The Lean University - Managing HE Finance
Recent headlines in the UK and US highlight how many universities and colleges are at risk of closing due to debt.
Analysis of the income and expenditure of UK universities suggest that, despite the freezing of the home fee in 2017, income has risen above inflation year on year since 2012. In 2021/22 and 2022/23 overall income actually rose above expenditure for the first time since 2012, due to increased recruitment and fees for overseas students and cuts in academic staff in 2022/23:
Source - HESA Data / House of Commons
In percentage terms, overall income to UK universities has consistently been above inflation since the 2012/2013 academic year but at the same time expenditure has been consistently higher year on year:
Based on available HESA data
Although this data appears to suggest that the financial crises may be exaggerated, it hides the disparity in the increasingly competitive world of higher education. While some universities have grown their financial income, resulting in large surpluses and financial reserves for the top recruiting and highest ranked universities, others, particularly smaller, so called 'post-92 institutions', have large deficits that have increased over time, often subsidised by high interest loans which have increased debt. This situation is putting universities at risk and leading to calls for mergers to stop the collapse of institutions. But is this outcome inevitable and unavoidable?
Having worked in universities that spent more on single transformation programs over the last 12 years than the entire turnover of the institution that I worked at for the first 24 years of my career, I would suggest that better spending controls could be applied in HE.
How the Lean Model Could Save Universities?
I started my career as a lecturer in 1992, coincidentally in a ‘post-92’ institution. The organisation was awarded university status in the 00s before merging with two other institutions in 2013, although not from financial necessity on our part. The university was small, with around 5,500 students and a turnover in the region of £35 - £40 million pounds, before the introduction of the £9250 fee.
Despite this modest income, the university managed to achieve an impressive financial surplus, while achieving high levels of student success with graduation and employability rates comparable with larger institutions and an NSS overall satisfaction score of 90%.
The success of the organisation was based on key principles developed by one particular vice-chancellor which involved managing finances within tight budget envelopes, streamlining service costs, increasing income for campus facilities and maintaining the estate. Some new facilities were developed using finance reserves to support expansion rather than taking on the expensive loans that have contributed to the crippling of some institutions. As Philip Auger identified recently in a Financial Times article (August 14th 2024):
While accepting that higher inflation and a decade-long freeze in tuition fees were partly to blame, Augar said the 2012 decision to triple fees from £3,000 to £9,000 had led to profligacy in the sector. “Most responded responsibly to that sudden increase and used it to plan for a secure future, but others expanded and borrowed over-aggressively in the 2010s fuelled by an era of low interest rates which has now come to an end,” he added. UK universities must cut costs to survive, warns Augar (ft.com)
The Lean University
In his book The Lean Startup author Eric Ries talks about his experience of implementing innovative software projects. Ries looks at how to develop the culture of innovation within organisations and suggests that larger institutions can act in a 'lean' way if they adopt a principle of encouraging and supporting innovation in a way that leads to cost effective development of worthwhile transformation.
“The big advantage of a startup is that it is flexible. You can pivot when you see an opportunity. Large organizations can also act like startups, and they should if they want to keep their competitive edge.
“In a large organization, the challenge is to get everyone on the same page and moving forward in a coordinated way. That requires strong leadership that understands and supports the Lean Startup methodology.”
Ries, Eric. The Lean Startup. Crown Business, 2011, p.19 & p.143.
This model could work for the universities who may now find themselves facing serious financial challenges and for any future models of merger that might be necessary to save organisations from financial collapse.
When appointed on a 2 year fixed-term basis, I was given a remit to transform the programmes I was joining if I wanted my contract renewed. The existing course delivered subject knowledge to teacher-training students on BA education degrees, but these were changing to schools-based training, which meant my area of lecturing would disappear.
I was therefore motivated to develop new programmes with colleagues, which drew on our range of expertise in the humanities, arts, media and social sciences to create a suite of interdisciplinary programmes. These programmes were also distinct from our nearest established university, which tended to specialise in single honours degrees for the highest achieving A level students.
Over time, by focusing on our local student base, including mature students and lifelong learners, through flexible learning approaches, the programme grew and went from having around 40 full-time students when I started to be a school of 600 students when I became its head in the 00s. Even before the £9250 fee we ran these programmes efficiently without any overseas students.
