This essay is authored by Darcy W.E. Allen, Chris Berg, Sinclair Davidson, Leon Gettler, Ethan Kane, Aaron M. Lane and Jason Potts. It was published originally on Substack
Part 1: Introduction
The COVID-19 pandemic threatens the global university sector like the internet threatened journalism two decades ago. Both faced shocks disrupting long established and highly successful business models that defined the industrial landscape of the twentieth century. The internet tore down some of the largest, most historic, and most high-profile media businesses in the world. The media business model changed forever. So too will the university sector. And many universities will not emerge from this disruption intact.
The pandemic won’t simply shrink the size of the university sector for a few years, before a rebound when borders open again. The effect is much more deep, dramatic and frightening than that. It requires a re-think of the fundamental business model of the university. The pandemic undermines the complex, hidden, and mostly obscure cross-subsidies that keep universities functioning. Universities are phenomenally complicated platform organisations. They are platforms because their primary role is to match different stakeholder groups together so that they can trade with each other. The university is a platform that matches teachers with students, researchers with industry, graduates with employers, donors with social ventures, and on and on and on.
Many businesses are platforms. Platforms typically use one side of the market to cross-subsidize the other—the goal being to bring as many people onto the platform as they can. Platforms have network effects: the more readers a newspaper has, the more attractive that newspaper is for advertisers. More advertising money supports more journalism, bringing in more readers.
But as the media sector learned, these relationships are vulnerable to disruption. That disruption can pull down an entire sector. Old media platforms fell apart, disrupted by platforms with vastly different business models. For universities, that once-in-a-century disruption has just happened.
This eight-part essay offers a guide to how universities can survive in a post-pandemic world.
Universities are better off than legacy media companies were in the 1990s and 2000s. Unlike the internet, the pandemic will go away, and the economy will recover. But the choices that have been made during the pandemic and its aftermath will not.
The deep shock of the pandemic presents both threats and opportunities for university decision makers. Now is the time for university strategies for a post-pandemic world. Your university depends on it. In this essay we will show how universities can adapt to come out of the next few years stronger—not just how to survive the pandemic but how to lead the sector afterwards. Decisions need to be made. We provide the theoretical foundations and the paths out.
The pandemic and its aftermath accelerate structural changes to the higher education sector that have been decades in the making. Virtually overnight, the demands of social distancing meant that lecturers, researchers, administrators, and management moved a millennia-old industry entirely online.
In many ways, the sector is lucky that the crisis occurred when it did. It is hard to imagine that fully online learning would have been as successful had the pandemic struck a decade earlier. The technologies—student management tools, video conferencing software, even consumer level headsets and webcams, combined with widespread high-speed internet connections—have only recently reached an adequate standard that can partially replicate the experience of in classroom lectures and seminars. A decade ago, facing the health crisis of 2020, many universities would have simply had to close.
But digital technologies are a two-edged sword. The pandemic occurred at a historical moment of rapid technological change, and in an environment where the economy-at-large has been forced into sudden coordinated adoption of new digital technologies. New technologies on the cusp of general use promise to completely transform the platform economy. Blockchain. Artificial intelligence. Machine learning. 5G. Internet of Things. All of these technologies are entering the economy simultaneously, and with them the ability to completely reshape not just what businesses do, but how businesses organise themselves.
This essay has a single core idea: universities are platforms and successful university strategy must be designed for managing economic platforms. Platforms are under a sustained and permanent transformation by new technologies. These technologies will reshape the organisation of higher education in fundamental ways—splitting the sector up, driving different universities together, and others further apart, in complex but predictable ways. Using our understanding of the economics of platforms and the future of digital technology, we can map out how to respond to these changes.
These claims were all true before the great global pandemic. In fact we started researching and writing this essay before all the lockdowns, social distancing policies and border closures ripped through higher education. But like in so many areas, the pandemic has accelerated existing trends. What might have been a strategic realignment for universities in the next decade is now needed within the next six months.
The sudden reduction in international students as a result of border closures has transformed university finances overnight, and with that transformation new ideas about how sustainable the sector is as a whole. In many countries, research is funded through the income from teaching international students. Researchers are cross-subsidised by international fees. But that mutually-beneficial cross-subsidy is in trouble—and with it many of the claims to prestige that have come as a result of converting international student fees into top-5 journal articles or well appointed laboratories.
