1. Universityof the futureA thousand year old industry on the cusp of profound change

2. Over the next 10-15 years, the currentpublic university model in Australia willprove unviable in all but a few cases2 University of the future 3. ContentsIntroduction and executive summary 4Drivers of change6Evolution of the university model Current state14 Case for change15 Streamlined Status Quo 16 Niche Dominators 18Transformers20Conclusions 22Implications for universities24Implications for policy makers 26Implications for the private sector27Ernst & Youngs framework for assessing and designing a model for the future 28Ernst & Young Higher Education contacts29Methodology30Ernst & Young research team31University of the future 3 4. Introduction and executive summaryThe current Australian university model a broad-basedteaching and research institution, with a large base of assetsand back office will prove unviable in all but a few cases.Ernst & Youngs view is that the higher education sector is 3.Digital technologies Digital technologies have transformedundergoing a fundamental transformation in terms of its rolemedia, retail, entertainment and many other industries in society, mode of operation, and economic structure and higher education is next. Campuses will remain, but digitalvalue. To explore these themes and future directions, we have technologies will transform the way education is deliveredconducted an industry-wide study of the main forces impacting and accessed, and the way value is created by higherthe higher education industry globally and locally, and the education providers, public and private alike.opportunities, challenges and implications for Australian 4.Global mobility Global mobility will grow for students,universities. We conducted a mix of primary and secondary academics, and university brands. This will not only intensifyresearch, including interviews with more than 40 leaders from competition, but also create opportunities for much deeperpublic universities, private universities, policy makers andglobal partnerships and broader access to student andsector representative groups. Our interviewees included academic talent.representatives from more than 20 universities, including15 Vice-Chancellors. The topic attracted immense interest 5.Integration with industry Universities will need to buildaround Australia. significantly deeper relationships with industry in the decadeahead to differentiate teaching and learning programs,Our primary hypothesis is that the dominant university modelsupport the funding and application of research, andin Australia a broad-based teaching and research institution, reinforce the role of universities as drivers of innovationsupported by a large asset base and a large, predominantlyand growth.in-house back office will prove unviable in all but a few casesThe university sector is critical to Australias future. Universitiesover the next 10-15 years. At a minimum, incumbenteducate our leaders and entrepreneurs of the future, createuniversities will need to significantly streamline their operationsnew ideas and knowledge, and earn much needed exportand asset base, at the same time as incorporating new teachingincome. Universities provide opportunities for students of alland learning delivery mechanisms, a diffusion of channels tobackgrounds to increase standards of living for themselves andmarket, and stakeholder expectations for increased impact.future generations. But, to succeed, universities will need toAt its extreme, private universities and possibly someforge new business models that are dynamic, modern and fit forincumbent public universities will create new products andthe decades ahead.markets that merge parts of the education sector with otherWe see university business models becoming more diverse, andsectors, such as media, technology, innovation, and ventureanticipate three broad lines of evolution.capital. Exciting times are ahead and challenges too.1.Streamlined Status Quo Some established universities willWe have summarised the drivers of change of this brave newcontinue to operate as broad-based teaching and researchworld into five key trends:institutions, but will progressively transform the way they1.Democratisation of knowledge and access The massivedeliver their services and administer their organisations increase in the availability of knowledge online and the mass with major implications for the way they engage withexpansion of access to university education in developed andstudents, government, industry stakeholders, TAFEs,developing markets means a fundamental change in the role secondary schools, and the community.of universities as originators and keepers of knowledge.2.Niche Dominators Some established universities and new2.Contestability of markets and funding Competition forentrants will fundamentally reshape and refine the range ofstudents, in Australia and abroad, is reaching new levels ofservices and markets they operate in, targeting particularintensity, at the same time as governments globally face tightcustomer segments with tailored education, research andbudgetary environments. Universities will need to compete related services with a concurrent shift in the businessfor students and government funds as never before.model, organisation and operations.4University of the future 5. 3.Transformers Private providers and new entrants willcarve out new positions in the traditional sector and alsocreate new market spaces that merge parts of the highereducation sector with other sectors, such as media,technology, innovation, venture capital and the like. Thiswill create new markets, new segments and new sourcesof economic value. Incumbent universities that partnerwith the right new entrants will create new lines ofbusiness that deliver much needed incremental revenueto invest in the core business internationallycompetitive teaching and research.Faced with this dynamic industry landscape, Australianuniversities should critically assess the viability of theirinstitutions current business model, develop a vision ofwhat a future model might look like, and develop a broadtransition plan. Deliberations on future models need toinclude which customer segments to focus on, whatproducts or services they need, optimal channels tomarket, and the ideal role of the university within theeducation and research value chains. Support functions willneed to be streamlined and in some cases fundamentallyreconfigured. Regardless of the path chosen, universitieswill need to align new directions to their institutions corepurpose and values.This document describes our study, key findings andrecommended responses. It covers: Drivers of change Evolution of the university model Implications for public universities, policy makers and theprivate sector How to play in the future Ernst & Youngs framework forassessing and designing a model for the future Ernst & Young team and methodologyWe hope the paper provides food for thought as universitieschart their journey towards a new future.Justin BokorErnst & YoungUniversity of the future 5 6. Drivers of changeFive mega-trends will transformthe higher education sector.Our research and industry discussionshighlighted a number of major forcesimpacting the higher education sector inAustralia and internationally. Theseforces coalesced around five key driversof change. The first section of this paperexplores each of the five drivers and theirlikely impact in the decade ahead.Figure 1. Drivers of change Ubiquitous contentDemocratisation of Broadening of access toknowledge and accesshigher education Increased participation inemerging marketsContestability of Digital technologiesmarkets and funding Bringing the university to theDrivers of changedevice MOOCs and the rise of Fiercely competitiveonline learningdomestic and internationalstudent markets Bringing the device to theuniversity the use of digital Challenges totechnologies in campus-basedgovernment