environment is markedly different in Australia to that of Ireland (where I understand core expenditure per student has declined by as much as 15% in recent years and not replaced by other revenue sources), the broader trend whereby every dollar of government funding is contestable and securing funds from non-government sources — students, industry, philanthropists, and global collaborations — is fiercely competitive

11. 2: Contestability of Market and Funding Implications for the University Sector in Ireland • As yet, there does not appear to be quite the same level of competition for domestic students in Ireland as seen in other markets due to demographics – but as the Australian example has shown, domestic demand is not static. Demand is also impacted by affordability/access. • Nor would it appear that there is the same aggressive pursuit of international students with the use of agents as is the norm in Australia although the expectation is that Ireland should double the current number. • New funding models, as the Australian example has shown, are incredibly efficient tools for driving behaviour and the challenge for Irish Universities will be to ensure that a workable and sustainable funding model is arrived at by the recently established Working Group on Future Funding. • The level, nature and basis for any performance funding element of overall university funding which is advocated should be considered carefully with reference to the international experience in this area. • Finally, on the broader subject of funding, there is a quantum of system learning now within Australia on the relative merits of alternative models of student-based charging (including the Australian deferred loan model which I understand has been considered in the Irish context) and on the opportunities and risks that growth in international students numbers present to a national education system (ie non-educational considerations can crash demand in a short-period).

12. 3: Digital Technologies • Digital technologies will transform the way education is delivered and supported - education must be available anywhere, anytime – and deliver real-time student feedback, learning analytics, seamless student support systems, transparency of ROI and employability - both in the developed and developing world. • Digital innovation has disrupted many established industry sectors (newspapers, music, retail, airlines etc) . While ‘online education’ has been here since the 1990s, in the last 2-3 years the pace of change has accelerated and has impacted the role of the academic – the role will become increasingly disaggregated as curriculum development, presentation, online design and analysis of learning analytics become specialisations. • Efficiency gains delivered through the digitisation of the support functions of Finance, HR, IT, central procurement, student services and research support are yet to be realised in many institutions. Digital technologies will not cause the disappearance of the campus-based university of the future. Campuses will still exist as places of teaching and learning, research, community engagement, and of varied student experience — assuming universities can deliver a rich, on-campus experience. Digital technologies will transform the way value is created within HE - new technologies will enable public and private providers to specialise in parts of the ‘value chain’ content generation/aggregation and new models of collaboration with media companies will evolve. This is where private or non-university providers will compete. • Some of these models will decline and fail, others will create very substantial economic value. Winners are likely to be a mix of new, pure play online businesses and traditional businesses with powerful online models and capability.

13. 3: Digital Technologies Implications for the University Sector in Ireland • As digital technologies and innovative approaches to teaching, learning, collaboration in research and student services extend their reach into Irish Universities I would expect a near-transformation of both the on-campus and off-campus student experience. • In this context it is heartening to see that a Teaching and Learning Enhancement Fund has been established in Ireland which is focussed on digital capacity for the education sector …with Phase 1 reviews of proposals due tomorrow, I’m sure some of you will be getting good news but one should not underestimate the long-term investment required in technology and skilled staff in order to deliver quality outcomes. • While improving local teaching and learning delivery to on-campus students is a worthwhile and necessary goal, the real challenge for Irish universities will be to: • leverage new technologies to satisfy student demand for flexibility of delivery and to grow their remote and international student base (aligning with multiple goals under the performance compact) • to position themselves as an attractive partner with industry and to develop sustainable (read profitable) models of collaboration with industry • Digital technologies, the growth of the importance of rankings and increasing participation rates in developing countries will intensify the competition for and expectations of internationally mobile students – the Irish university of the future will need to ensure that it is well positioned in terms of teaching and research quality, student services and profile (rankings and marketing).

14. 4: Global Mobility • Global mobility will continue to grow for students, academic talent, and increasingly for university brands. In the face of government cut-backs, international students have been the lifeblood of the Australian higher education industry especially over the last 15 years. • Of the 1m plus HE students in Australia, 22.3% (240,000) are full fee paying international students studying onshore. Several universities have more than 30-40% of the study body who are international students. • In addition, tens of thousands of international students are studying at Australian off-shore campuses in Malaysia, Vietnam, Singapore, South Africa, India, China and the UAE; in twinning arrangements with off-shore partners; and as external students on-line. • While the international student market is growing rapidly, it will fundamentally change in structure in the coming decade as traditional source markets – China, Malaysia, Singapore, South Korea and others – increasingly become global-scale destinations for international students. • Global mobility of academic ‘brands’ is increasing and ‘MOOC-based’ distribution of content by the likes of Harvard/MIT, Stanford, Open University and others is creating a global brand impact (if not revenue at this stage). • Global mobility of students, professionals and university brands is also creating pressure for global recognition of accreditation. Who will determine global credential standards will bea contested area.