Universities do not exist in a vacuum. The pandemic has changed the economy that universities support and which in turn supports the university. In a recent book we have outlined the scope and consequences of that disruption for the economy as a whole—the radical changes wrought by extraordinary policy measures, and the shape of the digital economy that is likely to emerge.1 The strategic choices about the future of the university sector are going to be made in a highly uncertain economic and policy environment. The foundations for the future of the university have to be built in the middle of an earthquake.
The organisation of the university sector is about to permanently change. Today universities are structured in a remarkably similar way. Most do a combination of research, teaching and industry engagement over a staggering range of disciplines. The dual pandemic-technology shock will splinter and diversify university business models. Some universities will build out large global digital networked platforms. Others will further specialise into particular fields of study, shedding and unbundling some of their offerings. A small subset of universities will remain small, exclusive and elite (but fewer than you think).
We don’t just want to point these models out to you. This isn’t just another essay describing how the university business model is set to change. We want to provide you both the theoretical tools to understand why universities look the peculiar way that they do, how they will change, and the steps to navigate this inevitable transition. We do so in eight parts.
- Part 1: You’re already here.
- Part 2: Three visions of a university
- Part 3: Universities are platforms
- Part 4: Technology and a global health pandemic
- Part 5: The university’s strategic assets
- Part 6: Three university types
- Part 7: Strategy for the great disruption
- Part 8: The use of technology in the university
Who are we?
First things first: we are not university administrators. And for the most part we have not been in the front lines of the COVID-19 digital adaptation at the university we work—RMIT University, in Melbourne, Australia. We are a group of economists (and one journalist, who has seen the shock of radical disruption first hand in his industry) who have been studying for decades how technologies evolve, are adopted, interact with regulation and public policy, how they restructure and reshape organisations.
We’ve researched and written extensively about how companies innovate and why, how platform technologies are changing the shape and nature of companies, how government policy and regulation constrains entrepreneurial decision-making and how entrepreneurs can adapt. Most recently we’ve all come together at the RMIT Blockchain Innovation Hub (the world’s first social science research centre on blockchain technology) where we’ve been fortunate to work with a wide variety of industries as they adapt to new digital platform technologies—and in some cases even build entirely new economic systems in software.
Universities are complicated organisms. And so it is useful at the outset to say what this essay is not.
This is not an essay about the romance of the sector. These well-trodden visions of “slow academia” or student voice and empowerment, or research excellence, are only possible in a world where universities and colleges are financially sustainable.2 We understand that universities are more than just profit maximising businesses. Few people have joined the sector solely with corporate interests in mind. None of our colleagues are indifferent as to whether they teach students or produce widgets. Indeed, many of our colleagues have eschewed the billable hours of private practice to work on the bigger problems facing society. Universities have social missions. A viable business model must come first.
It is not about what the sector should look like, or what it should do. Some of us have spent our entire careers in the university sector. Our goal is not to confuse what we would like the university to look like with a description of what a university actually is. Higher education providers have first and foremost an economic function. Only with an understanding of that function can strategy be developed. There are no complaints about the ‘neoliberal’ capture of higher education or the ‘corporatisation’ of the sector. If the path to sustainability for universities is to operate as the most myopic and unsentimental capitalist, then so be it. If on the other hand sustainability demands that a university restructures as a charity and puts its social mission first, that’s good too. This essay will help you navigate those choices.
This essay is not about the vociferous debates that have enveloped the sector in recent years. Universities are at the centre of numerous culture wars that fill the pages of our diminished newspapers and magazines. Safe spaces, academic freedom and free speech on campus, or allegations of political bias in faculty are only relevant to the extent that they are the result of complex bargaining between stakeholders on the university platform.
And finally, this essay is not about things that excite our faculty colleagues. Others can explore how the scholarly game is played, the structure of academic publishing and rewards, the role of casualisation and job security in higher education.3 Who, then is this essay for?
Who are you?
You run a university. Or you may want to run a university. Or you are responsible for making strategic recommendations to your president or vice chancellor about how to run a university. This hasn’t been written for faculty, administrative staff, or students. It is an essay for decision makers. The university as we have known it for the last 70 years or so—after the dawn of mass tertiary education—will look very different in the next decade. Your generation of university leaders will be asked to make much more sweeping changes to the shape of these historical institutions than your immediate predecessors.
You could also be a policymaker. One of your most important industrial sectors appears to be in a once-in-a-century crisis and you need to know what to do about it. The political debates offer little guidance about what to do. They point out problems rather than solutions. Whenever the sector is mentioned in the press it is typically about your government’s funding model, industrial relations problems (like strike action during a pay dispute) or culture war complaints about free speech on campus or faculty bias. But your private discussions with businesses have emphasised that your country actually needs skilled graduates to enter the workforce—and from where you stand, the collapsing university sector is more interested in getting bailouts through policy than reform.