fundinglearning Competing for new Blended learningsources of funds Global mobility Integration with industry Emerging markets becoming Scale and depth of industry-based learningglobal-scale competitors in theinternational student market Research partnerships and commercialisation Academic talent increasinglysourced from emerging markets Industry as competitors in the certification and delivery of content Emergence of elite, truly globaluniversity brands6 University of the future 7. Democratisation of knowledge and access will drive a globaleducation revolution of a scale never before seen, creatingboth new opportunities and new sources of competition.Teaching methods have1. Democratisation of knowledge education participation rate more thanand access trebled from 8.0% to 25.9% in the first to change. We cant relydecade of this century, and is likely toTraditionally, universities held the key to on delivering contentknowledge, in both a physical and double again in the next 10-15 years1. anymore its all about philosophical sense. University libraries, Participation rates are growing rapidly infaculty domains and research institutesa host of other economies and regions: contextualisation, wayswere where knowledge was created,Latin America, ASEAN, the Middle East of thinking, and the stored and shared. The staff working inand North Africa. Participation rates are student experience. those domains typically held a privilegedalso now growing steadily in sub-status as originators and keepers of Saharan Africa, after decades ofUniversity Provostknowledge. Now knowledge is open tonegligible growth.anyone globally with a device and This expansion of access will drive aconnectivity not just facts and figures, global education revolution of anbut also analysis, interpretation, and unprecedented scale, transformingcuration of knowledge. societies by creating opportunities forAccess to universities has traditionally millions of people and their families tobeen dominated by a modest proportionincrease their standards of living. Forof society in developed markets 20-30% universities, this will drive newof post-secondary students and a veryapproaches to teaching and learning,narrow proportion of society in emerging create opportunities for entry to newmarkets, typically the elite.markets and new global partnerships, stimulate new distribution approachesToday, access is expanding both in such as low-cost distribution in ruraldeveloped markets, such as Australia, areas and also create new sourcesand even more fundamentally in of competition.emerging markets. Chinas tertiaryFigure 2: Tertiary education participation rates (Proportion of 18-22 years olds in post secondary education)80.0% Note that the OECD figure represents an75.0% approximate average across developed 2000countries within the OECD and excludes OECD developing countries such as Mexico. 2010 40.5%29.0%30.0%25.9% 22.6% 21.0% 17.9%15.8% 8.0% 9.4%6.8% 4.3% OECD East Asia & PacicChinaIndia Latin AmericaMENA Sub-Saharan AfricaSource: World Bank, Ernst & Young analysis. MENA Middle East & North Africa; OECD Organisation for Economic Co-operation & Development1 See, for example, Outline of Chinas National Plan for Medium and Long-term Education Reform and Development (2010 2020), China Ministry of Education (www.moe.gov.cn).University of the future 7 8. Drivers of changeContestability of markets and funding will deepen both inAustralia and internationally, with any growth in fundingcoming from highly competitive, non-government sources.We will come under2. Contestability of marketsContestability of funding for teaching and and fundingresearch will likewise deepen, both in increased pressure on The introduction of a demand-drivenAustralia and internationally. Mining Government funding, funding model in Australia in 2012 has boom Mark I drove the 2006-07 and whichever way you driven whole new levels of competition.2007-08 Australian budget surpluses A number of universities that hadthat filled the coffers of EIF2. However, look at it.previously felt secure in their market the fiscal boost of mining boom Mark IIappears over before it even began. TheHead of university shares found themselves confronted by losses in share of 5-10% or more asgovernment faces a mighty task to returnrepresentative groupthe budget to surplus, and both sides of 2011 first preferences and 2012 enrolment data started to come politics have spending commitments that through. In Victoria, for example, fourwill take every spare dollar and more well universities lost 3.5% market share or into the next political cycle. more see Figure 4 below. Universities in Australia will need to While future Australian governmentsprepare for an environment where every may seek to limit the fiscal implicationsdollar of government funding is of growth in enrolments, the deepening contestable and any growth in funding of market contestability is unlikely to be comes from non-government sources reversed, either in Australia or students, industry, philanthropists, and internationally. The genie is well and global collaborations that are all truly out of the bottle. fiercely competitive.Figure 3: Australian government fiscal surplus/deficit,Figure 4: Market competitionFinancial Year (FY) 2005 to 2013 Percentage change in market share of first preferences(A$ billion )2011 vs 2010 Victorian market (universities de-identified) 2121.4%17 1511 13.8%3 FY09 FY10 FY11 FY12*FY05 FY06 FY07 FY08FY13* 6.2%4.6% 1.6% 0.1% G HI JA B CD E F-30 -3.8% -4.2%University -42 -7.7% -53-52-11.5%Source: Based on Treasury data Commonwealth of Australia Budget Source: Ernst & Young analysis of market data.Papers 2006-07 to 2012-13.* Figures are estimates from the May 2012 paper2 EIF Education Investment Fund. For more information see deewr.gov.au/HigherEducation/Programs/EIF8University of the future 9. Digital technologies will transform the way education isdelivered, supported and accessed, and the way value iscreated in higher education and related industries.Our major competitor in ten 3. Digital technologies Digital technologies will also fundamentally transform the way value years time will be GoogleDigital technologies and innovation have is created within higher education and disrupted all manner of established if were still alive!industries media, retail, entertainment related industries. For example, new technologies will enable public andUniversity Vice-Chancellor and many others. While online education private providers to specialise in parts has been around since the 1990s, it has of the value chain content been in the last 2-3 years where the generation, content aggregation, mass pace and disruptiveness of change has distribution, certification, really accelerated. commercialisation and so on. Digital technologies will not cause the New technologies will enable media disappearance of the campus-based companies to enter the university university. Campuses will still exist as sector, either in partnership with places of teaching and learning, incumbents, or potentially in their own research, community engagement, and right. The so-called Massive Open varied forms of student experience Online Courses (MOOCs) are an early assuming universities can deliver a rich, stage example of the search for new on-campus experience. But digital models. Some of these models will technologies will transform the way decline and fail, others will create very education is delivered and supported, for substantial economic value. Winners example through applications that are likely to be a mix of new, pure play enable real-time student feedback, and online businesses and traditional the way education is accessed in remote businesses with powerful online models and regional areas both in the and capability. developed and developing world. University of the future9 10. Drivers of changeGlobal mobility will continue to grow for students, academictalent and university brands, with the likely