What now? Commercial sustainability in the new world - Matthew Robb - EY ...
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What now? Commercial sustainability in the new world Matthew Robb June 2017
New world
Evolution of higher education landscape
► No enrollment quotas
► Temporary cap on student numbers
► Tuition fee increases linked to Teaching
► Unrestricted recruitment of highest Excellence Framework (TEF) results
performing (ABB+) students
► Liberalized competition (Higher Education
► £3k tuition fee Bill)
► Minimal competition from alternative ► Uncertain research funding post 2020
providers
► Home Office to implement immigration
► Growing international students caps on international students
New,
Ancient Old New
new
history world world
world
► Some caps on student numbers
► Cap on student numbers
under Student Number ► £6k–£9k tuition fee
Control (SNC) ► Limited competition, primarily
► ~£1k capped tuition fee concentrated in London
► No meaningful alterative ► Home Office implements policies
providers restricting international student
access
Parthenon-EY | Page 2New world
Challenges in the new world
► Depending on exit negotiations, EU students could be charged international fees
Brexit ► Horizon 2020 research grants will be guaranteed before leaving the EU; long term participation will hinge on
negotiations. Potential challenges over UK institutions leading research
► TEF is primarily used as a mechanism for the government to split universities between fee tiers
TEF ► Critics of TEF believe that scoring does not measure teaching quality but emergence of TEF can put some
Teaching/Cusp universities in a more favorable position regardless
Ongoing immigration ► Despite political and external pressure to relax regulations on international students, Prime Minister Theresa May will
likely continue with restrictive policies in an effort to control net migration. International students contribute to a large
restrictions proportion of university margin
New entrants ► Private providers are already entering the market and have taken significant share of London Teaching enrolments
and liberal ► Acquiring degree awarding powers has been made easier since reforms in the previous Coalition Government; further
competition TDAP liberalization has been outlined in the latest Bill
► Apprenticeship levy introduced targeting 3 million starts by the end of 2020. Total funding significantly increased
Apprenticeships (~£3B)
► Some universities have started to offer Degree Apprenticeships in response to this change
► There is an emergence of student population who are open to trying online degrees
Online ► Some universities are now offering delivery of postgraduate online courses
► Emergence of short courses as an entry route to the labor market
► 35% of the Public Sector including HE do not have a threat management program and 53% do not monitor employee
Cyber use of data as it leaves the network
security ► With the emergence of online methods of delivery, this may increase the network’s vulnerability to cyber breaches
Parthenon-EY | Page 3New world
Challenges by segment
Teaching universities
Broad-based research Teaching universities
international
► BBR are generally resilient due to ► Teaching universities are exposed ► Teaching universities (international)
global reputation and high domestic to increasing competition from face all of the same risks as TU
demand alternative post-secondary options
► Over-indexing on international
► Some research funding risk after students can be challenging in light
2020 of more restrictive student
immigration policies
► Concerns about staff access
Specialist teaching Specialist research Cusp universities
► Specialist teaching universities ► Specialist research universities are ► Cusp universities tend to struggle
have a relatively strong somewhat insulated due to subject- with coherent brand message
proposition given their niche focus matter focus given that they are both research
in particular sectors and vocationally focused
► Some research funding risk after
► However, high cost base per 2020
course has accelerated some
mergers in this segment
Parthenon-EY | Page 4New world
Research Excellence Framework (REF) and TEF impact on ranking
Mock benchmarked TEF ranking vs. REF ranking, by segment*
Mainly broad-
based research
Mainly Mainly
cusp cusp
Mainly
teaching
Note: *Specialist Teaching and Specialist Research universities not included due to lack of TEF data
Parthenon-EY | Page 5
Source: Times Higher Education, HESAOptions
► Transnational education (TNE)
► Digital offers
► Estate strategy
► Apprenticeships
► Mergers and joint ventures
Parthenon-EY | Page 6TNE
Increasing demand for higher quality education and rising participation rates in source
countries have accelerated TNE growth in recent years
International student enrolments, TNE vs. UK-based, Growth in TNE enrolments at UK HEIs,
2010–11 to 2014–15 2013–14 to 2014–15; HESA vs. HEGlobal*
Note: *HEGlobal data is gathered from a survey of UK TNE providers; responses account for 2/3 of TNE students; Oxford Brookes ACCA students are excluded
Parthenon-EY | Page 7
Source: HESA, British Council, HE GlobalTNE
There are several potential TNE models, demanding varying levels of involvement and
oversight
Validation Twinning programs External programs Overseas campus
Low involvement High involvement
Parthenon-EY | Page 8
Source: Parthenon-EY AnalysisDigital offers
As traditional HE moved online, massive open online courses (MOOCs) opened up
mimicking both the games market and “freemium” technology and B2C models
New business model
(ANY educator, location, 3
non-degree) Traditional MOOCs
Free online courses that typically
are not credit bearing
Futurelearn
5 Blended adapted model Coursera EdX
Predominantly offline short
courses aimed at mastering a
particular skill (typically for coding) 4 Adapted MOOCs
\ Series of bundled course
Dev boot camp General assembly offerings, that typically have a
FDM App academy paid for verified certificate
Coursera Udacity
100% face to face 100% online
1
Traditional higher education 2 Distance learning
Degrees and Certificates
Online post-secondary degrees
Open university
Many HEIs in the US and Australia
(e.g., HBX CORe)
Traditional business model
(professor, class, degree)
Parthenon-EY | Page 9Digital offers
Market is responding to demand as Liverpool-Laureate partnership became the first
successful collaboration in the UK, achieving reasonable scale
Laureate and Liverpool University Laureate has leveraged its success with
have had a longstanding partnership Liverpool University to partner with additional
which has grown in reach and scale institutions, such as Roehampton University
