In the face of financial doom, would big be better for universities?

Australian Financial Review
1 March 2021

Australia is arguably underserved for diversity and choice in university institutions and offerings. Mergers in the face of a looming financial crisis would do little to solve that problem.

Universities are experiencing financial pressure in the current economic and health crisis. Many say we have too many universities, and mergers should be considered to achieve efficiency and build scale as student numbers decline. But merger proposals based on a goal of achieving efficiencies is entirely the wrong way to go.

There are 44 universities in Australia for a population of 25.5 million. There is one national university, 35 state/territory universities, six private universities, and two overseas providers, giving one university per 568,000 Australians. In comparison, Britain has 164 universities for a population of 64.4 million (one per 390,300 people). Canada has 96 universities for a population of 37.7 million (one per 392,700 people). In California, population 36.5 million, the University of California system operates 10 campuses, California State University system runs 23 campuses, and there are 134 separate universities (one university per 226,000 people).

It could be argued on these grounds that Australia is underserved by a lack of diversity and choice in university institutions and offerings.

The case for mergers among universities must be made, first and foremost, on the value that would be created for students, researchers, businesses, governments and the community. That is, a merged organisation should be able to offer a greater choice of courses and programs, deliver innovation in the use of learning technologies, and overall, provide better teaching quality.

It should also be able to undertake more extensive and more complex research projects and programs – nationally and internationally – than universities could do acting alone. It should be able to resolve and overcome the inevitable competitive and cultural differences that now exist in the separate organisations. And, of course, it should generate sustained savings in operational, management and overhead costs.

Many of these benefits can be achieved for individual universities without going through the pain of a merger.

From a management and organisational perspective, there is little evidence to support an argument for economies of scale in administration.

Mergers offer opportunities for rationalisation of subject offerings and consistency in learning design and delivery – but this should not be at the cost of flexibility, agility and responsiveness to local situations and circumstances.

Large universities tend to offer a more comprehensive but uniform range of courses and programs. Smaller universities can be highly specialised and well-regarded niche payers; they can differentiate from the big providers through targeted specialisation.

Diversity matters

A better approach might be for regulators and individual university academic boards to make it easier to offer a single qualification provided by several universities, having regard to student demand, preferences and choice, and employer requirements.

This has occurred with the recently instigated WSU-CSU joint medicine program. Other collaborations between regional and metropolitan universities can no doubt be pursued.

The US state system universities allow for greater integration of teaching materials and technologies across multiple campuses, while allowing constituent campuses to operate independently and with their own identities. Moving in this direction could be something for the universities to argue with their state governments based on a strong business case.

Greater collaboration and integration of research effort across universities can provide substantial benefits in critical mass and specialisation. Universities within states are already collaborating in access to research funds and expensive research facilities. Biotech collaboration across Melbourne universities and research institutes shows what can be done.

At the moment, regional universities lag significantly behind their metropolitan counterparts in research income, research outputs and research quality. The Commonwealth has already made additional research funds available for regional universities. At the same time, several have developed very strong research specialisations.

Universities place a very high value on their identities and connections with local businesses and communities. Many universities within cities and regions already collaborate in innovation centres and hubs and provide seed capital support for start-up formation.

Regional universities, in particular, set out to create value in the regions in which they are based. In cannot be assumed that if these universities were merged, or became campuses of metropolitan universities, this special connection would continue. From a management and organisational perspective, there is little evidence to support an argument for economies of scale in administration.

The evidence goes the other way: increased size carries greater complexity and creates significant co-ordination problems. Management layers increase, executive remuneration escalates, and the divisionalisation of work intensifies. Many universities already outsource accounting and human resource operations and achieve substantial economies through applications of technology and cloud-based platforms. Mergers would offer little value in this regard, except perhaps savings in software licences.

Potentially, Australia has a good mix of global research-intensive, technology-focused, suburban and provincial city comprehensive, and regional universities that can provide diversity in offerings to students and researchers alike. They should be encouraged to play to their strengths and refine their missions for a genuinely diversified system rather than succumb to pressure to look the same and amalgamate.

John Howard is a visiting professor at UTS and managing director of Howard Partners, a public policy research and analysis firm. His new book is Rethinking Australian Higher Education.