global trends, challenges and drivers of success for universities

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Page 1: Global Trends, Challenges and Drivers of Success for Universities
Page 2: Global Trends, Challenges and Drivers of Success for Universities

“The University is no longer a quiet place to teach and do scholarly work at a measured pace and contemplate the universe as in centuries past. It is a big, complex, demanding, competitive business requiring large-scale ongoing investment”

Malcolm Skilbeck, The University Challenged1

1. Quotation sourced from “On the Edge: Securing a Sustainable Future for Higher Education”, OECD, 2004

Page 3: Global Trends, Challenges and Drivers of Success for Universities

Universities face a complex set of challenges

Global Mobility

Broader and more diverse student body

Digital Technologies

Integration with Industry

Competition for Faculty,

Students, Funding and

Partners

Reporting requirements

Fluctuating application levels

Model Innovation e.g. MOOCs

Pressure on public funding

Accountability to multiple stakeholders

Market pressure to differentiate

Pressure to Adopt Management

Practices

Page 4: Global Trends, Challenges and Drivers of Success for Universities

Universities are exposed to competition and market forces on a number of fronts

Competitive Arena Example Segments

Students

Faculty

Research Funding

Donations

•Undergraduates•Research postgraduates•Professional postgraduates•International students•Distance students

•Leading researchers•Effective teachers•Effective leaders

•Commonwealth •Industry•Other

•Alumni•Foundations/HNW individuals•Companies•Other

For each segment it competes in, a university needs to understand:

• Intensity of competition

• Nature and identity of:

- Competitors

- Substitutes

- Potential entrants

• Basis for competition

• Relative power of suppliers/buyers

Page 5: Global Trends, Challenges and Drivers of Success for Universities

North American universities occupy half of the top 30 places on the QS World University Rankings

2012 QS World University Rankings: Top 30

North America

Europe

Asia

Australia

Page 6: Global Trends, Challenges and Drivers of Success for Universities

US universities are winning an increasing share of Nobel prizes

Percentage of Laureates by Institution Nationality

75% of Laureates since 1990 have been

affiliated with US institutions

Total prizes 33 24 32 38 30 55 59 77 75 75 52

Notes: Excludes Literature and Peace Laureates (only one peace Laureate and no Literature laureates were affiliated with an institution when their prize was awarded

Source: Sutton Trust, “Nobel prizes, the Changing Pattern of Awards”, 2003; http://nobelprize.org;

Page 7: Global Trends, Challenges and Drivers of Success for Universities

Success in competition for talent and for money determine a university’s relative status over time

“A university’s quality comes from the quality of its faculty and its students. Buildings and other tangible assets, as well as the professional and other staff, also constitute essential elements for quality, but all of these elements serve the academic needs of the faculty and students. Quality faculty at the level required to compete among the top American universities exists in limited supply. As a result, the national and international marketplace for research faculty is highly competitive. The university establishes its quality by recruiting, retaining, promoting and rewarding the best research faculty.”

“The acquisition of revenue is another highly competitive markeplace for American universities. Money purchases the physical plant, facilities, quality staff, and competitive salaries that support and attract first-rate faculty. Money purchases the scholarships, fellowships, libraries and student facilities that attract the best students.

Every dollar not required to support continuing operations is a dollar that the university can invest in improving research or student quality. The effectiveness of the university in acquiring these funds and investing them in research or student quality determines the relative success of the university within its competitive marketplaces.”

Competition for Talent

Competition for Money

John V. Lombardi, “Quality Engines: The Strategic Principles for Competitive Universities in the Twenty-First Century”, The Centre Reports, March 2001

Page 8: Global Trends, Challenges and Drivers of Success for Universities

There is a clear cycle of success in the world’s top universities

Strong Research

Performance

Strong Faculty Strong

ReputationDonations

Financial Strength

Strong Teaching

Performance

High Quality Students

Successful Alumni

(Endowment + Annual Giving +

Operational Surplus)

Donations, Commercial ventures, fees

Research grants Contract researchIP-related revenue

Scholarships

Competitive salaries

HR Policy

Research funding and facilities

Facilities and support

Page 9: Global Trends, Challenges and Drivers of Success for Universities

Less than 5% of US higher educational institutions conduct over 90% of the research

1844

759

658

646

261

US Higher Educational Institutions 2002-03

Source: NCES Digest of Education Statistics, 2003; Lombardi, John V., Quality Engines: The Strategic Principles for Competitive Universities in the Twenty First Century; The Centre Reports, March 2001

Highest Degree Offered

Doctorate

Masters

Baccalaureate

Other 4 Year Qualification

2 Year Qualification

36%

56%

85%

92%

40%

• Exceptional diversity in terms of size (~500 to ~50,000 students), breadth of focus, private vs public ownership, research vs teaching focus, sectarian vs secular orientation