emergence of asmall number of elite, truly global university brands.There will be 15-20 4. Global mobilityGlobal mobility of academic brands is a newer phenomenon, but is also growing independent, global Global mobility will continue to grow in importance. MOOC-based for students, academic talent, and brands the rest will be increasingly for university brands. distribution of content by the likes of Harvard, MIT and others is creating a playing for the silver medal.International students have been the global brand impact, if not revenue at lifeblood of the Australian higher University Vice-President education industry over the last 10-15 this stage. International branch campuses (IBCs) are also growing: there years. The international student market are 200 globally now, with 38 more is growing rapidly (global growth of 6.6% planned in the next two years. per annum over the last decade), but will fundamentally change in structure in theThe likely outcome over the next 10-15 coming decade and beyond, asyears is the emergence of a small traditional source markets China, number of elite, truly global university Malaysia, South Korea and others brands. These global brands of the increasingly become global-scalefuture will include some of the usual destinations for international students.suspects a subset of Ivy League and Oxbridge institutions as well as a Likewise, the sources of academic talent number of elite institutions from China. will become more diffuse as academics Chinas C9 institutions have the from emerging markets become resources, government support and increasingly mobile and in demand, intent to achieve global elite status. This providing a growing source of talent for will drive new partnership opportunities universities in both developed and and new sources of competition for developing economies alike. Australian universities.Figure 5: Top 10 source and destination countries for Figure 6: Top 10 source countries for tertiary education studentsinternational branch campuses in 2011 (2009 figures and comparison to 2005)(total established IBCs = 200; total planned IBCs = 38)Source country Destination countryMalaysiaAustralias share of students35%58 from the country (2009) USA78 13 UAE37UK 25 8China17 725% France27 2 Singapore 18 3Turkey India15% ChinaUSA 211 India 17 2 Malaysia 7 7568Russia South Korea Australia12 Qatar 10 5%Morocco12755 Germany France 68105 3547262Iran 6India 5 40%2%4%6%8%10% 12%14% 1 Netherlands 6 UK 6 1Annual growth in students from source country (%) 3 Malaysia6 South Korea2 Note: Size of bubble denotes number of students studying abroad in 2009 (000)1Canada 4 Mauritius 5Source: Education at a Glance 2011, OECD Indicators3China1 Canada 4 1 Planned IBCs Current IBCsSource: International branch campuses data and developments,The Observatory on Borderless Higher Education, January 201210 University of the future 11. The relationship between the higher education sectorand industry will deepen industry will be a key partner,and also a competitor in specialist professional programs.The big game will be5. Integration with industryestablished by the University of Queensland4 and the University of co-investment with theThe relationship between industry and Western Australia5. the higher education sector is changing private sector.and deepening. Industry plays multipleResearch commercialisation will goHead of university roles: as customer and partner of higherfrom being a fringe activity to being a education institutions and, increasingly, core source of funding for manyrepresentative group as a competitor. For universities touniversities research programs. survive and thrive, they will need to build Already, venture capitalists, industry, significantly deeper relationships with and entrepreneurs are increasingly industry in the coming decade. Scale andbeing brought together to depth of industry based learning andcommercialise university research; for internships, for example, will become example, the Knowledge and Innovation increasingly critical as a source ofCommunities being established by the competitive advantage for those European Union6. universities who have the industry Finally, industry will increasingly partnerships and pedagogy to do it well. compete with universities in a number Research higher degree programs and of specialist professional programs. applied research will increasingly be run Accounting industry bodies already in partnership with industry like for provide a range of specialised post- example the Australian Technology graduate programs (CPA, CA, CFA etc). Network of Universities new industry-Other industry groups, for example based PhD program3, and the miningengineering associations and pharmacy industry research partnershipsguilds, may play an increased role as certifiers and deliverers of content.InnoEnergy Creating the worlds largest innovation factoryLaunched in May 2010, the massive European initiative InnoEnergy brings 5-year plan... together industry, research centres, universities and business schools a total of29 partners to: 700 million budgeta)Deliver post graduate education in the area of sustainable energy, with each 60 new companiesprogram including training in innovation and entrepreneurship 100 new products b)Develop and launch innovative sustainable energy technologiesc)Spin off new enterprises to commercialise InnoEnergys new technologies 80 patentsThe intent is to spur innovation and commercial activity in Europe, while at the 3300 graduates same time helping to solve global energy problems. InnoEnergy is one of threelarge-scale, cross-border Knowledge and Innovation Communities established bythe EUs European Institute of Innovation and Technology7.3 ATN Industry Doctoral Training Centre (atn.edu.au/IDTC)4 Sustainable Minerals Institute (smi.uq.edu.au)5 Energy and Minerals Institute (emi.uwa.edu.au)6 See eit.europa.eu/kics7 KIC InnoEnergy (kic-innoenergy.com) University of the future 11 12. Drivers of changeThese drivers of change will transform the highereducation industry landscape, forcing universitiesto adapt their business models.The traditional university ConclusionsThese changes will force universities to adapt in a number of ways: model is the analogue of The sum total of these drivers ofchange will be a significantly different Breadth of programs Universities the print newspaper higher education industry landscapewill need to consider whether they 15 years max, youve got 15 years from now. We see the sector can continue to maintain adeveloping as follows: competitive position domestically the transformation.and internationally across a broad Universities will be compelled to University Vice-Chancellor create new, leaner business models range of programs, or whether to concentrate resources on a smalleras competition increases for staff, range of programs.students, funding and partners. Target customers Universities Public institutions will increasingly will need to have a clear strategybe run like corporations, while and execution around targetseeking to maintain the freedom student segments and theirof inquiry and academic rigour specific needs and preferences.that their long-term reputation Today, most universitiesdepends on. segmentation is broad at best Private institutions will exploit (for example school leavers,profitable market niches, whilemature age, and international).others will create new markets and Universities that do not becomesources of value; for example, bymore focused on segments will bespecialising in select parts of theexposed to competitors witheducation value chain. targeted student propositions. Policy makers will seek to maintain Channels to market Universitiessteady growth in access to will need to rethink the role ofuniversity education. They willdigital channels and third partysearch for policy levers and partnerships in recruiting studentsprograms that put the higher and delivering teaching andeducation sector at the centre