Wednesday, 19 May 2010

Universities as an 'industry'

Thought of simply as a branch of the economy, UK universities have some interesting features. For a start, we employ a lot of people and generate a lot of income - our contribution to the UK's GDP; and we export a great deal, since taking foreign students counts as an 'export of educational services', and winning foreign research contracts (e.g. from the EU) counts as an 'export of research services'. The university 'industry' thinks of itself as operating in an increasingly competitive environment, and in some respects this is correct. On the other hand, it differs from a typical private sector, profit-seeking industry in several important respects:

(a) Although universities are supposed, from a mix of revenue sources, to cover their costs, they are not in business to maximise profits - indeed they enjoy charitable status.

(b) The university 'industry' is remarkably static, in the sense that there is little exit from the sector, very little new entry, and not much merger and acquisition (M&A) activity. Apparently this might all change, as several institutions are reportedly on funding council watch lists due to their precarious financial condition. We shall see how things turn out.

(c) Compared to most commercial businesses, the ownership and governance structures of UK universities are not as clear and transparent as they might be, despite recent improvements. This was brought home to me on a visit to Russia some years back, when I was asked by an official in the Russian HE ministry, who owned UK universities. I replied that we are technically classified to the private sector (unlike many continental European universities whose staff are civil servants), but that we cannot normally buy or sell assets without permission from our funding council, or even from HM Treasury, if public money is involved. So the matter is quite complicated - there wasn't a simple answer.

Despite these huge differences, there is one way in which universities are getting more like business, namely in their internal organisation. Let me explain what I mean.

Traditionally, universities were an amalgam of academic departments, some small, some quite large, plus a centre that provided general services to everyone: e.g. library, computing/IT, HR and finance, plus student-related administration (Registry). In the past, academic departments were not treated as cost centres, and heads were expected to be academic leaders, not managers. But this is all old hat, and hardly to be found any longer. Instead, the past 10-20 years has seen the tentacles of managerial thinking and organisational structures speading across our universities.

Increasingly, departments have been merged into larger Schools which are now normally key cost centres; and in bigger institutions, Schools are grouped into Colleges. Very often, these changes are proposed on the grounds that they will strengthen academic performance and facilitate collaborative teaching and research, but not many people really believe that and the evidence from experience provides little support. Thus such arguments are largely bogus. Rather, establishing Schools is a handy way of strengthening management control over the institution by reducing the number of units with which the institutional centre has to relate. Is this shift towards more managerial universities good or bad for the continuing success of our HE system? I guess only time will tell; and probably more on this theme in later posts.

But the debate is far from over, and the following observation suggests where it might lead us. Back in the 1970s, firms in the old Soviet Union underwent an interesting reorganisation, through the formation of industrial associations of various kinds, essentially merging or grouping firms together into larger units. The new, larger groupings were held to be more efficient, more productive, etc., but few believed that. The practical effect was to make central planning a bit easier by reducing the number of organisations that had to be sent plan targets. And did it work? Well, we all know what happened to the Soviet Union and all that central planning..............

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