Helping universities compete for the best young minds

University funding is complex. More often than not, universities face funding policies that reflect historical arrangements and national politics rather than forward-looking strategies and principles. According to the Grattan Institute¹, international students are now the biggest source of revenue for Australian universities. At the same time, however, funding from the Commonwealth Government – traditionally an important source for Australian institutions – is falling away, with industry body Universities Australia reporting a $2.1 billion reduction over the past 18 months, along with further cuts of $328 million to research. With current government funding for student places frozen at 2017 levels, it is estimated the real reduction will amount to a 5 per cent cut by 2020². Australia is not alone in this regard, with US Federal Budget proposals released earlier this year flagging funding cuts to the US Education Department by as much as 12 per cent next year³. Overall, it’s fair to say that government funding levels for higher education institutions in developed countries are unlikely to be on an upward trajectory anytime soon.

Ruthless competition
One of the upshots of this growing funding pressure is that competition for students – particularly for higher fee-paying overseas students – has become fierce. And it’s a compounding issue, with those universities that rank high on the global university league tables increasingly likely to attract more (and more talented) students in addition to retaining and attracting leading faculty members, in a virtuous cycle that only widens the gap between university ‘haves’ and ‘have nots’.

So how can universities move up the rankings? While there are myriad factors at play, one of the most important is research quality – not only because world-class research attracts larger numbers of international students, but because it attracts businesses willing to partner with universities to sponsor scholarships and commercialise research. This in turn means more money in the university’s coffers, catalysing the virtuous cycle of more research and better rankings. According to a recent study of international students⁴, the availability of scholarships was one of the most important factors in their selection decision, followed by the quality of teaching.

Core competencies
For the majority of institutions, this all creates a paradox: how to fund greater investment into research and teaching – in order to secure greater funding – without access to greater funding in the first place?

For many, a partial solution has been found in outsourcing those services and facilities viewed as ‘non-core’ – beginning with student accommodation and more recently extending to other services such as parking and transport.

But this creates its own problems, because – just to make things more complex – the quality of education is far from the only thing that students seek in an institution. Other aspects of university life – such as the quality of facilities and services, including campus accessibility – are also important differentiators, and become more so when the quality of education is assumed. While it makes sense for universities to funnel the bulk of their funds towards their core competencies, the danger is that in outsourcing non-core areas, such as infrastructure and facilities, they lose control over the way these aspects are managed and can no longer ensure sufficient investment in their operation and up-keep – in turn, putting off students who expect a certain standard.

Future-gazing challenges
To determine the optimal course of action, universities are required to consider not just their current requirements but also those of the future. For example, land-use planning is particularly critical for universities located in urban areas to ensure growth can be managed and not constrained over time. In such circumstances, the utilisation of scarce land for new parking facilities may not be the best purpose, which means the focus should be on optimising existing parking assets and leveraging technology where possible.

Whilst technology represents an opportunity – particularly in regard to some of the exciting trends in mobility – this often comes with a capital requirement. In addition, the pace of change can also serve as deterrent for decision-making given the risk of obsolescence.

These issues are undoubtedly complex for universities to manage – particularly for a ‘non-core’ service like parking – but doing nothing is not the answer, which provides the impetus to look at partnership options.

Own, outsource or sell
Of course, the concept of partnering through an outsourced arrangement and/or selling assets so as to focus on a core responsibility is hardly new – governments, corporates and healthcare providers have been doing this for years. But neither option comes without challenges.

If you choose to sell, you can only sell your assets once. And you necessarily lose control over how they are maintained, managed and operated.

Outsourcing agreements overcome the risk of loss of control, and can be very effective in controlling costs – but there are risks (even if only in perception) in terms of service delivery and quality. For example, the privatisation of public transport services in Australia has often been an emotive topic, with views expressed that private ownership of these public assets has resulted in higher costs and lower quality than if they were to remain in government hands. Such views are often revealed as misguided when performance metrics are assessed. Indeed, privatisation often results in an uplift in service standards given strict contractual obligations imposed on private operators. At the same time, the reality is that without support from the private sector in the form of capital, governments would struggle to fund upgrades and new assets. The same can be said for some universities.

The biggest problem with outsourcing university facilities (such as parking and transport infrastructure) is that traditional agreements tend not to incentivise a long-term view. A third party will focus on commercialising assets in the short term, but will have no real incentive to upgrade or modify assets significantly, if the benefits will not be felt during the period of the outsource agreement. This is further exacerbated by current procurement models which seemingly prioritise competition over the customisation and innovation potential which would be possible in a bilateral negotiation process (of course, ensuring appropriate value-for-money checks and balances are in place).