of aresearch programs.genuine knowledge economy Back office The asset base andintegrated into the Asian region, university administration will needwhile inevitably tightening the to be significantly leaner than it ispublic purse strings for higher today. Most universities at presenteducation providers. have significantly more support staff than academic staff this ratio will have to change.12University of the future 13. University of the future 13 14. Evolution of the university model current stateThe dominant university model in Australia is a broad-basedteaching and research institution, supported by a large assetbase and a large, predominantly in-house back office.Figure 7: Current model established universitiesCustomersDomestic studentsInternational studentsIndustryProduct offeringsVocational and furtherHigher educationResearch education and trainingArtsEngineeringScience BusinessMedicine/healthLawEducation disciplinesITDesign OtherOther Other OtherSales Schools Open daysAgents Road-showsDigital OtherOtherDeliveryOn campus DigitalPartnershipsStudent servicesStudent administration Career centreOther OtherOtherBack office HR IT FinanceLegalOtherOther OtherSource: Ernst & YoungLegendCurrent area of focusIn the current model most Australian universities: Serve a broad mix of student segments Deliver and manage the vast bulk of school leavers, mature age students,student services and back-officeand international students. functions (HR, IT, payroll, finance, Offer a broad range of disciplines procurement and so on) in-house.health sciences, arts, science,There are, of course, exceptions to thistechnology, business, economics, broadly defined current model. Foreducation, law and more. example, some of the technology Deliver teaching and learning programsuniversities have progressively orientedprimarily on campus in Australia,their institutions around a focused set ofsupplemented by various online disciplines or industry domains. But, atofferings, franchise arrangements, the moment, these institutions are thetwinning partnerships and internationalexception, rather than the rule.branch campuses.14University of the future 15. and case for changeWe expect a significant transformation of universitybusiness models in the coming decade and beyond,despite the historically slow pace of change in the sector.Universities face theirGiven the forces of change impacting the We side with the latter. We cite thehigher education sector, we expect a Darwinian force of the market and biggest challenge in significant transformation of university innovation. The printing industry 800 years.business models in the coming decade prospered for the better part of sixand beyond. However, the industrycenturies after the invention of the University Vice-Chancellor leaders we spoke to were divided in theirprinting press but there is not a singleviews on the extent of change that part of that industry that has not beenAustralian universities will undergo.disrupted in the last decade. Longevity is no guarantee of permanence.A number of industry leaders felt thatAustralian universities, especially public At a minimum, incumbent higheruniversities, will continue with broadly education institutions will need tosimilar models to those of today. They significantly streamline their operationscited the slow pace of change: and asset base, at the same time asuniversities havent changed much in aincorporating new teaching and learningthousand years was a common refrain.delivery mechanisms and a diffusion ofThey also believe that policy and fundingchannels to market, and adapting touncertainties make it difficult forstakeholder expectations of increaseduniversities to adapt their business impact and 24/7 engagement.models with confidence about the likely The following section explores how theoutcomes. Several university executives current model might evolve in thealso highlighted the new regulatory following decade and beyond.regime being implemented by TEQSA asa potential brake on the speed of change.Others saw change as inevitable, citingdrivers of change similar to thosedescribed in this paper, as well as theeconomically fragile state of manyincumbent institutions in the sector. Where does your institution sit in the debate on the extent of change will steady as she goes work for your institution?University of the future15 16. Evolution of the university model Streamlined Status QuoSome universities will continue to operate as broad-basedteaching and research institutions, but will transform the waythey deliver their services and administer their organisations.Figure 8: Potential future model Streamlined Status QuoCustomersDomestic students International students IndustryProduct offeringsVocational and further Higher educationResearch education and trainingArts EngineeringScience Business Medicine/health LawEducation disciplinesIT Design Other OtherOther OtherRoad-Sales SchoolsOpen days Agents Digital PartnershipsOthershowsDelivery On campusDigital PartnershipsStudent servicesStudent administrationCareer centre OtherOtherOtherBack office In-houseOutsource Source: Ernst & YoungLegendCurrent area of focus In this model, the university: Continues to serve a broad mix of Forms a range of sales and deliveryArea de-scoped or reducedin focus in future modelsstudent segments.partnerships with public and private Continues to offer a broad range ofhigher education providers, TAFEs,Increased area of focus infuture modelsdisciplines, but discontinues a smallsecondary schools, industry partners number of sub-scale/unprofitable and other institutions that can open up disciplines (or merges those disciplines new markets or more efficiently with a competitor institution to access and serve existing markets. achieve scale) providing the Outsources some back-office functions resources required to maintain to realise lower operating costs, and/or international competitiveness in drives efficiencies through shared other disciplines. services arrangements with like- Invests heavily in digital sales andminded institutions. delivery channels, both pure play digital channels and blended models.16 University of the future 17. Universities have ample scope to increase the efficiency oftheir organisations, including reducing the ratio of supportstaff to academic staff and using assets more efficiently.Were not businesses Most universities have ample scope toOrganisations in other knowledge-based streamline their business and operations.industries, such as professional services but we need to be run Figure 9 charts the ratio of support staff firms, typically operate with ratios of in a business-like way.to academic staff across a sample of 15support staff to front-line staff of 0.3 to Australian universities three from each0.5. That is, 2-3 times as many University Vice-President of the four representative groups, and front-line staff as support staff. three non-aligned universities.Universities may not reach these ratiosin 10-15 years, but given the hot Only one of the universities a Group ofbreath of market forces and declining Eight university has a ratio less thangovernment funding, education one. All the rest have more support staffinstitutions are unlikely to survive with than academic staff. Four of theratios of 1.3, 1.4, 1.5 and beyond. universities have 50% or more supportWhere does yourstaff than academic staff, and more than Use of assets is also an area with scope half (8 of the sample of 15) have at least for much greater efficiency. Mostinstitution fit in this chart? 