Impact of the Financial Crisis on Universities and Business Schools

1. Impact of the Financial Crisis on Universities and Business Schools Professor Angus Laing Dean of Business and Economics – Loughborough University Chair – Association of Business Schools

2. Welcome to ‘Laboratory UK’ • “Reforms undertaken by the coalition government in the UK following the Browne Report, including the raising of tuition fees – even if contested and controversial – will probably be replicated in other European countries where the gap between the cost and the price of higher education is much wider and the sustainability of the public university system is in doubt.” (Santiago Iñiguez de Onzoño THE 22/12/11) • The private reflections of a reluctant lab rat …

3. A perfect storm? • Public finances in crisis and reappraisal of role of the state: • Withdrawal (or at least reduction) of state funding of higher education • Transferring cost of higher education to ‘consumers’ and creating demand-led university system • Declining returns on institutional and charity endowments • Global market opportunities but also increasing competition: • Immigration, visas and balancing political and economic reality • High staff and infrastructure cost structures in western economies • English as the academic lingua franca … and Bologna

4. But no perfect policy responses? • Markets, quasi-markets or central control: • Demand-led = consumer interests paramount • Planning-led = national interests paramount • Role of universities … and business schools? • UK - a kingdom divided: • England – fees and ‘managed’ (mis-managed?) quasi-market • Scotland – no fees and strong central funding control • Wales – fees and strong central planning control • Australia – parallel policy direction: • Demand–led and shared payment

5. If fees … how to price and who pays what • Determining relative costs of teaching across disciplines: • Impact of institutional context leading to variability • Determining relative contributions of students and state: • Student demand and strategic importance • Australian approach:

6. And you can’t rely on the banks to bail you out … • Spread in the price of borrowing for UK universities has widened. “… this has to do with the perceived risks to student demand of higher tuition fees” (Stewart Ward – RBS) • Historically universities have secured low interest rates on the assumption that the government would bail out failing universities. • Uncertainty about the role of the government and regulators in supporting institutions.

7. Initial evidence of risk in student demand • Limited overall decline: • 2.5% compared to 2011/12 • 4% compared to 2010/11 • Variability by institution and discipline: • Lower league table universities – decline of up to 25% • Vocational subjects – increase of up to 20% • Impact on non-UK students: • EU students – decline of around 12% • UK ‘Fee migrants’ – Europe, US and UK ‘branch campuses’

8. So where does that leave us? • De facto (re)privatisation of the university sector? • Increasing divergence in institutional focus? • Stratification of sector - networks and ‘federal’ structures? • Disciplinary mix and research concentration? • Student expectations and ‘rights’? • Consumerist students (and parents) • Changing regulatory systems and information • Evolving degree formats and pathways – lifelong learning • Desperately seeking ranking – building market credibility

9. New financial dependencies • Institutional(ised) dependence on the public purse: • Oriented around requirements public policymakers • Strong relationships with public sector stakeholders • Ongoing regulatory burden and declining funding: • Role of regulation in demand-led system • Opting out of government funding/loan schemes • Increasing dependence on non-public funding: • Reorientation around requirements of consumers and companies • Requirement for new skills and new relationships

10. Weaning ourselves off the state - mixed economy of funding • Increasing divergence in institutional funding • Key new financial relationships: • Financial institutions – university specific loan schemes • Business community – scholarship and programme sponsorship • Alumni – scholarships and infrastructure • Danger of pursuit of income –“money making operations with no connection with the rest of the University” • And the state? • Research funding? Regulator?

11. But that’s the university not us • Business schools to a significant degree already operate in this new world: • Range of non-public funding relationships • Deliver full-time, part-time, corporate programmes etc • Familiar with delivering to consumerist students • Requisite skills – business development, marketing, alumni relations • Likely beneficiaries of evolving undergraduate student choice – albeit at expense of other disciplines …

12. … so you think we can escape … • Major impact will be indirect – the impact of changes on other parts of university: • Increased need for cross-subsidisation to preserve discipline mix • Stressed relationships - ‘The rich baron, the poor king and poor rival barons” • Place and role of business schools within universities • Need to evolve further to thrive in this brave new world: • Threats to income streams – corporate sponsorship and alumni giving • Position business schools as’ strategic’ with policy makers – STEM(M) • ‘Age of austerity’ – rationalisation, efficiency and mergers

13. REM … “Everybody Hurts” or “Shiny Happy People”? • Rationalisation: • Programme provision and institutional specialisation/positioning • E.g. – LMU “focus on high demand courses such as business” • Efficiency: • Models of delivery –technology, staffing mix and lifelong learning • Shared services – back office and student facing • Mergers: • Reactive to safeguard ‘failing’ institutions (forced marriages?) • Proactive to create ‘super’ institutions e.g. Sweden/Netherlands

14. There are new kids on the block • Mixed economy of provision • Non-profit – For profit – Corporate universities/schools • National and multi-national universities/schools • Standalone schools and university based schools • Emergence of BRIC economy universities/schools • Private equity interest in sector – BPP in UK and multiple emerging PE backed institutions in Asia • Looking outside the box – possibilities engendered by the Wikipedia and Facebook world

15. So where does that leave us … • Challenging of assumptions about the organisation, operation and financing of universities • Globalised university (and business school) environment undergoing seismic change • Responsibility of business schools to support the academy and limits of cross-subsidisation • But … • these are not challenges, they are opportunities waiting to be discovered … • and where have you heard this type of thing before …

16. From the same people who said “this really won’t hurt” …