• Highly concentrated research resources, with over 90% of the total federal scientific research funding controlled by just 150 universities

% Private4168

Page 10: Global Trends, Challenges and Drivers of Success for Universities

Endowment funds at top US universities are much larger than at UK universities

10.7

6.6

5.4

5.2

4.8

0.1

0.1

0.2

2.0

2.0

Harvard

Yale

Texas

Princeton

Stanford

Cambridge

Oxford

Edinburgh

Glasgow

King's

Total Endowment 20031 (£ Billion)

Note: (1) Cambridge and Oxford include university and college endowment. University endowment alone for Cambridge was £660m and £470m for Oxford in 2002. Source: The Sutton Trust, ‘University Endowments – A UK / US Comparison’, May 2003

Top 5 US Universities

Top 5 UK Universities

Endowment per Student

(£’000s)

550.0

593.0

109.0

813.0

358.0

120.0

119.0

9.0

6.5

6.7

Page 11: Global Trends, Challenges and Drivers of Success for Universities

Higher ranking universities tend to have larger endowmentsShanghai Score vs Endowment per Student

R2 = 0.462

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0 20 40 60 80 100

Shanghai Rankings - Points Scored

En

do

wm

ent

/ Stu

den

t (

US

$ m

illio

n)

Note: (1) Shanghai Ranking data is 2004; Endowment data is 2003

Source: The Times Higher Education Supplement, Nov 2004; ‘Voluntary Support of Education’, Council for Aid to Education, New York 2003; Shanghai Ranking http://ed.sjtu.edu.cn; The Sutton Trust ‘University Endowments a UK/US comparison’ May 2003.

Annual giving also needs to be factored in – it is very significant for leading US public universities

Page 12: Global Trends, Challenges and Drivers of Success for Universities

Various factors contribute to US universities’ strong fundraising performance

Factor Observations

Cultural attitudes • Culture of ‘mass giving’ in the USA, with charitable donations amounting to 2% of GDP (0.6% in the UK)

Income levels and wealth differentials

• Wealthy individuals are a key source of donated funds: over half the total value of alumni donations comes from 1% of alumni

• The USA has by far the largest number of wealthy individuals, with over 2.3 million high net worth and 32,000 ultra-high net worth individuals in 2003

– By comparison, there were 0.1m high net worth and around 700 ultra high net worth individuals in Australia in 2003

University environment

• Intense student experience in leading US universities (living on campus, interacting outside faculty, etc.) fosters strong emotional connection to university

University fundraising practices

• Top US universities have very active alumni and fundraising programs, generating extremely high participation rates (e.g. 64% for Princeton)

• Areas of focus include active alumni programs to generate sense of community, high profile general appeals, and targeted programs to attract major donors

Taxation of donations

• USA: donors can claim back all charitable donations directly from income tax• UK: complex tax treatment; donor and the beneficiary share the tax rebate

Note: (1) High net worth individuals are those with more than US$1m in net financial assets; ultra high net worth are those with over US$30m in net assetsSource: World Wealth Report 2004, Cap Gemini and Merrill Lynch; Source: The Sutton Trust, ‘University Endowments – A UK / US Comparison’, May 2003

Page 13: Global Trends, Challenges and Drivers of Success for Universities

Alumni, other individuals and foundations provided 75% of donations to US universities in 2002-03

4.3

6.6

4.6

6.6

1.9

Sources of Voluntary Support for US Higher Education 2002-03(US$ billion)

Alumni

Other Individuals

Foundations

Corporations

28%

Percent of total

19%

28%

18%

8%

+20%

Growth over 5 years

+1%

+74%

+31%

-1%

Source: The Chronicle of Higher Education, 2004

Total = US$23.9 billion

Other Organisations

Page 14: Global Trends, Challenges and Drivers of Success for Universities

Universities have multiple stakeholders, making it harder to define a single objective functionStakeholder Relationship Key Needs

Students • Customers • Improve future income• Build social / career network• Gain status

Alumni • Donors• Ambassadors

• Association with successful institution

• Ongoing access to social network and new knowledge

Staff • Producers of research and teaching outputs

• Manage university

• Competitive research infrastructure

• Competitive remuneration

Businesses and public sector organisations

• Employers of graduates• Research / commercial

partners

• High quality graduates with relevant skills

• Commercially valuable R&D

Federal Government

• Funds research and teaching

• Sets educational policy

• Contain costs• Contribute to social and

economic goals

Other stakeholders: state government, parents, professional associations, community

Every university needs to decide:

• In addressing stakeholders’ needs, what should we try to maximise, and where can we satisfice?

• Can we assemble the resources to pursue all of these objectives, or do we need to narrow our focus?

• Where should we focus? Which stakeholders / segments are key to our success?