20% more support staff.universities own and maintain a sizeableIs your institutions ratio ofasset base, much of which is used onlyfor four days per week over twosupport staff to academic13-week semesters not much morestaff sustainable?than 100 days per year.Figure 9: Ratio of support staff to academic staff, sample of 15 Australian universitiesAll ratios based on Full Time Equivalent (FTE) staff data, reported as of September 2012University A Universities InnovativeResearchUniversity BUniversity CUniversity D Group of EightUniversity EUniversity FUniversity G TechnologyAustralian NetworkUniversity H University IUniversity J UniversitiesRegionalNetworkUniversity KUniversity LUniversity M Non-alignedUniversity NUniversity O0.0 0.5 1.0 1.52.0Sources: University statistical reports; Ernst & Young analysis University of the future 17 18. Evolution of the university model Niche DominatorsSome universities will fundamentally reshape and refine theservices and markets they operate in, with a concurrentshift in their business model, organisation and operations.Figure 10: Potential future model Niche Dominators Domestic studentsInternational students Industry professionals Other educationCustomersproviders ExecutiveSchool leaversMature ageHigh-endMass market B2B education Illustrative segmentsProduct offeringsVocational and furtherHigher education Research education and trainingArts EngineeringScienceBusiness Medicine/healthLawEducation disciplinesIllustrative focusIT DesignOther Other Other OtherRoad-Sales SchoolsOpen days AgentsDigitalPartnershipsOthershowsDelivery On campus DigitalPartnershipsStudent servicesStudent administration Career centre OtherOther OtherBack office In-house Outsource Source: Ernst & Young In this model, the university:LegendCurrent area of focus Chooses particular customer Builds deep alliances with industryArea de-scoped or reduced segments to focus on for example, in its chosen fields, includingin focus in future models mature age distance learningpartnerships to support R&D,Increased area of focus in students, international mass market commercialisation of researchfuture models or industry professionals enablingand innovation, professional skill the targeted development of coursedevelopment, and lifelong learning. offerings, sales channels, delivery, Like Streamlined Status Quo, and related services, such as industrystreamlines its back office, including based learning, career placementusing outsourcing and/or shared and outreach, and embeddedservices models to drive efficiency and research programs.economies of scale. Significantly reduces its range of education disciplines, creating a focused set of areas of genuine domestic and global strength and credibility.18 University of the future 19. The drive towards this model will come from the challengeof staying competitive in domestic and internationalmarkets across a broad range of disciplines and segments.The big change will beThe drive towards this model will come However, this constraint assumes the from the challenge of maintaining acurrent asset base and operating model partnerships with industrycompetitive position in domestic and of the typical Australian university. around niches international markets across a broad Universities that move to a significantly range of disciplines and segments. Jackstreamlined asset base and operatingUniversity Vice-Chancellor Welchs rule of two will increasinglymodel for example, utilising physical come to bear: youre either number one assets across the year rather than two or number two in your chosen field, or 13-week semesters will make the Niche you exit either by choice or driven by Dominator model increasingly feasible. market forces8.Private providers and new entrants will Some leaders we spoke to raised thealso carve out market positions using need for scale as an inhibitor of theNiche Dominator models, building fit for growth of the Niche Dominator model, purpose, segment-focused businesses citing 20-25,000 students as a basewithout the constraints of legacy assets number to maintain an economically and workforce structures; for example, viable Australian university.BPP University College in the UK. Aalto and BPP University College a focused set of disciplinesCan your institutionmaintain a strongOfficially launched in September 2010, Aalto University was formed by merging three Helsinki-based universities in technology, art and design, and economics9.competitive position Aaltos mission is to contribute to solving global issues through a multi-disciplinaryacross a broad range approach to research and teaching and to support the internationalisation and competitiveness of the Finnish economy.of disciplines? Even after merging three separate institutions, Aalto has a focused range of programs. Aalto seeks to strengthen and differentiate these programs through its multi-disciplinary approach, partnerships with industry, design hubs and programs that promote innovation and entrepreneurship. Aalto aims to use strengths in its chosen fields to achieve a place among the worlds top universities by 2020 and seed a new generation of innovators. In the UK, BPP University College10, a for-profit provider of higher education degrees owned by Apollo Global, focuses on providing profession-focused higher education programs in accounting, banking and finance, law, marketing, and human resources. BPP focuses on students seeking professional qualifications and therefore builds teaching programs and industry partnerships linked to the professions.8 See The Competitor: Jack Welchs Burning Platform by Amir Hartman, ftpress.com, 20039 Aalto University (aalto.fi/en)10BPP University College (bpp.com) University of the future 19 20. Evolution of the universitymodel TransformersPrivate providers and new entrants will carve out newpositions in the traditional sector, creating new markets thatmerge parts of the higher education sector with other sectors.Figure 11: Potential future model Transformers Domestic students International students Industry professionals Other educationCustomers providersExecutiveSchool leavers Mature ageHigh-end Mass market B2Beducation ParentsContent wholesalersContent consumers Service providersProduct offeringsVocational and furtherHigher educationResearch Mass distribution education and trainingContent aggregationEntertainmentFinancial servicesOtherSalesOtherDigitalOther OtherDelivery Digital PartnershipsOther OtherStudent administration, career services, other (outsourced)Student servicesCustomer relationship management (cloud)Back officeOutsourcedSource: Ernst & YoungPotential areas of focus for The model in Figure 11 represents a range of possible market positions to be pursuedLegendnew models by innovators, rather than representing a model of a single institution. In this world, the innovators: Extend the definition of a higher Build a sales model that is education customer to include predominantly digital and build delivery content wholesalers, contentmodels that combine digital services consumers, financiers, employersand specialist face to face services and parents.sourced from partners. Disaggregate the value chain to create Outsource student services, while new areas of specialisation, such asretaining ownership of their customer content aggregation, mass distribution, relationships, using cloud-based assessment and certification. customer relationship management Combine traditional education services tools and techniques. with services in related industries, such Outsource their full suite of back- as media and entertainment, financial office functions. services and venture capital.20 University of the future 21. The key for public universities in this world is to cutthe right deal a deal that builds in brand protectionand a reasonable share of the value created.Were all lookingIn our view, the evolution of theThe challenge for public universities inTransformer model will be led by private this world is to cut the right deal a for additional sources providers and new entrants, notdeal that builds in brand protection and of income.incumbent public universities. This levela reasonable share of the value created.of disruption is hard to lead from the The answer might lie in a consortium University Vice-Chancellor inside. However, savvy publicapproach, especially if the prospectiveuniversities will seek opportunities