Industry engagement and the emerging university business model

The Australian
22 Jun 2016

Much of this commentary, which has been of a critical nature, has failed to address some fundamental changes in the university business model. But collaboration will only be enhanced when university-business engagement is approached on a business-to-business platform.

Australian higher education has become big business. In 2008, when the Rudd government reforms started to get under way, universities had revenues of $18.96 billion. By 2014, revenues had grown by 46.4 per cent to $27.7bn. At the end of 2014, total university net assets stood at $48bn and during that year they generated a positive cash flow on operations of $3.2bn. They also paid out $3.1bn for property, plant and equipment.

This growth in revenues, together with their asset portfolios has meant that public universities are increasingly being run on a businesslike basis. This has brought forth some fundamental changes in the way universities are administered and managed. This does not mean universities are being run with a profit motive; but they are having to plan, budget and account for a substantial growth in their activities.

Several universities now have annual revenues in excess of, or approaching, $2bn and more than 50,000 students, together with a substantial discovery and applied research portfolio. They are also investing in a range of new commercial opportunities related to their core businesses of teaching and research. The scale and scope of these operations is growing and diversifying, but not yet to the same extent as in the US.

With increasing revenues and the emergence of multiple objectives and accountabilities, the university business model has evolved from the feudal community of scholars, through the idea of social contract between science and society, to an innovation systems view of universities as drivers and enablers of industrial innovation. More recently, a view has emerged of universities as knowledge businesses, heavily committed to the creation and transfer of knowledge for economic and social benefit.

In this knowledge business paradigm, vice-chancellors are tending to be appointed on the basis of their business acumen as well as academic achievement. They are expected to be the external champions of the university and to have a key role in negotiating with government, business and in securing philanthropy.

Some universities have designated the role of vice-chancellor as president (akin to a CEO) and created a position of provost as the primary academic leader. State governments are appointing more people with business backgrounds to university councils.

The evolving business model means university management is becoming more complex and sophisticated and executive teams are becoming larger, with greater professionalisation and individual specialisation. Bursars have become chief ­financial officers and registrars have become chief operating officers and occupy positions at the second management level. Most universities have appointed DVCs (international) to tap into the global higher education industry.

Faculties, schools and university research centres effectively operate as business units in the emerging model that parallels that of the multi-divisional firm. Unfortunately, but not uniquely, these units can operate as silos. Better practice organisational structures are still evolving.

Power and influence is moving from faculties and schools to the chancellery, indicating a strong shift away from the community model. Deans are being appointed with the title executive, carrying with it an expectation of strong management capacity and capability. These developments have caused a great deal of discomfort among many academics.

It follows that new business proposals, including collaborations with industry, are assessed in terms of costs, risks and returns (benefits) to the university. Individual academics have limited scope to enter into research collaborations and consultancies — unless they do it as outside work with, or without, the imprimatur of university management. At the same time, academics are rewarded in their performance agreements for generating research income within the parameters of research strategic plans.

But productivity remains an issue. The evolving competitive model is one of a strategically driven organisation, with five to 10-year plans in teaching, research, international, campus development and industry engagement. There is a focus on performance and accountability, building competitive advantage and creating distinctiveness among students, researchers, and potential industry partners.

Businesses still complain they find it difficult to work with university academic staff and faculties. The work of the faculty is heavily concentrated on teaching, and it is rare for staff to have a fulltime commitment to research. Short-term and transactional research consultancy projects are not encouraged, as they tend to be difficult to manage and divert resources from research commitments. They can also get caught up in highly bureaucratic university research and financial management processes.

It is well known that as organisations increase in scale and scope, there will be a tendency towards bureaucracy as a means to exert control, assure accountability, and avoid risk. But bureaucracy drives out innovation, agility and responsiveness, and is a drag on productivity. Few universities have embraced innovation in their businesses systems, processes and policies internally and externally, including working with industry.

Increasing the scope for industry to work with universities must move from a transactions based approach to one conducted on the basis of partnerships, alliances and trust in a business-to-business context. University research managers must move from a mindset of generating research income to one of value creation.

Businesses must ensure their research ideas fit with university research and engagement strategies, and that they deliver benefit to the university as well as to their own enterprises. Senior executives should take the time to get to know key decision-makers in universities, including vice-chancellors, and the fields of research excellence that their university is committed to (or could be with a substantial investment).

The university governance model will continue to evolve. In that process, more innovative and sustainable arrangements for industry collaboration will need to be developed, possibly around designated research centres, institutes, and controlled entities which have a specific remit for industry engagement. However, outside the co-operative research centres program, there is little guidance on best practice for formation, management, and operation of university research centres that engage with industry.

The university research centre is a highly regarded instrument for engagement in the US. Research centres have facilitated interdisciplinary research that has been the hallmark of knowledge-based industrial innovation. Staff in centres have advantages in relationships with industry scientists. They have time to increase their contacts and get to know the key personnel. They have become an important resource for finding employment for non-tenured researchers and postdoctoral students until they find permanent employment.

Universities are valued as sources of intellectual capital, but their roles have evolved from that of a social institution, a community of scholars, primarily focused on development of human resources to complex organisations centred on discovery, processing, transmission and application of knowledge itself.

International practice demonstrates that research excellence and industry engagement are mutually reinforcing. But, ­sustained collaboration requires leadership, management ­capacity, resources, and effective institutions for engagement designed to deliver outcomes and results. These arrangements must be incorporated into the evolving business model.

John H. Howard is adjunct professor at UTS Business School and managing director of Howard Partners.