15. 4: Global Mobility Implications for the University Sector in Ireland • The Irish National Strategy for Higher Education already recognises the existing and potential value from increasing the internationalisation of both students and staff within Irish Universities. • More recently the 1st Higher Education System Performance report emphasised these benefits and charted significant progress towards the achievement of the 15% target for full-time international students by 2020 • There are a number of challenges however for Irish institutions in maintaining and growing this sector • As noted on the previous slide, many of Ireland’s tier one targets for student recruitment (China, India, Middle East) will themselves transition from source to destination markets in the next 15 years • Recruiting international students requires a reputation for both academic quality and the quality of the student experience – fiscal constraints have the potential to very quickly impact on standard rankings in both these areas • Global mobility may favour recruitment for those elite universities and those with the capability to grow and extend the reach of their the brands. • Increasingly universities will have to compete aggressively for their talent as academic mobility becomes the norm. This requires flexibility in the conditionsof appointment, salary packages and access to research facilities, funds and high calibre students.

16. 5: Integration with Industry • 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. This change is already in train with industry now playing multiple roles: as customer and partner of higher education institutions and, increasingly, as a competitor. • EY is a perfect example – we recruit 1000s of new graduates each year, we sponsor university activities > $20m pa, we deliver 9.5m hours pa training to our staff and deliver millions of hours training to our clients. • For universities to survive and thrive, they will need to build significantly deeper relationships with industry in terms of curriculum design, employment outcomes and research collaboration. • Scale and depth of industry-based learning and internships will become increasingly critical as a source of competitive advantage for those universities who have the industry partnerships and pedagogy to do it well. • Where industry is small, or comprised of branches of MNC, research will struggle to flourish unless global research collaboration models are facilitated and incentivised. • Research degree programs /applied research will increasingly be run in partnership with industry • In Australia we have seen the Australian Technology Network of Universities’ deliver a new industry-based PhD program, and the mining industry establish tight research partnerships with the University of Queensland and the University of Western Australia. • In Australia, research funding has been slashed by the current government with priority given to areas where Australia is a global leader ie clinical medicine and in areas where industry leads. • Research commercialisation will go from being a fringe activity to being a core requirement to secure funding for many universities’ research programs. • Increasingly industry will compete with universities in a number of specialist professional programs. Professional organisations (engineering, pharmacy etc) may follow the lead of the accounting bodies and provide a range of specialised post-graduate programs with a particular emphasis on their role as certifiers and deliverers of content.

17. 5: Integration with Industry Implications for the University Sector in Ireland • The clear intent of both the Irish National Strategy for Higher Education and the performance compacts for Higher Education Institutions is to make HE much more market facing, both in terms of their explicit focus on meeting Ireland’s human capital requirements and also in terms of enhancing cooperation with industry and commercialisation activity • Increasing PhD activity in Science, Technology, Engineering and Mathematics and projected increase in Masters by research align closely with national objectives and industry requirements. • More broadly we believe that the implications for the Irish University Sector of changes in this area are • The nature of the engagement between universities and industry will deepen, broaden and become more strategic to both parties – though this will not apply equally across all institutions • The emphasis and focus on the value of commercialisation activity will grow significantly and with it the role for the Central Technology Transfer Office (CTTO) • Closer involvement of industry in the ‘business of education’ will see industry participants emerge as both joint-venture partners and competitors to universities in multiple domains • The challenge will be who will be responsible for funding blueskies research and that required to support tuition.

18. Broad Implications Together, these drivers of change will mean a significantly different education landscape 5 years from now. If universities do not choose their niches – the market will effectively “impose” niches upon them - so the message is: choose now. • Universities will be compelled to create new, leaner centred business models as competition increases for staff, students, funding and partners. • Increasingly, public institutions will be run like corporations, while maintaining the necessary freedom of inquiry and academic rigour. • Private institutions will exploit profitable market niches, while others will create new markets and sources of value; for example, by specialising in select parts of the education value chain. • Policy makers will seek to maintain steady growth in access to university education. They will search for policy levers and programs that put the higher education sector at the centre of a genuine knowledge economy while inevitably tightening the public purse strings. • These changes will force universities to adapt in a number of ways: • Breadth of programs — Universities will need to consider whether they can maintain a competitive position across a broad range of programs, or whether to concentrate resources on a smaller range of programs. • Target customers — Universities will need to have a clear strategy around target student segments and their specific needs and preferences. Universities that do not become more focused on segments will be exposed to competitors with targeted student propositions. • Channels to market — Universities will need to rethink the role of digital channels and third party partnerships in recruiting students and delivering teaching and research programs. • Back office — The asset base and university administration will need to be significantly leaner than it is today.