topartner has the market weight of acreate value in this space in partnershipglobal technology or media company.with private providers and new entrants. For public universities that get thisIncumbent public universities bring tworight, the rewards will be high:critical assets to this model: credibility increased global reach of the coreand academic capability. In an age ofmission and brand, not to mentionubiquitous content, content is king no much needed incremental revenue tolonger applies. Credibility is king andsupport internationally competitiveincreasingly curation is king. education and research programs.Universities are uniquely positioned tobring credibility and to act as curatorsof content. Venture GarageWhat impact willinnovation and new modelsIn 2009, a group of students convinced Aalto University in Finland to grant 500,000 to establish Venture Garage, a hub for entrepreneurs and start-upsin higher education have based on one of Aaltos main university campuses11.on your institution? WhatVenture Garage combines physical space and virtual communities to promoteopportunities will theyentrepreneurship in Aalto University and to promote venture capital and innovation in Finland. Venture Garage provides links to venture capitalists in Europe and theopen up? US, links to academics and research within the university, and a space for young entrepreneurs to develop and launch companies. Venture Garage runs entrepreneurship programs and competitions to encourage and find the most-promising start-ups, rewarding them with access to facilities, investors, and coaching from experienced entrepreneurs. Coursera Coursera is an online university enterprise created by two computer science academics from Stanford University12. In April 2012, Coursera secured $16 million in venture capital funding, seeking to make the best education in the world freely available to any person who seeks it13. More than 30 international universities offer online courses on the Coursera platform, with the University of Melbourne the first Australian university to sign up. As of September 2012, Coursera claimed to have 1.4 million students and is growing rapidly. The long-term outcome of ventures like Coursera, edX and Udacity remains unclear, but the impact on the sector will be profound.11aaltovg.com12coursera.org13coursera.org/aboutUniversity of the future 21 22. Evolution of the universitymodel conclusionsHybrid models and other models are also possible;regardless of the model and direction they choose,universities face the most interesting of times.Its going to be a ConclusionsSmaller universities will become increasingly focused on a narrow range tough decade. The models described above present of research programs. To make thisthree lines of evolution of university work, they will need to explicitly tie University Vice-Chancellor business models. There are, of course, education programs and industryother potential models, including: partnerships to these focused programslife-long learning models, global as per the Niche Dominator modelalliance models, multi-disciplinary or invest in a distinct studentmodels and hybrid models. A number experience for teaching and learningof the leaders we interviewed spoke of programs not tied to research.a model 1-model 3 hybrid. That is,continue with a leaner version of theirIt may be that in 10-15 years time acurrent model, while looking withsmall number of Australian universitiesinterest at the possibilities presentedhave evolved to become specialisedby selectively playing in atertiary education teaching institutions,Transformer world. with no research programs at all. However, at this stage, we see it moreMany of the leaders we spoke to saw likely that even the smaller universitiesteaching-only institutions as will find ways to maintain at least 2-3inevitable. Interestingly, not one of targeted research programs, potentiallythem and we spoke to leaders of in partnership with other institutions.more than 20 universities in Australia saw their own university becoming aRegardless of the model and directionteaching-only institution. The policychosen, universities in Australia face themakers we spoke to were also most interesting of times. The followingsceptical of this model. section explores the above implications further, covering the challenges thatWe share this scepticism. It would be universities will need to overcome tobrave step for a university in Australia enable them to implement new models,to completely relinquish research as a key considerations for policy makers,stated aim or part of its business. and opportunities for the private sector.Nevertheless, research will becomeincreasingly concentrated inuniversities that can demonstrateexcellence and impact.22University of the future 23. University of the future 23 24. Implications for universitiesTo build a successful model into the future, publicuniversities will need to address a number ofchallenges, regardless of their chosen model.Future challengesa) Quality and academic excellencec) Commercial skills Regardless of the target segment As higher education markets become Quality and academic metropolitan students, regional increasingly competitive and consumer-excellence students or international students driven, public universities will need to and the pressure on institutional deepen their commercial skills and Academic talent andfinances, universities will need to findcapability both in the administrative ways to maintain academic excellenceand academic workforce. This will beworkforce structure and deliver quality teaching andneeded, not just to secure market share Commercial skillsresearch. Some in Australia worry thatin undergraduate and postgraduate quality will suffer in a competitivestudent markets, but also to enable Change managementmarket. This may happen at theuniversities to cut the right deals withand speed to marketmargins, but over time those that private providers and new entrants. cannot maintain quality will lose Relationship withmarket share and relevance. d) Change management and speedgovernment to market b) Academic talent and The new models that universities workforce structure develop and implement over the The academic workforce in Australia iscoming decade and beyond will aging, significantly more so than the require significant change. Universities rest of the workforce. A quarter of have traditionally been resistant to Australias academic workforce is agedchange, typically citing the need for 55 and over, compared to 15% for theacademic independence and the purity rest of the workforce in Australia14. For of the mission. University leaders will the 45 and over age group, theneed to find ways to stay true to the percentage is 54% for the academicmission, maintain academic integrity workforce compared to 38% for the and independence, and at the same rest of population. Significant time change their business and proportions of this workforce willoperating models. retire in the coming decade. A critical component of this change will Universities will need to attract new be the need for speed to market. As the talent to replace this workforce, and atmarket becomes increasingly the same time build a new workforce competitive domestically and structure that can support newinternationally, universities will need to business models, deliver increasedbe first to market with new teaching and productivity, and accommodate research programs and innovative non-traditional operating models forstudent experiences. example, tri-semesters and northern hemisphere timetabling. 