Long-term partnerships: outsourcing, but not as we know it
It makes sense that a truly long-term partnership tailored to the specific circumstances would provide protection on both sides – where universities would not lose ownership nor full control of their assets, but would be able to hand over the specialist maintenance, operations and potential for improvement and innovation in the way the assets are managed.

In this way, they can unlock capital which can be re-oriented to core educational objectives, and in many cases a long-term partner would be willing to invest a significant upfront rebate, or infusion of capital – as a sign of their long-term commitment – to put their money where their mouth is, so to speak.

From the partner’s perspective, commercialising the assets as they stand is the first and necessary part of the equation. But there is also a real incentive to look at innovative ways of developing infrastructure (in particular in terms of parking and transport) in line with global trends and the opportunities on offer from developments in technology, in order to make the long-term commitment pay off.

But what would this look like in reality?

Future-proofing facilities
Let’s take a look at transport – vital infrastructure for all universities – and the exciting trends in mobility. This is where the concept of Mobility-as-a-Service (MaaS) comes in. Put simply, mobility, as the name suggests, simply refers to moving people around, which in the context of a university means to and from campus as well as within campus itself. But mobility as a service represents a new way of thinking about transport; one that has the potential to be the most significant innovation in transport since the invention of the car. With MaaS, never again will you be late to class or an appointment due to difficulty in finding a parking spot.

MaaS aims to do for ‘moving around’ what Airbnb and Spotify have done for accommodation and music: turn it into a service, accessed and paid for on demand. Or, like Netflix, via subscription. Anyone with the app can enter a destination, select the preferred mode of getting there – or, in the case where no single mode covers the door-to-door journey, a combination of modes. And users can either pre-pay for the service as part of a monthly mobility subscription, or pay as they go using a payment account linked to the services.

It’s a model which has been in place for nearly three years in Helsinki, Finland – which has become a kind of MaaS global testing ground through the use of an app launched in 2016. The app, Whim, integrates every step in the transport process – from planning and ticketing and payment – into one platform. It offers four tiers of service – free, pay-as you-go, a monthly subscription (offering unlimited public transport and reduced rates for taxi and car shares), and an unlimited option, which adds unlimited taxis and car share access. It covers public transport, taxis, car rentals, car-share and bike-share modes.

The reason that Whim has worked well in Helsinki is that it is a small country, with well-functioning institutions and well-designed cities – and because the government has been supportive in encouraging private and public transport providers to work together.

This sounds pretty similar to plenty of universities, many of which are reminiscent of small, well-run cities.

The American experience – Northeastern University, Boston
With this in mind, a good case study of how long-term partnerships might work in future – and to help solve the funding paradox – is the recent 50-year partnership that QIC has negotiated on a bilateral basis with Northeastern University in Boston. It is the first such agreement entered into with a private university in the US, and provides for the management and operation of, and investment into, the campus-wide parking system, both as it exists now, but also with a vision for future MaaS transport potential.

Initially, the responsibility is quite straightforward: to manage the parking permit system, assist commuters, manage event parking and maintain parking facilities. The university also benefits from a substantial upfront capital commitment to support its education mission.

But the long-term nature of the partnership requires QIC to undertake major renovations to build the long-term value of the system, via technology-enabled MaaS features. There are a number of MaaS initiatives on the agenda, and all are focused on better meeting commuters’ travel needs through highly responsive systems that cater to the campus’ changing transportation needs.

At present, QIC is in the final stages of a transition period, after which we’ll assume responsibility for the parking system in its entirety and begin implanting major technological upgrades so that we can better integrate mobile technologies as we move forward. It will be a steep learning curve, but one which can be used to inform other universities’ decisions.

Moving to the future
We know that finding new ways of looking at old problems is a real imperative for universities, in a world where funding is under pressure and competition for students fierce. The ability to rank well on global league tables is key to success, but to do this requires significant investment in teaching and research. At the same time, campus life, the quality of facilities and the university experience all play into students’ ultimate decisions, so these ‘non-core’ areas cannot be neglected either.

We believe one potential solution, already underway in the US, is for universities to consider long-term partnerships with specialist infrastructure providers willing to invest in assets while building the long-term value of the system through innovation. Ultimately, it is likely to be these more forward-thinking universities – those that embrace innovative ways of focusing on core competencies while simultaneously leveraging those of others – that have the greatest chance of solving the funding conundrum.

Trent Carmichael is from global infrastructure specialist and investment manager QIC.

References:

1. Grattan Institute 2018: Mapping Australian higher education 2018.

2. Universities Australia 2019: Federal Budget commentary 2 April 2019.

3. The White House 2019: A Budget for a Better America FY2020.

4. Australian & NZ International Student Survey 2018. Australia and New Zealand: Harnessing Opportunities in Global Higher Education

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