The university we spell out here is not just a successful business. It is an investment opportunity. A historically unprecedented chance to reshape a sector is a chance to define and lead that sector. We hope there is another reader we hope this essay finds its way to: investors.
Mergers and acquisitions are on the horizon. Some institutions find themselves on the brink of failure while others see an opportunity to pivot and expand. A great economic crisis is an opening for entrepreneurs to restructure struggling and failing universities. In other contexts you might be harshly described as ‘corporate raiders’.
In some situations, the task will be to analyse which parts of a university need to be divested in order to realise the best possible value and put the university back on a sustainable footing. In other situations, the task will be to identify strategic acquisitions. In this way, we hope that this essay doesn’t just offer a way to survive the crisis facing the sector, but also a blueprint for what a successful higher education institution would look like.
If you are one of these readers—a decision maker, a policy maker or an investor—you will be understandably impatient for us to answer this question: What does a successful university of the twenty-first century look like?
Like all platform industries, the university is going to be irrevocably reshaped in coming years. Like all platform industries, that reshaping has been accelerated by the pandemic and the economic crisis which it sparked. In the next few years you will need to make an architectural decision. If your university is a platform—what kind of platform? How does it relate to and rely on the platforms of partners—and even competitors? What are the stakeholders on your platform—and how are they different to your current ones?
Three architectural choices
We see three architectural choices in front of the university, each with profound implications.
The Networked University. The newest and least intuitive architecture. This new species of university will dominate the university sector not through research or teaching, but by acting as an administrative backbone. Here the core value proposition (what we later call the Hart asset) is administrative infrastructure powered by platform technologies. Platform technologies allow universities to share administrative and organisational structures, driving efficiencies, better student experiences and tighter integration with global labor markets. You could be one of the few global networked universities that provide critical administrative services such as certification and identity, regulatory compliance, and quality assurance. Others will provide student services and experiences will be at the local level. You need to ask yourself: will you build the digital infrastructure to become a rare global networked university? Other universities will plug in, coordinate and compete on your global digital platform. Or will you join an infrastructure administered by others? This is a big decision.
The Elite University. A premium product at a premium price. The archetypal elite universities are the Ivy Leagues, Oxford and Cambridge. This architecture is familiar. They have a concentration of superstar professors with high public profiles that attract students. For some students, the mere fact that they have been accepted to an elite university is almost as good as graduating from it. For others, an elite university is as much a consumption good as it is an investment in human capital. The elite university is organised and branded very differently from its mass market competitors—the goal is to look distinct. Are you an elite university? Do others think that you are? You’re probably less elite than you think.
The Specialist University. You focus on one field and one field alone. You produce designers, engineers or business administrators. And you produce the best ones in the world. Your education offerings are deeply entwined into the industrial and regulatory frameworks of the industry you specialise in. Unlike the Elite University, it is a vocation-first institution, less worried about the student experience and more about being dominant in its field. You might join the network of a global university, but you won’t control it. Administration is a distraction. Of course, many specialist universities are buried within larger universities. It might be time to split off into smaller and even more niche organisational structures. You don’t need their administration anymore.
Many tough decisions lie before you. Go global, go elite, or go specialist? You can probably see yourself in all of these architectures. Many universities right now sit uncomfortably between these models—aspiring to both be elite and mass market at the same time, or harbouring one globally prominent specialist faculty among a dozen unremarkable others. This essay will take you through the process of identifying what we call your university’s ‘Hart asset’, named after the Nobel winning economist Oliver Hart. We’ll explain the technical rationale for this in Part 5, but for now, your Hart asset is the asset that you cannot trust anyone else to own. A Hart asset could be your industry and government relationships, or your prestige brand, or even seemingly mundane things like your certification or quality control processes.
But that comes later. First, we have to clear our head.
Part 2: Three visions of a university
To design university strategy, we first need to understand what a university is, or at least what people typically think a university is. This task is more difficult than you think. For some, universities are romantic places—they are for learning and for truth seeking. Others look at the university and see research machines—faculty make the chemicals and lasers that push industry forward. And of course, to many universities are education factories—they take young people and transform them into credentialled graduates, ready for the workforce. Let’s explore these competing visions.