Page 15: Global Trends, Challenges and Drivers of Success for Universities

An organisation’s competitive position in its industry is defined by the type of advantage it pursues and the breadth of its market focus

Cost Leadership

Differentiation

Type of Advantage

Low-Cost Differentiation

Segment cost leadership

Segment differentiation

Broad

Narrow

Market Focus

Mass Market

Over-served or under-served segments

Page 16: Global Trends, Challenges and Drivers of Success for Universities

A superior competitive position requires superior capabilities; this position is only sustainable if they are based on hard-to-replicate resources

Resources CapabilitiesCompetitive

Position

Hard-to-replicate assets and activity system

Leadership in one or more market-relevant capabilities

Unique, sustainable cost or differentiation advantage in chosen markets

Products and services with a unique price/value proposition attractive to target customers

Assets and activities that are difficult for

other firms to acquire or imitate are the most

secure basis for sustainable advantage

Offerings

Explicit trade-offs usually necessary to

create industry leading capabilities

A cost or differentiation advantage allows a company to generate superior returns

Page 17: Global Trends, Challenges and Drivers of Success for Universities

Example of Trade-Offs: Revenue diversification may improve financial performance and strengthen institutional autonomy, but it may also require trade-offs with other objectives

Revenue Source Perceived trade-offs

International students Diversion of resources from domestic students

Full fee paying domestic students Potential lowering of standards

Continuing education fees Distraction from core teaching activities

Bequests and donations Withdrawal of other funding sources

Industry funded research Reduced independence and knowledge sharing

Research commercialisation Reduced knowledge sharing

Consultancy fees Distraction from core teaching and research activities

Page 18: Global Trends, Challenges and Drivers of Success for Universities

The strategy needs to be translated into a prioritised set of organisational requirements

Key organisational capabilities required to support business strategy

How important is this characteristic in key markets?

Priority

Market A Market B Market C

Minimise administration costs

Maintain world-class expertise in key areas

Coordinate development and delivery of outputs across divisions

Support customised outputs for specific customers and customer segments

Maintain flexibility to adapt to rapidly changing competitive environment

Facilitate development of new businesses

Enable external strategic and commercial links

Page 19: Global Trends, Challenges and Drivers of Success for Universities

An effective organisational strategy should align decision rights, structure and performance management with the business strategy

Business Strategy

Required Organisational

Capabilities

Organisational Structure

Allocation of Decision Rights

Performance Management

Policies

Systems

Processes

People

Page 20: Global Trends, Challenges and Drivers of Success for Universities

“How, then, are American universities so successful? Primarily, I would say, by maintaining this ferment, this clash of perspective, and this reliance on the authority of ideas.

And we compete vigorously: for the best students, the best young faculty, and the allegiance of donors. Without this competitive environment, the tendency towards self-replication, towards inbred comfort, could become dominant.

Finally, governing a university is a subtle thing. As we’ve seen too often abroad, and increasingly in public higher education here, efforts by larger government bodies to manage aspects of public life are doomed to fail. Creativity is repelled rather than attracted, inspiration is dulled – and disappointment is the result.

At the same time, we have seen that the team cannot be managed by its players. Too often, universities have been managed as kibbutzim, with academic leaders elected by faculty, students and staff, thus undercutting mandates to impose high standards and the creation of leadership horizons sufficient for true long-term innovation

Success depends on the middle ground. Leadership that is strong, not bureaucratic; leadership that recognizes the best ideas come from creative scholars, not managers; and leadership that knows if everything is a priority, nothing is a priority. For priorities, like energy, like capital, must be conserved.”

Lawrence H. Summers, President, Harvard University1

1. Quotation sourced from Harvard Magazine, November – December 2004

Page 21: Global Trends, Challenges and Drivers of Success for Universities

BCG / WFPMA - Global Survey 2012

19/04/23 21

Page 22: Global Trends, Challenges and Drivers of Success for Universities

BCG Report – Importance of HR Capabilities

19/04/2322

Page 23: Global Trends, Challenges and Drivers of Success for Universities

Economic Impact of HR Capabilities

19/04/23 23

Page 24: Global Trends, Challenges and Drivers of Success for Universities

BCG Conclusions

19/04/23 24

Page 25: Global Trends, Challenges and Drivers of Success for Universities

Strategic Workforce Planning

19/04/23 25

Page 26: Global Trends, Challenges and Drivers of Success for Universities

Recruitment Media

19/04/23 26

Page 27: Global Trends, Challenges and Drivers of Success for Universities

Talent and Leadership Management

19/04/23 27

Page 28: Global Trends, Challenges and Drivers of Success for Universities

Appendix

19/04/23 28

Page 29: Global Trends, Challenges and Drivers of Success for Universities

US universities spent US$36 billion on research in 2003, 60% of which was funded by the Federal Government