14Hugo, G., The demographic outlook for Australian universities academic staff, CHASS Occasional Papers, 2008.24 University of the future 25. Challenges include the relationship with government,which will need to evolve from fight for funds topartner for the nations future.Universities should bee) Relationship with governmentUniversities will also need to find waysto become increasingly influential embedded in Australias Australian governments, regardless offrom an electoral point of view. There political persuasion, will be increasingly economic growth butfiscally constrained, at least in the nextare no votes in higher education, wasa common lament in our discussions were not! 3-5 years, and probably beyond.with university leaders. A number ofHead of university Government funding as a share of leaders in the sector are endeavouring university revenue will likely decline.to shift community and governmentrepresentative group Universities will need to search for waysmindsets on this point; this needs to to move beyond the fight for funds continue apace. relationship with government. Ideally universities will be seen as key partners for government in stimulating innovation and economic growth. For example, universities might participate in joint initiatives with industry and government that promote the development and commercialisation of new technologies, and create opportunities and skills for a new generation of entrepreneurs. University of the future25 26. Implications for policy makersPolicy makers have limited influence over the decisions ofindividual institutions, but must find ways to set a frameworkthat maximises the sectors contribution to Australias future.Key policy issues Policy makers find themselves in a b) Scenario modellingdifficult situation. Universities infor consideration Australia are increasingly operating in Policy makers should model different scenarios for the sector over the nextcontestable markets and relying on Role of highernon-government funding sources; yet 10-15 years; for example, to consider how the models described in thiseducation they deliver many services that are, at paper might evolve, what it mightleast in part, a public good. Scenario modelling mean for the public good role ofThe sector is also one of the main universities, and what role policy Regulationdrivers of Australias economic future asmight have to optimise the outcomea key source of the talent, insight, new for the public good and the nation. Role of the private ideas and intellectual property requiredsector and newto build a high-performing knowledge c) Regulationentrantseconomy. The sector also provides TEQSA is still new and evolving thelife-shaping opportunities for thousands way it implements its oversight of the Price flexibility of students from economically sector. In the longer-term,disadvantaged communities. Thus, the governments and regulators need toshape and performance of the sector consider how new university modelsmatters critically to the future of the might fit into their regulatorynation, yet policy makers are frameworks, and what forms ofincreasingly limited in their ability to regulation might be appropriate toinfluence the decisions of individual maintain standards of quality, at theinstitutions that will drive their future same time as enabling innovation andshape and performance. new models to develop.It is beyond the scope of this paper tocover the full range of issues that policy d) Role of the private sector andmakers must grapple with. Rather, we new entrantshave highlighted a subset of key issuesPolicy makers will need to have a viewthat need to be addressed to prepare for on the desirability or otherwise of thea changed higher education landscape:private sector and new entrants domestic or international creatinga) Role of higher education in the new models or carving out marketnations future share using existing models.Politicians and policy makers shouldpresent a clear policy and public case for e) Price flexibilitythe critical role of higher education in Price flexibility is no panacea, butthe nations future, to build public under the right conditions mightsupport for the university sector and setenable universities to secure muchthe foundations for higher education needed funds for the future. Thosepublic policy. conditions must balance price flexibility with equity and the economically and socially critical participation agenda.26University of the future 27. Implications for the private sectorWe foresee very large opportunities for the private sector ambitious players will need to move fast to establish newmodels and secure partnerships with leading incumbents.We bring universityThe implications for the private sector Higher education markets have superbshould at face value be morefundamentals for long-term growth education to those who straightforward: find opportunities to for example, annual spend on higher havent had it before andcreate value and craft the business education in Asia will grow by a trillionmodels required to bring them to life.dollars or more over the next fifteen help them to get a great job. We contend that opportunities exist for years15 and provide links to Managing Director, more than just traditional privateburgeoning middle classes in emergingproviders of higher education.markets. Given the scale of this Private-sector growth, we encourage potential private university operatorWe see a role for media companies,sector players to put serious resourcestechnology providers, financiers, and ainto establishing new models and torange of industry groups to create valuestart securing partnerships withproviding services within the higherleading incumbents.education value chain, such as contentdistribution, commercialisation, industryplacements and certification. Some ofthese services might be provided on astand-alone basis. More likely, however,are joint-ventures or partnerships withincumbent institutions that bring marketcredibility and academic capability.15Based on Ernst & Young analysis of participation growth rates, populations and annual spend per student, we are forecasting annual spend on higher education in the Asian region to increase by more than a trillion USD by the year 2030.University of the future27 28. Ernst & Youngs framework for assessingand designing a model for the futureUniversities should critically examine their currentmodel, develop a vision of what a future model mightlook like, and develop a broad transition plan.Universities should assess ifWe believe the drivers of changeDeliberations on future models need to described above will fundamentallyinclude which customer segments totheir current model is futuretransform the higher education sector.focus on and what services they need,proof, and, if not, determineOur hypothesis is that these drivers, overand the universities channels to market the next 10-15 years, will render the and role within the value chain. Supportwhere and how to play in the dominant Australian university model of functions will also need to befuture. Ernst & Young is today unviable in all but a few cases.streamlined. Regardless of the pathuniquely placed to assist in chosen, reform will need to align to the To address the implications specific to institutions purpose and values.these deliberations. their institution, public universities need to consider a series of strategic questions related to the viability of their institutions current model, and where and how to play in future.Is your institutions business model ready for the future?Figure 12: Ernst & Youngs framework for assessing and designing a university model for the futureFuture modeldimensions Customers Students, professionals, Strategic questions industry, etcTransition considerations Is our current modelManaging the transition future proof?Products/servicesWhat does the transition Can our organisation survive and Vocational education and training | Higher education look like as a high-level, thrive in its current business Research | Employment services | Other multi-year plan? model and mode of operation? What capabilities do we need to Where to play?manage the transition? Channels What student, industry or other Managing the brand andOn campus | Digital | Partnerships | Other customer segments should we market position focus on? How do we protect