The university is an ancient institution. It is older than the joint stock company or the Westphalian state, dating back to medieval Europe. And, as historian of education Walter Rüegg points out, the university is the only institution of that time and place that has survived largely in the form that it was established.4 We can see some parts of the modern university in its eleventh and twelfth century ancestors.
The earliest universities were structured as semi-autonomous, voluntary, and even exclusionary communities that brought groups of students together with groups of tutors for mutual gain.5 Many developed as extensions of monasteries or cathedral schools under the patronage of the church.6 Whether the university was governed by the faculty, or by the students—such as the University of Bologna, founded in 1088, which was brought together by a guild of students—the medieval university had a ‘federal’ character where multiple groups with distinct organisational structures and hierarchies come together to cooperate.7
No institution survives unchanged for a millennia. Through time the purpose of the university needed to be rethought, partly in response to innovation. Chad Wellmon argues that the disruption of the nineteenth century university was partly driven by technological change.8 The explosion of cheap printed books meant that old clerical and generalist education was looking obsolete. What was the point of the lecturer when so much knowledge was available through reading?
More practically, how would the modern university be organised, governed, and professionalised? In France, the university sector was structured around elite speciality schools—the grande ecoles. Teachers taught a rigid curriculum. Students were subject to strict discipline. For the post-revolution French state, the university was an extension of centralised industrial planning—providing the exact training that the nation needed.
Germany offered a more liberal vision—rather than centralised control, the state stepped back. While the professors were civil servants, they had a wide freedom to determine what they taught and how. The university kept multiple faculties within one institution while at the same time delivering to its students a scientific education in their chosen discipline rather than drilling them in vocational skills. It combined research and teaching under one roof, with the idea that the former influenced the latter.
With variations, it is the German model that has come to dominate the global university sector. It is from this German model that we get two starkly contrasting visions of the university in the twenty-first century: the romantic vision and the industrial vision.
The romantic vision
In the romantic vision, the university stands apart from the other institutions of society. Universities are separate spaces motivated by distinct humanistic values. While this romantic vision can be traced back before the nineteenth century disruptions described above, it was in the philosophical unification of research and teaching as a combined endeavour that the romantic vision flourished. The modern romantic vision adopts the idea of a separate, cloistered institution outside the realm of secular politics and commercial society. This vision recreates the medieval university and combines it with a particular idea about scientific and humanistic learning. The university “embodies an alternative set of values in [its] very rationale”, in the words of the University of Cambridges’ Stefani Collini.9 Leiden University’s Willem Otterspeer writes that:
a university is a form of social capital, one of Western society’s answers to the dilemma of collective action, an instrument for preserving and restoring equilibrium, and hence for fostering continuity … a university is a confidence-building mechanism that generates solutions to the serious problems facing society.10
The romantic vision sometimes takes a more distinctly conservative flavour. For the conservative romantics, the university is a place where outside passions are calmed. John Henry Newman, in his influential 1852 lectures (prior to his appointment as inaugural rector of the Catholic University of Ireland) published under the title The Idea of the University, argued that the true university:
aims at raising the intellectual tone of society, at cultivating the public mind, at purifying the national taste, at supplying true principles to popular enthusiasm and fixed aims to popular aspiration, at giving enlargement and sobriety to the ideas of the age, at facilitating the exercise of political power, and refining the intercourse of private life.11
Those outside passions were as much economic as popular or political. Writing in 1950, the philosopher Michael Oakeshott argued that a student should not leave a university with “a qualification for earning a living or a certificate to let them in on the exploitation of the world”.12 Rather, the student should have “learned something to help him lead a more significant life … [and] had the leisure to replace the clamorous and conflicting absolutes of adolescence with something less corruptible”.13
The modern culture wars critique of the university—that universities are hopelessly biased to the left and fail to teach the great ideas of civilisation—is also deeply infused by this romantic vision of the university. Allan Bloom subtitled his 1987 book The Closing of the American Mind, an extended critique of what he saw as the dominance of relativism in the academy, with the explanation: How Higher Education Has Failed Democracy and Impoverished the Souls of Today’s Students. For Bloom, the role of the ideal university is “to maintain the permanent questions front and center. This it does primarily by preserving—by keeping alive—the works of those who best addressed these questions”.14
In the romantic vision, academia as an ‘ivory tower’ is a feature, not a bug. It should be physically and mentally cut off from the more pragmatic concerns of the world. The demands of the market can only ever be an intrusion on the fundamental role of the university as a romantic institution. As Bloom writes, the university must be “must be contemptuous of public opinion because it has within it the source of autonomy—the quest for and even discovery of the truth according to nature”.15 There is little room here for the strategic interests of the university as a corporate organisation.16
The economic sustainability of the university is a regrettable necessity. Oakeshott, for instance, rejects much of the modern university’s way of thinking about itself: sceptical of mission statements, of skills-based education, of the bewildering array of alternative courses and micro-credentials. We can only guess what he would have thought of the twenty-first century university’s interests in research commercialisation and research funding on the basis of ‘national priorities’. The romantic vision sits uncomfortably with the enormous corporate enterprises that many universities are today.
