In our first article in this series (Covid-19 what comes next? : http://adamgoldconsulting.co.uk/covid-19-what-comes-next/ ) we highlighted the sectors we felt would be particularly impacted by the effects of the pandemic. We stated that:
“any economic activity that has until now rested on attracting large numbers of people (often from different parts of the world) to be in close proximity to one another will be vulnerable. This is bad news for airlines, shops, restaurants, tourist venues, theatres, cinemas, sporting events – and universities.”
Events have been moving rapidly since then and this article is the first of several, we shall be publishing over the coming weeks that look at how the picture is developing for the sectors we highlighted. We begin with the higher education sector, the area of our economy worst affected by the clampdown on mass movement and assembly the pandemic has brought in its wake.
Our taking stock comes against the backdrop of reports that as many as 20% of UK students may defer taking up their university places in the next academic year rather than partake of the hybrid on-line and in-person education experience that awaits them. This gloomy prognosis for domestic student numbers only adds to the sense foreboding many universities have been feeling at the prospect of a severe contraction in overseas student numbers. In recent years, it is overseas students – particularly from China – that have been the gift that has kept giving, enabling the expansion of many universities and subsidising their research activities.
International students make up nearly 20% of the overall UK university population and nearly 36% of postgraduates. Of the total tuition income of UK universities, some 30% comes from non-EU students. This dependence on overseas students is not evenly spread across the sector, Universities in the elite Russell Group are far more exposed than the rest. 68% of the LSE’s students are from overseas as are 53% of the students at Imperial College London. Losing the income it receives from its 36% of international students would cost the University of Manchester alone more than £250million.
Faced with the prospect of overseas students either unwilling or unable to travel across national borders by the time the next academic year comes around – and the prospect of widespread deferrals by UK students – universities face a brutal reckoning, one that threatens to throw their balance sheets and strategic plans into chaos. When it comes to the next academic year, what exactly can they bank on anymore?
And yet while most universities are now ghost towns, they have been doing their best to stay open for business and to guard against attrition in their current student numbers. Shifting their teaching on-line has allowed them to preserve, for now, much of the scale of their pre-pandemic teaching activity, albeit its form has undergone rapid transformation.
For some, this opening-up of university education to new technology is long overdue. It gives UK institutions the flexibility to enter new student markets – including reaching those who for reasons of money or family commitment or special needs have been unable or unwilling in the past to partake of a conventional university education. It modernises the student experience and opens the door to education that is skills-based and attuned to the needs of the world of work. It offers improvements in assessment and in attendance. And it forces universities to re-construct their business models to insulate them against future crises: if Covid-19 has shown UK universities anything, it is that they have been flirting with danger all along.
Against this, on-line education has been introduced midway through the academic year to students whose physical presence at their institutions over the preceding months and years has allowed them to build up a sense of belonging to, and being supported by, their universities. Being there, in person, has made students feel part of the family. Using on-line means only to re-create from scratch this same sense of institutional citizenship among an entirely new cohort of studentsis a big challenge.
So too is selling this new form of a UK university education – be it wholly on-line or a hybrid of on-line and in-person (depending if or when the in-person academic year begins) – to overseas students newly hard-pressed for cash and even more hard-headed than before in their assessment of where their economic interests lie. Even if the volume of overseas students is restored, the margins on them are unlikely to be.
All told, UK universities are facing strategic challenges on multiple fronts. In entering en masse the world of on-line education, they will find themselves up against global competitors they have not faced before, keen to take their market share. The danger for universities is that of being behind the times, seeking out a student market whose rewards and incentives have evolved more rapidly than university planning processes themselves and students for whom geography is even less of a barrier now that on-line opportunities are available around the world.
While the British government has taken measures to discourage universities from engaging in an all-out war with one another for students, fallout within the UK university system is likely. At one end of the spectrum, the household names of the university world will make it through, with their confidence dented and their business models re-written. At the other end, those universities that are focused on teaching and vocational training and that are not exposed to the international market will also make it through, albeit some may find themselves becoming hybrid institutions operating at the intersection of higher and further education. In between stands a swathe of institutions having neither the international name recognition of the Russell Group nor the lower-risk balance sheets of the UK-focused institutions.
It is this squeezed middle that will be feeling the greatest pressure, confronted as they are by universities outside the UK that can rival or outdo the on-line education they are able to offer and willing to undercut them on price. Just as the commercial brains behind the Eurotunnel wrongly assumed in their forecasts that their competitors in the ferry companies would hold their freight costs steady – a mistake that nearly sent Eurotunnel into bankruptcy – so UK universities would be wise to remember that market disequilibrium, of the kind we are experiencing at the moment, is an opportunity for all and rarely resolves itself into the same state of equilibrium as before.