our brand What will be our point ofRole within the value chainand market position during difference and how do we Education the transition? sustain this? Develop Attract and How do we manage changes Graduate/ How to play? teaching recruit EnrolTeach Assess to our brand as our products,transferprograms studentsservices, channels and Who should we partner with? partners evolve?Research What workforce capabilities and Operating the new model structures do we need? Develop SecureConductresearchPublishCommercialise How would we govern How do we optimise our assets?funding researchprojects and administer a model with new partners?Support functionsHow do we know we will Finance | HR | IT | Facilities management | Other secure the desired benefits from the new model? And howInstitutional purpose and values will we sustain these? Source: Ernst & Young28 University of the future 29. Ernst & Young Higher Education contactsOur higher education team with deep strategic and operationalexperience in the sector is ideally placed to advise universityleaders on the transition to new models for the future. Justin BokorPeter Rohan Report author Executive Director, AdvisoryPartner, Advisory Tel: +61 3 9655 2755Tel: +61 3 9655 2668 Mobile: +61 401 288 114 Mobile: +61 433 983 969 justin.bokor@au.ey.competer.rohan@au.ey.comJustin has 15 years experience as an advisor on strategy toPeter is Ernst & Youngs national Head of Education, and haspublic and private sector organisations. Justin has extensive more than 25 years experience as an advisor to Governmentexperience in the education sector and is a regular presenter and industry. Peters university work has included operatingon higher education reform and the impact on higher education model transformation, financial modelling and cost reduction,institutions. He has consulted extensively to education sectorshared services, and advice on strategic direction. Petersclients across Australia, including universities, sectorclients have included universities across Australia.representative groups, TAFE providers, high schoolsand state and federal departments of education. Meredith ScottGerald Marion Partner, AssuranceDirector, Advisory Tel: +61 2 9248 4533Tel: +61 7 3011 3136 Mobile: +61 413 750 497 Mobile: +61 410 652 551 meredith.scott@au.ey.comgerald.marion@au.ey.comMeredith is a Partner in Ernst & Youngs Sydney office andGerald is an experienced Director in the Brisbane officeworks across the technology, entertainment and educationof Ernst and Youngs Advisory Practice. Gerald has a wealthsectors. She has 25 years experience in professional services, of experience in the education sector, and has worked withfocused on compliance and governance. Meredith serves as aa number of universities on a variety of strategic andmember of the Finance and Audit Committee of University ofoperational challenges. In particular, Gerald has beenthe Sydney and as a Council member of one of Australiasworking on whole-of-student lifecycle diagnostics, businesslargest schools, Pymble Ladies College. model redesign, strategy execution at a granular level, andoperating model transformation. Heidi Riddell Mark Stewart Partner, Advisory Partner, Advisory Tel: +61 8 9429 2136Tel: +61 8 8417 1658 Mobile: +61 404 236 668 Mobile: +61 421 610 597 heidi.riddell@au.ey.com mark.stewart@au.ey.comHeidi is a Partner in Ernst & Youngs Perth office. She has Mark is a Partner in Ernst & Youngs Adelaide office. He has14 years experience providing professional services across18 years experience as an advisor to Government and industry,the government, utilities and resources sectors. Her client focused on productivity improvement, operating modelportfolio includes universities, departments of education,transformation, and cost reduction. Marks clients have includedutilities and health providers. universities, education departments, other governmentdepartments and scientific organisations. University of the future 29 30. MethodologyErnst & Young undertook anPrimary Research Senior Secondary research ofExecutive Interviewsoverseas marketsindustry wide study of theWe interviewed more than 40 seniorWe conducted secondary research intoforces impacting the higher executives from public universities,international developments in highereducation industry globally private universities, policy makers and education, including reviewing highersector representative groups across education markets and developments in:and locally, and theAustralia, to understand their views on:North America, Asia, Latin America,opportunities, challenges Europe, the Middle East, Africa and Drivers of change in the higherand implications foreducation sectorOceania. The research identified changesimpacting the higher education industryAustralian universities. The long-term future of universities and new and emerging models in higher Potential evolutions of theeducation in these markets.university modelLeveraging our network of Implications for their institutionindustry leadersOur interviewees included leaders ofErnst & Young insights frommore than 20 universities, includinginternational locations were used to15 Vice-Chancellors.complement the views of the AustralianErnst & Young would like to thank each of higher education team, as well as insightsthe interviewees for their time and from our teams extensive work in otherthoughtful contributions to the researchindustries undergoing majorand points of view discussed in this paper. transformations; for example, media,The views expressed in this paper, though retail, utilities, telecommunications,informed by this research, are those of banking and insurance.Ernst & Young alone.Market AnalysisMarket analysis included assessmentof the: Drivers of growth in highereducation internationally Levels of competition pre and post theintroduction of a demand-drivenfunding model in Australia Drivers of student choice Current university operating models30University of the future 31. Ernst & Young research teamRachit SrivastavaMary GendyManager, AdvisorySenior Consultant, AdvisoryTel: +61 3 9288 8579 Tel: +61 3 9655 2651Mobile: +61 413 293 590Mobile: +61 421 883 828rachit.srivastava@au.ey.commary.gendy@au.ey.comMaya Narayanan Yoganya ArunManager, AdvisorySenior Consultant, AdvisoryTel +61 3 9655 2677Tel: +61 3 9288 8151Mobile: +61 424 200 907Mobile: +61 411 211 550maya.narayanan@au.ey.com yoganya.arun@au.ey.comJustin SinghSenior Consultant, AdvisoryTel: +61 3 8650 7660Mobile: +61 404 154 604justin.singh@au.ey.comUniversity of the future 31 32. Ernst & YoungAssurance | Tax | Transactions | AdvisoryAbout Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide,our 167,000 people are united by our shared values and an unwavering commitment to quality.We make a difference by helping our people, our clients and our wider communities achievetheir potential.Ernst & Young refers to the global organisation of member firms of Ernst & Young Global Limited,each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited byguarantee, does not provide services to clients. For more information about our organisation,please visit www.ey.com. 2012 Ernst & Young, Australia.All Rights Reserved.SCORE No. AU00001492This communication provides general information which is current as at the time of production. Theinformation contained in this communication does not constitute advice and should not be relied onas such. Professional advice should be sought prior to any action being taken in reliance on any of theinformation. Ernst & Young disclaims all responsibility and liability (including, without limitation, for anydirect or indirect or consequential costs, loss or damage or loss of profits) arising from anything doneor omitted to be done by any party in reliance, whether wholly or partially, on any of the information.Any party that relies on the information does so at its own risk.Liability limited by a scheme approved under Professional Standards Legislation.ED 0313S1224764