These programmes grew because they were seen to provide a range of knowledge and skills to students, had flexible assessment methodologies that could be adjusted to suit learning styles and were timetabled collaboratively to ensure that interdisciplinarity was at the heart of the student experience. We also included multidisciplinary project-based experiences and external placements where possible. This was thirty years ago.
As well as academic innovation we were also motivated to improve the student experience by introducing elements of technology which were new at the time. This included learning HTML 5 in the early 90s to build a basic course website before the university had its own, using early Microsoft spreadsheets to enter and calculate exam board results which reduced two-day exam board to two-hour exam boards. We also created early versions of Learning Management System (LMS) resources and the first tile-based student support applications, as well as creating online enrolment long before these things were common in the sector.
In none of these cases was there any 'budget' or assigned 'project team' to deliver these developments. We worked together with colleagues in IT developing the tools as we went, prioritising the functions that would have the greatest impact on staff and students, addressing areas of unnecessary repetition and bureaucracy, and agreeing a centralised process in meetings with representatives from each faculty. This person was then tasked with implementing the change across their faculty and when appropriate we developed technology to provide a solution that streamlined the workload for staff and enhanced the experience of students.
It was the lack of available resource to spend (or waste) on large projects and the absence of complex transformation bureaucracy which enabled this approach. We unconsciously adopted the Lean Model, as Reis describes it:
“Sustainable innovation is not built on a new technology platform or a key patent, but on a commitment to an ongoing learning process. It requires companies to experiment continually with new ideas, processes, and products.”
“In an enterprise, successful innovation requires an organization built around empowered teams of individual entrepreneurs who have the power to experiment and test new ideas.”
Ries, Eric. The Lean Startup. Crown Business, 2011, p.17 & p. 51.
An HE Innovation Culture
The innovations we developed in the 1990s and early 00s may sound basic, but they were effective and did the job. The principle we applied was if the change enhanced user experience and could be implemented quickly then it was introduced. If not, we did not do it.
What shocked me when I moved in 2016 from being an academic registrar in this small institution to taking on the role of programme director for projects at other much larger universities in the UK, is how much waste of resources was poured into large-scale flagship student / course / system transformation programmes that never delivered what they promised, including some basic enhancements.
Whilst universities have become much better at teaching the principles of innovation and have developed numerous successful spin-out companies, the management and leadership cultures of many institutions are the opposite of innovative. Acceptance of collective group think is the result of having university leaders who have been promoted precisely because they maintain the status quo rather than challenge it. This leads to institutional inertia and a reluctance to bring innovative thinking into the leadership approach.
I recently worked on a university transformation project had a larger budget than the entire University that I worked at for the first 24 years of my career. Granted it was for a much bigger university, but the budget was not proportionate to the level of benefit that was being promised to students. Although I was offered the option to stay on a large salary, I declined, depressed by the level of money being thrown at a project whilst the university could not timetable advertised courses or give all students their full degree marks several weeks after exam boards because of obsolete systems.
This is the opposite to the lean approach, but it has been characteristic of my experience in the seven higher education organisations I have worked in since I left my original ‘lean’ institution. This experience has always been accompanied by the presence of large numbers of consultants from external companies, usually one of the big four auditors, offering business insight at great expense to universities that are completely different from the banks and financial institutions that these management consultants usually advise.
In at least one case an expensive management review process ended with a presentation from one of the big four companies in which the name of a previous university that had been given identical advice was still on the presentation.
This would be frustrating enough if it had only led to a loss of resources that could have been better spent on teaching staff, resources for students, or reduced costs for student tuition and living expenses over the last 12 years.
But it is worse than frustrating, because these wasted resources have resulted in ongoing redundancies in academic staff alongside a growing chorus of calls to raise the fee which means more debt for students in the future with fewer staff to teach them.
To focus the university funding debate on the frozen fee level and the risks to overseas student recruitment is, in my view, to avoid the obvious question that no one in higher education seems to want to ask:
What happened to all the extra money that came into the sector with the introduction of the £9250 fee in 2012? Where did it go?
If we ignore this question and do not address failures in the financial management of universities, then the crises we face now will simply come back, and no short-term injection of cash, even if it was to come, would solve that. Universities need to learn to become lean in their management approach and work with those who offer low-cost, innovative solutions to enhancing their business model.