Hyper-competition: is this the immediate future facing universities?
|Universities may now be facing a period of hyper-competition.
Hyper-competition occurs in established markets when sudden changes in technologies or offerings place existing standards and rules in flux. It is a situation in which a rapid increase in competition can occur based on price/quality, competition to invade or protect established product or geographical markets, or the use of deep financial resources to attack competitors. The opportunity to spend time in the UK, improving language skills and making contacts, is an important attraction for international students. Take that opportunity away (even for a year) and the selling points of our universities narrow to a combination of the relative quality of education they offer and the prestige of the degrees they award. If the relative quality of that education itself is called into question – if UK universities come to be seen as no more than one set of on-line education providers among others – then the competitive appeal of our higher education sector will more and more come down to the prestige of its degrees. That, as we have suggested, will work to the benefit of the most high-profile university brands, who because of their exposure to the international market, are going to need all the party tricks they can get their hands on. But it will heap pressure on institutions who, internationally speaking, lack the same profile.
The more universities around the world move their degree programmes on-line, the less physical presence is a prerequisite for attending a university and gaining a qualification from it. Students will be able to shop around for degree programmes globally in a way they have not done before and universities that had hitherto faced only local or national competitors will find themselves in the full glare of the global market, up against institutions freed as never before from the physical constraints that have, to date, limited their enrolment and class sizes.
The inevitable outcome will be significantly increased competition for much the same number of potential students. In this situation those with the strongest brand, the fastest reactions or the deepest financial pockets will be the eventual winners.
Take just one metric. In 2019 the USA had just over 100 institutions with endowment funds of over $1billion. In the UK there are only 2 universities who are members of that club (unsurprisingly, Oxford and Cambridge). If US universities were to deploy even a fraction of this financial firepower on the acquisition of more students, UK and continental European universities would struggle to compete.
On-line technology does at least give UK universities something to work with: it offers a way past their dependence on assembly and movement either by replicating traditional forms of university education or, more boldly, by offering the prospect of re-inventing those forms altogether. Beyond this, universities represent a powerful and highly co-ordinated lobby: they know how to put the squeeze on government. And they offer a clear point of entry for a government bailout. Ministers do not have to scratch their heads and wonder exactly who the bailout cheque for universities should be sent to.
The universities are not natural bedfellows of a Conservative government. Indeed, they are home to hostile and articulate critics not just of Conservative higher education policy but Conservative ideology itself. When economic times were good, each side felt itself to have a hold on the other. But tables have been turned: universities find themselves in the role of supplicants, seeking nothing less from government than the wherewithal to survive.
Politically speaking, there is a temptation to seize the moment presented by this asymmetry in order to exact ideological revenge. If ever there was a chance for a Conservative government to take the universities down a peg or two, it is now. Salary reform is a tempting target for any government called upon to provide a bailout and we must expect that the pay of Vice-Chancellors in particular will once again come under scrutiny from the government and its political allies. Indeed, in anticipation of this (and other pressures they are under), a number of Vice-Chancellors have already taken 20% salary cuts. The claim that universities are offering too many (as their critics would see them) sub-standard courses and that they are insufficiently attuned to the world of work is likely to be part of the political pushback from government. We should also expect greater pressure on individual universities to pool their resources with one another and to work across institutional boundaries in developing greater economies of scale. Expect more talk about the benefits for universities of shared services.
The saving grace for the university sector is that, in the end, it is too important to any government, whatever its political hue, to be left to suffer irreparable damage. This is not just about the economic benefits universities bring to the UK as a whole nor their contribution to Britain’s global standing and soft power. It is that they are part of this country’s civic fabric. For a town or city to see its university (or universities) shut down, mothballed, or taken over would represent a huge blow to its morale. It would also remove a big chunk of demand from the local economy: universities are important agents of local and regional economic policy. Higher education is one of the few sectors that is genuinely spread across the country rather than being concentrated in London. For a Conservative party that came into office last December pledging to shift national priorities away from the capital city, it is unthinkable it would deal a mortal blow to the forgotten parts of Britain it is claiming now to champion.
Who we are:
Adam Gold founded Adam Gold Consulting in 2004. He has over 30 years’ experience in management consulting working at Board Level with private sector clients across Europe and Africa. Since 2012 Adam has been an Associate of Duke CE acting as an Orchestrator and Facilitator for them.
Adam can be contacted at: firstname.lastname@example.org
Christopher Lake is the co-founder of Syllogism, the recruitment, strategy, and ethics consultancy. A former fast stream civil servant, he was Tutor and Fellow in Politics at Magdalen College, Oxford from 1995 to 2000.
Christopher can be contacted at: email@example.com