The romantic vision is deeply infused into academic culture. Scholars and teachers craft their expectations around this romantic vision. It informs how they think about their employer-employee relationship. And it shapes the public debate about the social purpose and obligations of universities. But romantics can only come after the university functions as an economic entity first. Therefore while the romantic vision may be extremely appealing to faculty, it is useless for understanding the future of the university. And ironically, for all the claims about the importance of university autonomy and academic freedom, it provides the university with little strategic room to maneuver and be entrepreneurial. Rather, the romantic vision stacks the deck and demands that university administrators pursue almost nothing but unencumbered funds from the government. In an environment where governments are unlikely to provide such support, the romantic vision provides no guidance for the strategic choices of the modern university.
The industrial vision
The romantic vision of the university appeals to scholars and (some) students. But the romantic vision is feeble because it fails to appeal to those groups who fund universities: governments, students and industry. These stakeholders are more likely to view the university as having a distinct set of economic functions—universities take inputs and produce specific outputs. They produce and credential the productive employees of the future. They produce research that has direct social or industrial benefit. Universities, in this industrial vision, are credential and innovation factories.
The credential factory
In the industrial vision, students attend university to obtain a qualification. Universities endorse that students have met some standards. In some systems those standards are controlled by government regulators, while in others those standards are controlled by professional associations. Ultimately the qualification might give students entry to a particular profession, or at least set them on a path of more highly paid employment than they would otherwise be qualified for.
According to this vision, the university is like a factory. Students go in one side. They are processed over many years according to a standardised formula. Eventually graduates emerge with a certification that proves they have been processed. They then enter labour markets where employers use that certification to assess their employability. And this process seems to work: the evidence is quite clear that university graduates earn more over their lifetime than non-graduates.17 But why? What does certification symbolise? What is it that the factory produces that is valued by employers?
Most people—including those who study the education system—assume that getting a degree involves the transfer of specific skills that can be used in the labour force. The university factory inputs skills into students that transforms them into something desired by industry. Students learn how to design buildings or read balance sheets. Economists describe this as building human capital. But human capital is too simplistic an explanation for the role of the university as a credential factory.
How can we explain that in many degree programs universities don’t seem to be imparting to students skills that are directly valuable in employment? An alternative explanation for the value of education is the ‘signalling’ theory of education (see Box 1 below). All of those years students spend being processed might not impart skills, but act as a signal to employers that the students have been able to voluntarily commit to education over an extended period of time. It is hard for employers to identify which potential young employees have a good work ethic. The certification is a costly signal that hints at the future productivity of potential workers. University factories still produce certified graduates, but they’re not certifying what they say they’re certifying.
Of course these interpretations are not mutually exclusive. Most undergraduate and advanced degree programs impart both skills and non-skill based activity. But both see the university as a machine for graduate production, whether that production consists of learning skills or testing work ethics.
Two theories of why students do degrees
There are two ways to explain the economics of education: the human capital model; and the costly signalling model.
The human capital model
The economics of education begin with the work of the 1979 economics Nobel Prize winner Theodore Schultz and his work on the human capital model. He introduced the idea of human capital in his mid-century work on agricultural productivity. We can think of a farm as improving its productivity in two ways: invest in a new tractor, or invest in educating the children. Education could be a better capital investment to improve productivity because it enables more knowledge to enter the farm.
In the same way that you rationally assess any investment decision, human capital helps us think about education from the perspective of return on investment. Those investments have both private and public benefits. From this perspective universities produce human capital through investment, and governments ‘invest’ in university education because it is industrial infrastructure for economic growth.
The costly signalling model
Michael Spence, another economics Nobel winner, introduced us to the alternative costly signalling model.18 In his 1973 paper, Spence invited the following metaphor: there are two ways you can add value to a rough diamond: polish it, or grade it. Polishing adds value because it makes the rough diamond better, shinier and smoother. Rather than polishing the diamond—the analogue of the human capital model above, where educators add work to the student to make them better, shinier smoother—we could simply grade the diamond. Grading adds value to that rough diamond because it provides assurance about what it is—its clarity, colour, flaws, carats.