► Laureate is the exclusive education partner of ► In 2012, Laureate announced an exclusive
the University of Liverpool, delivering online partnership with Roehampton University
graduate and doctoral programs in more ► The University reports that more than 2,000
than 175 countries working professionals from 130 countries
are studying with Roehampton Online
Parthenon-EY | Page 10
Source: Company websites, HESAEstate strategy
Universities can redesign their estate. Although complex, this can reduce costs and
provide capital
De-branded case study
Retain house A Key movements
Location A 1 Relocation of campus from X road to house A
Year 1
Location D 2 Sale of house B
Learning Science
center center
3 Sale of house C Year 2
Location C
Tower complex
4 Relocation of campus from house D to
location A
Year 3
5 Disposal of house E and relocation to location
House C B
Location B
6 Relocation of campus from house A to Year 4
location A
House D
House A House F
House E
House B House G
xxx Building to remain
xxx Building to be disposed or vacated
Parthenon-EY | Page 11Apprenticeships
The Government introduced an Apprenticeship Levy to be paid by all employers with a
payroll bill exceeding £3m to meet its 3m apprenticeships target
UK apprenticeship starts, by age,
2010–11 to 2019–20F
H F
Parthenon-EY | Page 12
Source: SFAMergers and joint ventures
Universities have formed varying levels of partnerships to build operational and cost
efficiency
Global university
Full merger Joint venture Shared services network or
association
Hard Soft
Lower risk
Higher risk Low involvement
High involvement No integration
Holistic integration Emphasis
Emphasis on cost reduction on benefit sharing
Parthenon-EY | Page 13
Source: HEFCEMergers and joint ventures
Joint ventures are also formulated as a response to emerging competition
Global university
Full merger Joint venture Shared services network or
association
Hard Soft
The University The Open
Dyson KPMG
of Warwick University
► The course content was developed by ► Combines together KPMG’s workforce
WMG and Dyson engineers analysis and OU’s apprenticeships and
online learning programs
► Dyson will give students a job in the R&D
team and cover the tuition fees ► The partnership follows the Apprenticeship
Levy announcement and is aimed to help
organizations to deliver large-scale
apprenticeship training to employees
Parthenon-EY | Page 14
Source: Secondary researchDistinctiveness
Universities continue to search for a way to be distinctive. The rankings game is zero-
sum for the market and other distinctiveness metrics should be considered
Reputation and student decisions are more
University rankings nuanced and other methods of distinctiveness
may be attractive
► Senior management teams often have a focus on ► Traditionally lower-tier institutions have focused on
improving their ranking position in the key league employability metrics
tables (national/international)
► As the market evolves, other areas to be distinctive
► This is often true for universities seeking to break might include:
barriers such as top 50, top 100, etc.
► Work placement opportunities
► The nature of rankings mean they are zero-sum to
► Employer links
the overall sector
► Degree apprenticeships
► Subject specialisms
► Campus locations/global network
► “Add-on” services – careers advice, social
enterprise etc.
As universities consider their “size and shape” in the evolving market, they should continue to consider
a broader range of ways to highlight their distinctiveness to the market and employers
Parthenon-EY | Page 15
Source: Secondary researchWho leads this?
Finance Directors have traditionally led strategy in many HEIs. That may not work as
well in the future
Financial Directors have ► Revenue assumptions based on planned numbers
typically led planning ► Relatively low variability of revenue outcomes
processes ► Important focus on cost and operational investments
The new world has much ► Customer segmentation and propensity to buy
higher variability in inputs,
► Changes in format and mode (apprenticeships, online, employer-based)
deriving from market-based
variables ► New business and operational models
► Financial input and constraints/framework
Real strategic choices, ► Marketing input
requiring: ► Academic input
► HR input
In most HEIs, this requires an elevated level of strategic input from someone
whose principal skillset is commercial, not financial
Parthenon-EY | Page 16About Parthenon-EY
Parthenon joined Ernst & Young LLP on August 29, 2014. Parthenon-EY is a strategy Contact us
consultancy, committed to bringing unconventional yet pragmatic thinking together with our clients’
smarts to deliver actionable strategies for real impact in today’s complex business landscape. Innovation Matthew Robb
Managing Director
has become a necessary ingredient for sustained success. Critical to unlocking opportunities is
Parthenon-EY’s ideal balance of strengths – specialized experience with broad executional capabilities – mrobb@parthenon.ey.com
+44 (0) 207 201 0475
to help you optimize your portfolio of businesses, uncover industry insights to make investment decisions, +44 (0) 779 134 9 228
find effective paths for strategic growth opportunities and make acquisitions more rewarding. Our proven
methodologies along with a progressive spirit can deliver intelligent services for our clients, amplify the
impact of our strategies and make us the global advisor of choice for business leaders.
About Parthenon-EY’s Education practice
The Parthenon-EY Education practice of Ernst & Young LLP — the first of its kind across management
consulting firms — has an explicit mission and vision to be the leading strategy advisor to the global
education industry. To achieve this, we invest significantly in dedicated management and team resources
so that our global experience extends across public sector and nonprofit education providers,
foundations, for-profit companies and service providers, and investors. We have deep experience and a
track record of consistent success in working closely with universities, colleges, states, districts, and
leading educational reform and service organizations across the globe.
Follow us for regular updates
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Parthenon-EY | Page 17EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more of the member firms, of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. Parthenon-EY refers to the combined group of Ernst & Young LLP and other EY member firm professionals providing strategy services worldwide. Visit parthenon.ey.com for more information. © 2017 Ernst & Young LLP. All Rights Reserved. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com
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