6.9%

6.0%

19.6%

7.4%

60.1%

Sources of Funding for Research and Development by US Universities in 2003

Federal Government

State and Local Government

Industry

Institution

OtherTotal Expenditure:

US$36.3 billion

Note: US Federal Government departmental breakdown: Health & Human Services = $13.4bn;National Science Foundation = $2.8bn; Defense = $2.1bn; NASA = $1.1bn; Agriculture = $0.6bn; Energy = $0.7bn

Source: The Chronicle of Higher Education, 2004

Total expenditure on research & development by Australian institutions in 2002 was A$3.4 billion (approx. US$2.4 billion)

Page 30: Global Trends, Challenges and Drivers of Success for Universities

Unique resources and capabilities are protected by barriers to imitation

Industry

Barriers to Entry

Potential Entrants

Organisation

Barriers to Imitation

Competitors

• A competitive advantage is sustainable when it persists, despite efforts by competitors or potential entrants to imitate it

– The organisation must possess unique resources and capabilities

– It must be difficult for other firms to acquire or develop these resources and capabilities

• This requires resources and capabilities that are protected by barriers to imitation

Page 31: Global Trends, Challenges and Drivers of Success for Universities

Eating facilities

Architectural aesthetic

Lounges

Room size

Reception hours

Room amenities

Bed quality

Hygiene

Room quietness

Price

Low High

Relative Level

Average Two Star

Hotel

Average One Star

Hotel

Formule 1

Source: “Value Innovation: The Strategic Logic of High Growth”, W. Chan Kim and Renee Mauborgne, Harvard Business Review, Jul-Aug 2004

Page 32: Global Trends, Challenges and Drivers of Success for Universities

Barriers to imitation include early-mover advantages, trade-offs and other factors

Learning curve Network externalities

e.g. strong alumni network

Firm or brand reputation e.g. customer uncertainty when buying experience products

Buyer switching costs e.g. customer investment in learning to use software

Early-Mover Advantages

Economies of scale Legal restrictions e.g.

patents, trademarks, copyrights, licenses

Superior access to inputs e.g. ownership or long-term contracts

Superior access to customers e.g. location, exclusive distribution channels

Intangible barriers e.g. causal ambiguity

Other Factors

Incompatible product attributes or design features e.g. research vs teaching only focus

Inconsistencies in brand image or reputation e.g. traditional vs innovative image

Limits on internal coordination, measurement and motivation e.g. “culture clash”

Trade-Offs

Page 33: Global Trends, Challenges and Drivers of Success for Universities

An effective strategy requires a unique value proposition based on distinctive, inimitable capabilities – most “strategies” fail this test

Source: Michael Porter, Competitive Strategy 2002

What Is a Strategy?

The right goaland

A unique value propositionand

Clear trade-offsand

Tailored activitiesfitting together in

an integrated systemand

Consistent improvement, but with continuity of the strategic position

What Is Not a Strategy?

Best practiceor

A visionor

Learning / flexibility / agilityor

Innovationor

Restructuringor

Mergers/alliancesor

CRMor

The Internet

Page 34: Global Trends, Challenges and Drivers of Success for Universities

US universities occupy 17 of the top 20 places in the Shanghai Jiao Tong University Rankings

100.0

72.6

72.5

72.1

69.7

66.0

61.8

58.6

58.6

57.6

55.9

54.1

50.5

50.4

50.1

48.8

48.5

47.7

46.7

46.6

1 Harvard Univ

2 Univ Cambridge

3 Stanford Univ

4 Univ California - Berkeley

5 Massachusetts Inst Tech (MIT)

6 California Inst Tech

7 Columbia Univ

8 Princeton Univ

9 Univ Chicago

10 Univ Oxford

11 Yale Univ

12 Cornell Univ

13 Univ California - San Diego

14 Univ California - Los Angeles

15 Univ Pennsylvania

16 Univ Wisconsin - Madison

17 Univ Washington - Seattle

18 Univ California - San Francisco

19 Tokyo Univ

20 Johns Hopkins Univ

2006 World University Rankings, Shanghai Jiao Tong University: Top 20

Source: Academic Ranking of World Universities 2006, Institute of Higher Education Shanghai Jiao Tong University

USEuropeAsia

Australian Universities in Top 100Rank University

Score

54 Australian National University30.8

78 University of Melbourne26.4

Page 35: Global Trends, Challenges and Drivers of Success for Universities

US universities are slightly less dominant on the more broadly-based Times Higher Rankings

2005 World University Rankings, The Times Higher: Top 20

Source: The Times Higher Education Supplemen, October 28 2005

North America

Europe

Asia

Other Australian Universities in Top 50Rank University

Score23 Australian National University

52.9

33 Monash University

46.5

38= Sydney University

42.6

47 Queensland University

38.5

Australia