19. Evolving University Models

20. EY Framework for Assessing and Designing a Model for the Future Universities should critically examine their current model, develop a vision of what a future model might look like, and develop a broad transition plan Public universities need to consider a series of strategic questions related to the viability of their institution’s current model, Deliberations on future models need to include customer segments to focus on, services they need, and the universities’ channels to market and role within the value chain. Support functions will also need to be streamlined. Regardless of the path chosen, reform will need to align to the institution’s purpose and values.

21. Evolving University Models The dominant university model in Australia and elsewhere, is a broad-based teaching and research institution, supported by a large asset base • Serve a broad mix of student segments • Offer a broad range of disciplines • Deliver teaching and learning programs primarily - supplemented by various online offerings, franchise arrangements, international branch campuses. • Deliver and manage the vast bulk of student services and back-office functions in-house. We now expect a significant transformation of university business models in the coming decade and beyond, despite the historically slow pace of change in the sector.

22. Evolving Models - 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 • In this model, the university: • Continues to serve a broad mix of student segments and continues to offer a broad range of disciplines • Discontinues a small number of sub-scale/unprofitable disciplines (or merges those disciplines with a ‘competitor institution’ to achieve scale) - providing the resources required to maintain international competitiveness in other disciplines. • Invests heavily in digital sales and delivery channels, both ‘pure play’ digital channels and blended models. • Forms a range of sales and delivery that open up new markets — or more efficiently serve existing markets. • Outsources some back-office functions to realise lower operating costs, and/or drives efficiencies through shared services arrangements with like-minded institutions.

23. Evolving Models - 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. • 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. • In this model, the university: • Chooses particular customer segments to focus on - enabling the targeted development of course offerings, sales channels, delivery and related • Significantly reduces its range of education disciplines, - focus on areas of genuine global strength/credibility. • Builds deep alliances with industry in its chosen fields, including partnerships to support R&D, commercialisation of research and innovation etc. • Like Streamlined Status Quo, streamlines its back office, including using outsourcing and/or shared services models to drive efficiency & scale economies

24. Evolving Models - 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. The model opposite represents a range of possible market positions to be pursued by innovators, rather than a ‘model’ of a single institution. The evolution of the Transformer model will be led by private providers rather than public universities (this level of ‘disruption’ is hard to lead from the inside) but savvy public universities will create value in this space by leveraging two of their critical assets: credibility and academic capability. With democratisation of knowledge, credibility and increasingly curation is king and universities are uniquely positioned to bring credibility and to act as curators of content.

25. Evolving Models – The Implications for Ireland The inevitable evolution of University Models has pushed educators, policy makers and private sector entities to begin to question some of the scared cows of the University system in Australia. These include: • The number of ‘world-class’ universities that a country the size of Australia can realistically continue to support • The breath of disciplines that a University should focus on and the place for specialisation in education provision • The role of the academic and the continuing involvement of all academics in teaching/research/content development • The responsibility of HE sector not only to educate students but also prepare them for the workforce (technical vs university training) • The traditional ethos surrounding decision making and governance in universities which are not suited to rapidly changing circumstances Universities in Ireland will not escape these competitive pressures and we would expect • An informed decision to be made as to whether to support any one Irish University to the degree required to be a truly world-class university (as opposed to individual departments) – Australia, with 39 universities, faces this same decision • More generally we would expect, and already see evidence of a move to a streamlined status – evidenced by the ongoing rationalisation of the Institutes of Technology and Initial Teacher Education, the regional clustering of higher education institutes and initiatives in ‘Back Office’ reform such as the Procurement Reform Programme and the push to shares back-office services Shared Services Plan for Education and Training Sector • The bigger, more difficult questions relate to the degree to which Irish universities will be allowed and will be supported to further specialize and become ‘Niche Dominators’ – with the acceptance that such aspirations would need to be clearly and appropriately recognized in institutional performance compacts and any new performance funding mechanism

26. EYs capabilities and service offerings

27. Our global EY Services and Capabilities Advisory Productivity/cost reduction TAS Restructuring Assurance Accounting Compliance and Reporting (ACR) ITRA Due diligence services Audit and accounting services Market facing Project finance Financial Accounting Advisory Services (FAAS) Audit/risk/fraud Real estate TAX Business Tax Services Asset management Capital markets services International Tax Services Core business reviews Business modelling — decision support Human Capital