Evolutionary possibilities for university business models

University of the future

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University of the future 2012

Key findings:

  • Drivers of change
  • Preparing for the future

Given the forces of change impacting the higher education sector, we expect university business models to transform significantly along three broad lines of evolution: Streamlined Status Quo; Niche Dominators; and Transformers.

“We’re not businesses… but we need to be run in a business-like way”
- University Vice-President

1. Streamlined Status Quo – Some established universities will continue to operate as broad-based teaching and research institutions, but will progressively 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
  • Continues to offer a broad range of disciplines, but 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 partnerships with public and private higher education providers, TAFEs, secondary schools, industry partners and other institutions that can open up new markets – or more efficiently access and 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.

The study revealed that most universities have ample scope to ‘streamline’ their business and operations, with much higher support staff to academic staff ratios than other knowledge-based industries and some asset bases only used for 100 days per year.

2. Niche Dominators – Some established universities and new entrants will fundamentally reshape and refine the range of services and markets they operate in, targeting particular ‘customer’ segments with tailored education, research and related services.

In this model, the university:

  • Chooses particular customer segments to focus on – for example, mature age distance learning students, international mass market or industry professionals – enabling the targeted development of course offerings, sales channels, delivery and related services
  • Significantly reduces its range of education disciplines, creating a focused set of areas of genuine domestic and global strength and credibility
  • Builds deep alliances with industry in its chosen fields, including partnerships to support R&D, commercialising research and innovation, professional skill development, and lifelong learning
  • Streamlines its back office, including using outsourcing and/or shared services models to drive efficiency and economies of scale.

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

Private providers and new entrants will also carve out market positions using Niche Dominator models, building fit for purpose, segment-focused businesses without the constraints of legacy assets and workforce structures.

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.

In this model, innovators will:

  • Extend the definition of a higher education customer to include content wholesalers, content consumers, financiers, employers or parents
  • Disaggregate the value chain to create new areas of specialisation, such as content aggregation, mass distribution, assessment and certification
  • Combine traditional education services with services in related industries, such as media and entertainment, financial services and venture capital
  • Build a sales model that is predominantly digital and build delivery models that combine digital services and specialist ‘face to face’ services sourced from partners
  • Outsource student services, while retaining ownership of their customer relationships, using cloud-based customer relationship management tools and techniques
  • Outsource their full suite of back-office functions.

The Transformer model will be led by private providers and new entrants, not incumbent public universities. This level of ‘disruption’ is hard to lead from the inside. However, savvy public institutions will seek opportunities to create value in this space in partnership with private providers and new entrants.

Incumbent public universities bring two critical assets to this model: credibility and academic capability. The challenge for public universities will be to cut the right deal – a deal that builds in brand protection and a reasonable share of the value created. The answer might lie in a consortium approach, especially if the prospective partner has the market weight of a global technology or media company.

For public universities that get this right, the rewards will be high: increased global reach of the core mission and brand, not to mention much needed incremental revenue to support internationally competitive education and research programs.

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