The graded diamond is the same diamond. But it is worth more because I know more about it. Students are like rough diamonds. They will certainly know themselves what qualities they have—how smart and hard working and conscientious they are—but can only capture that prospective value if they can reliably prove that to an employer. Universities, in this model, are like diamond graders, who closely observe, inspect and then certify an uncertain product. Universities add value by providing assurance about quality.
Why does ‘grading’ a student take four years? Because it must hurt. This was the genius of Spence’s model, which drew on an idea from evolutionary biology about honest signalling called ‘the handicap principle’. Anyone could say that they are smart and conscientious. But only someone who really was that smart and conscientious could afford to waste four years studying something really hard and utterly useless. Someone less smart or hard working could not afford to carry this easily observed ‘handicap’. (Handicap is from racing, as the extra weight added to a fast horse to make the field more competitively even.) Four years ensures that a degree is an honest signal of quality.
The human capital model feels right. It flatters prejudices of educators and scholars about the societal value of the work they do. The costly signalling model seems scandalous. It emphasises that the university’s main business is certification, and that adding human capital through teaching is just a means to that end. Years and billions are spent getting students to do pointless things at great expense to figure out whether they’re lying. And once we find out they’re not, we celebrate that with glorious pageantry. That sounds much less noble. It sounds faintly ridiculous.
Spence’s ‘costly signalling’ model of education is the foundation of Bryan Caplan’s 2018 book The Case Against Education. As a tenured economics professor at a top US university, Caplan puts the human capital and costly signaling model to the test.19 Caplan’s conclusion is pretty stark: the evidence, from a wide variety of sources and tests, overwhelmingly supports the … costly signaling model. The clue was in the subtitle of his book ‘Why the education system is a waste of time.’
But, whether by human capital building or costly signalling, the university factory isn’t solely focused on labour market outcomes and graduate earnings potential. While students may seek an education in their own self-interest, education has a positive externality that accrues to society as a whole. In the aggregate, a more highly educated population tends to be a richer population.20 University education is correlated with non-market benefits accruing to the individual student, such as better health, social tolerance and lower risk of imprisonment.21 Indeed, higher education can support other social goals as well. Education might create more informed voters, enhancing democratic decision-making. Educated university graduates might be more conscientious, leading to improved social and environmental outcomes. Education might also encourage the adoption and experimentation of new technologies and ideas, propelling innovation.22
The university is a machine that takes the raw material of students as inputs and produces educated and socially responsible individuals as outputs. Governments subsidise education to produce more of these socially desirable outputs.
Education as a credence good
One reason that the economics of education is interesting is because education is a peculiar type of good called a credence good. There are three ways we can categorise economic goods and services:
- Information goods: all the features of the good can be provided before consumption.
- Experience goods: some (perhaps all) of the features of the good can only be provided by consuming the good.
- Credence goods: all the features of the good cannot be known even after consumption of the good.
Why do these categories matter? We can turn an experience good into an information good through repeat purchases. For instance, you know what a glass of your favourite wine tastes like. It was an experience good the first time you tasted it, but over time it became an information good. But we cannot turn a credence good into either of the other two categories. Once a credence good always a credence good. And education is a credence good: you cannot know all of the features of education (including its quality) even after you have consumed it.
Let’s clear up some misconceptions. A credence good doesn’t imply no knowledge about the good. It is possible to advise a potential student what they will be doing at university. It is possible to tell them what courses or subjects they would undertake and the content of those courses or subjects. It is even possible to suggest that they will enjoy their time at university. In that sense being at university is an information good. That sort of information (classes, courses, subjects, assessment tasks, etc) relate to university processes and procedures. Universities are able to describe those things to all university stakeholders.
Universities supply education services. Students demand education services. But to become ‘educated’ is a joint production between the student and the university. Now the consequences of education being a credence good are problematic. What can a university claim about any given graduate? The uncomfortable answer is less than we would like and less than what we do. We can claim that graduate X was exposed to information Y and assessed in process Z. We cannot claim that any given graduate has knowledge or a particular skill due to our efforts. This is because we cannot exclude prior knowledge, innate ability, or self-study from any calculus of ability or performance.
Universities tend to select their cohort on proven past performance and then graduate them upon compliance with university processes and procedures. We assume and claim that value-add occurs while students are at university. Anecdotally we can point to the fact that a third year student is more knowledgeable than a first year student in general and on average. But a third year student may be older, wiser, and more knowledgeable of university processes and procedures than a first year student.
