Vice-chancellors proclaiming substantial organizational efficiencies, cuts and savings is the latest trend in the UK higher education sector and some would say it’s not before time. Their thinly veiled threats of catastrophe have largely failed to persuade the government to change course on home student fees or constraints on international recruitment, so they are reaching for the next tool in the box. Some would say they are likely to find a hammer and try to use it on a job where handcrafting is required but they do their best.
Meta Lessons In Making Statements
In a play direct from the Meta universe the strident tones match those from the Mark Zuckerberg book of corporate tough talk. At the end of 2022 the Meta share price had fallen 64% in the year and he declared 2023 a “year of efficiency”. By December 2023 the share price was up 178% as he “..responded to investor concerns about out-of-control spending.”
Costs at Meta for 2023 came down around 10% (a range of $89-95bn compared to predictions of $94-100bn). In a curious twist of fate, cue drum roll, Coventry University has announced that it plans to reduce costs by £40m in 2023/24 which is, um, around 10% of the University’s core expenditure (£447m) in 2022/23. It reminds me that one of the earliest lessons I was ever taught in the corporate world was that every manager should know where 10% of savings could come from in case there was a pinch in profitability at year end.
Over at the University of East Anglia (UEA), as noted in a previous blog, the organization seemed to be facing financial meltdown and possible “compulsory redundancies” in March 2023. The Annual Report and Financial statement from the year close on July 2023, just three months later, notes “..all the necessary £30.1m cost savings have been achieved” and all that with no compulsory redundancies. As if by coincidence staff and other operating expenses (excluding depreciation, amortization and other finance costs) was £294m which suggests a saving of, um, about 10%.
Moving to the south coast we see the University of Brighton making £17.9m in savings which, given normal operating expenditure (excluding financial expenditure) of £197m is, let me see, just under 10%. It is interesting to see assertions that the number of compulsory redundancies, 22, was not reduced “dozens of staff resigning to take up posts elsewhere”. Perhaps the University management decided to take the further savings windfall when it became available – or perhaps that’s just too cynical to contemplate.
Up the Amazon
It seems plausible that institutions are making a lot of noise to establish a negotiating position that will minimize resistance when they cut costs and 10% feels manageable. They might be better off considering something from the beginners guide to negotiation which can be summarized as “always open unreasonably in the eyes of the other side.” Perhaps a stretch target of 20% in cost-saving might make a substantial difference that allows room for genuine restructuring and reinvestment.
It would be particularly helpful if they saw cost control as an ongoing and positive step towards a better future rather than a defensive measure to cover poor forecasting and poorly judged investment. An example of the positive approach is that in 2001 Jeff Bezos, who penned an annual letter to shareholders for over 20 years, noted, “Focus on cost improvement makes it possible for us to afford to lower prices, which drives growth.” Another common theme from Bezos is that failure is important and necessary but it’s unlikely that he would have welcomed significant errors in forecasting revenue and costs in the core business.
This distinction is important because another common theme emerging from university annual reports is that some in the sector have acknowledged that they have been predicting badly and spending beyond their means for a while. As UEA notes, “Student recruitment numbers for 2022/23 were significantly lower than originally planned. This is on top of an accumulated 3,000 fewer students than planned throughout the Covid years, as experienced by many others in the Higher Education sector.” Coventry University’s 2022/23 Annual Report says, “The operating deficit has occurred as a result of costs growing faster than income.”
An Apple A Day
Since the start of the century international student recruitment has become a critical factor in most calculations about finances. The problem is that when the government or an external market provides an opportunity to gorge on international student mobility it can lead to over-indulgence. While one apple a day can be good for you and easy to digest, the outcome of eating too many too quickly is likely to be bloating and gas which seems apt given the growth in non-academic staff and some of the hot air from the sector.
Those with longer memories will recall that the late, sometimes lamented, Higher Education Funding Council for England noted in 2016 that predictions of increases in international student fee income, “…may be based on overly optimistic forecasting of international student growth. Plus ca change and all that because it is reasonably clear that this pattern has continued. However, the responsibility for this lies with individual institutions to plan, implement and review their activities rather than the hapless Office for Students to tell them what to do.
In that respect it is entirely appropriate for universities to consider taking a hatchet to costs if government policy has taken an axe to the tree of international student flows. It seems reasonable to believe that in years of plenty there is a likelihood of institutional bloat and almost inevitably there is a need for corrective action at some point. The real question is whether university management, having miscalculated trends in the first place, can be trusted to make the right cuts.
Alphabet Soup for Data
Which leads to thinking what the new business model might look like as the dependent visa issue bites and if the Migration Advisory Committee review of international student visa leads to further action reducing the competitiveness of UK higher education. Professor Tim Dunne, Provost and Senior Vice-President at the University of Surrey since 2022, had a go at this in a recent blog and made an interesting observation that “Many large post-1992 universities, such as Manchester Met, Liverpool Hope, and Leeds Beckett, have less than around 5% of their students paying overseas fees.” This suggested a way forward in the search for a new model,
A big problem with this notion is that MMU’s 2022/23 Annual Report notes that international students were 12% of the student population and international student fee income (excluding EU because MMU don’t separate it) is 17% of total full time student fee income. MMU has already beaten its 2026 international student recruitment target of 2,500 by 20%, in having 3,017 full-time, international, on-campus, new entrants last year. Times move quickly and this situation reflects what has happened in a number of institutions.
The real issue is that the sector is constantly referring to enrollment data that is at least 18 months old and which doesn’t take into account the likely impact of current year activity. It is really shambolic at a point when most universities seem to take pride in completing and publishing their financial statements within five months of the year end. The data is available and should be shared promptly to give external decision makers, students and the public timely information about the state of the sector.
Micro Talent Management, Soft Landing?
One helpful case study that some universities might like to study as an alternative to macho talk about cutbacks is that of Apple. The strategy seems to be to prioritize hiring quality over quantity in the first place, take an holistic view of talent, and always look to the long term needs of the organization. The company is not immune to the pressures of the market but CEO, Tim Cook, seems to run a business that reflects his suggestion that layoffs are “a last resort”.
As the sector becomes increasingly disrupted by alternative options, generational changes and other competitive pressures it seems likely that universities could and probably should be run more like businesses. This is a subject for a different blog but it is important to reflect that some of the best corporates take good care of their employees and see errors in forecasting or cost control as a management failing.
NOTES
It is ironical that Mister Ten Per Cent is the title of a British comedy film from 1967 where the inimitable Charlie Drake plays an amateur playwright whose earnest drama becomes a comedy success. In his ignorance he has also signed away 10% of the proceeds from the play to so many people that he owes 110% of the revenue. A salutary tale.
The sub-headings are inspired by the names of the Big Five tech companies. Crunchbase indicates that in 2022 “more than 93,000 jobs were slashed from public and private tech companies in the US” with more than 191,000 being cut in 2023. In 2023, Amazon cut 16,080 roles, Alphabet cut 12,000 and Meta cut 10,000. As noted, Apple seems to have a different approach to hiring and investment and has been much better able to withstand mass layoffs. This may offer some food (sic) for thought.
Image by Pete Linforth from Pixabay