Another uncomfortable consequence of education being a credence good is that students and employers know this to be the case (even if they cannot articulate their understanding of education being a credence good). Students generally do not care if lectures are cancelled, or finish early, or if the lecturer is unable to cover the entire syllabus in term time. There are some exceptions to this but as a rule students are indifferent to these events. Students might complain that they had to ‘come in for nothing’ but even that is a complaint about their own opportunity cost of time and not a complaint about missed information or knowledge.
Nor do employers care about such things. Prospective employees may be asked which university they attended, which course or subjects they studied, and what grades they achieved. Employers do not generally ask to see course or subject guides, nor assessment tasks, nor individual pieces of assessment. University education is an initial screening mechanism to employment. It is not a key decision variable in offering employment.
The innovation factory
The modern university factory isn’t just in the credentials business—universities are industrial powerhouses of research. Research has both intrinsic value by deepening society’s knowledge about the world, and value as an input into economic and social innovation. Eric S. Lander of MIT and Harvard and Eric E. Schmidt of Google are explicit about this vision of research as industrial production:
For more than a half century, the United States has operated what might be called a “Miracle Machine.” Powered by federal investment in science and technology, the machine regularly churns out breathtaking advances.23
Research can be fundamental or practical. It runs the gamut between investigations with little clear practical applications—such as the study of pure mathematics—to research directly targeted at solving specific commercial problems. In some fields, such as engineering it is common for researchers to go on to build innovative companies with inventions they developed as part of academic research. Indeed, many universities have commercialisation teams that assist forming spin-out or start-up ventures.
Again, the industrial vision of the university as an innovation factory is not a cold one. The benefits of university research need not be just productivity and economic growth, but can be directed to tackle social problems. Since the mid-twentieth century research policy has been driven by a belief that fundamental research and socially-beneficial research would not be provided by the market, and that governments have to step in with research funding.24
The industrial vision gives us an uncomfortable relationship between teaching and research. To teach is to impart skills and a general body of current knowledge within a given field. It is not to romantically inculcate the moral mind. To research is to make discoveries at the frontier of science. Given research specialisations those advances are found in increasingly niche areas. Frontier research is not for the university’s students. Research is for the industry outside the walls of the university. Indeed, Michael Oakeshott made this point:
As teachers, they may be either better or worse than those elsewhere; but they are different because they are themselves learners engaged in learning something other than what they undertake to teach. They are not people with a set of conclusions, facts, truths, dogmas, etc., ready to impart or with a well-tried doctrine to hand out; nor are they people who make it their main business to be familiar with what may be called “the current state of knowledge” in their department of study; each is a person engaged in the activity of exploring a particular mode of thought in particular connections.25
It is unclear why in modern universities employees are both scholars producing research and teachers producing education. The skills for research and teaching seem vastly different. In a large factory we would expect these roles to be performed by different people. This seems like a rejection of the benefits of specialisation at the highest levels of intellectual life. And of course, for many faculty teaching is seen as secondary to research, despite the fact it is the main revenue source for the organisation. The primary qualification for a typical faculty is an advanced research degree, which requires the candidate to make a research contribution to frontier knowledge and contains little to no training for the teaching that will dominate their career if successful.
While the allocation of teaching and research roles might not align with the industrial vision, the presence of specialised non-academic management does. Michael Shattock, the former registrar of Warwick University, shows how university governance has moved from the traditional spaces of the faculty board and university senate into empowered ‘executive offices’—typically staffed by non-academic staff members.26 Corporate management is a specialised role. If the university produces graduates like a factory produces widgets, we would expect to see the university under the control of professional management. In the words of Glyn Davis, a former Vice-Chancellor of the University of Melbourne, the university now uses the “language of management” and deploys “administrative processes once the preserve of commerce”.27
Why do universities do research?
Universities do research because that’s what everyone—parents, students, politicians, donors, faculty, trustees—expects them to do. That’s why universities in general do research. Research sets a university apart from other colleges and institutes of post-secondary education. But why does your specific university do research? Research can be astronomically expensive. Of course some of this may be defrayed through government grants or private contracts, but that is generally only some of the cost.
Universities don’t do research for the general benefit to humanity and society. That’s just propaganda. They do research for reputation. A university’s reputation is tied to the scope and prestige of its research achievements. The reason is tight business logic: a university faces a quality uncertainty problem that it solves by doing a hard costly thing that only a quality institution could do, namely high quality research. As we saw in Box 1 above, universities are signalling.
- The research production function takes research inputs (machines, experiments, labour) and producers research outputs (papers, books, knowledge).
- Research outputs are translated into reputation (solving a quality uncertainty problem) through a system of journal gatekeepers and industry impact.
- Reputation is translated into market power (further research grants and industry funding, more and better students, attracting superstar faculty).
- Market power is competitively translated into university objectives that are allocated across stakeholders.
This four-stage mechanism converts research inputs into university benefits. Research inputs (academics) produce research outputs (publications) which produce reputation (seen by other academics, but also students, employers and benefactors). This reputation enables the university to exploit a competitive position because people see it as higher quality.
Research spending is a costly quality signal that a university will strategically choose to invest in, and competitively with respect to other universities, to maximize the benefits from a business model that is based around teaching. The fact that research also produces benefits to the economy and society is an unintended (but happy) consequence.
If the university is a factory producing credentials and socially valuable research, then it looks like a strikingly inefficient one. One of the most remarked-upon trends in the university is the growth of administration—that is, bureaucracy—in the last few decades. In the United Kingdom, administrative and professional staff now outnumber academic staff in the majority of universities, according to a 2015 analysis.28 In his book The Fall of Faculty, Benjamin Ginsberg argues that academic staff are being displaced by
armies of functionaries—the vice presidents, associate vice presidents, assistant vice presidents, provosts, associate provosts, vice provosts, assistant provosts, deans, deanlets, deanlings, each commanding staffers and assistants—who, more and more, direct the operations of every school.29
This view that there has been a huge jump in middle and senior management roles is widely held within the university sector (and particularly amongst academic staff). While in the next part we further consider the function of this administration, it is important to foreshadow here that the conventional view of shifts in administration may be misleading.
While academic staff have declined as a proportion of the total employment, in the United States the sharpest growth has been in non-managerial professional staff—that is, those who have operational and administrative roles, technical and paraprofessional roles, student-facing roles and sales and marketing roles. There has been growth in the administrative centre of the university—but it has not been only, or even solely, driven by the elaborately-titled, well-paid ‘Deputy Associate Pro-Vice Dean (Research) (Acting)’ type roles. We return to this in Part 3.
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The industrial vision and the romantic vision of the university aren’t necessarily mutually exclusive. But they exist in an uneasy truce. Neither can ever be fully realised.
The romantics see the industrialists as an uncomfortable intrusion. At its best, the romance exists in the calmer side areas of the factory—embodied in the students who want more than just a credential, but an induction into a community of learning, embodied in the research motivated by less by the prestigious publication or target, but by pure curiosity.
The industrialists see the romantic ideal of university life as an ideology only to sometimes pay lip service to. The romantic vision offers little guidance to administrators, appeals to only a small fraction of the student base, and is of no interest to national agencies that fund the university sector (whether through education subsidies or grants).
Donald Kennedy, in his book Academic Duty, makes clear the fundamental conflict between what the academic staff imagine the social function of the university to be, and how society at large views the university as an economic institution:
Whereas those within the system generally believe that their mission is to produce graduates who can think well and work effectively, and who are able to understand, analyze and reflect upon their culture and upon the natural world, much of the world outside sees higher education as a credentialing device: a way of estimating, for employment or other purposes, the comparative worth of individuals.30
As the sociologist Steve Fuller writes:
The fate of the university depends on what we make of its history up to this point. Two views are prominent nowadays, neither of which helps the case for promoting the institution in the 21st century. The first is that the university represents an impossible ideal that has never been realised, and indeed has been invoked to cover a multitude of sins, especially a velvet glove approach to the perpetuation of rule by elites. The second, perhaps more charitable view is that the university, unsurprisingly for an institution that has been around for 900 years, has become obsolete, such that today it tries to serve too many functions, each of which is better handled by a separate organisation.31
Here we have our dilemma. On the one hand, the university is accused from within of failing its social role. Universities fail to provide a separate domain of disinterested learning outside the market and outside politics. But on the other hand, the university is accused by society at large of diverting resources away from its core economic role. The university is expansive and bloated.
There is a good reason for this dilemma. Generations of university leaders, employees and observers have failed to understand the basic economics of higher education. But this is not their fault—until the twentieth century we did not have the theoretical tools available. But now, by using the insights from the economics of platforms—the economics that is used to understand technology-first businesses like credit card networks, social media, and gaming consoles—we can see not only why universities look as they do, but how they will look in the future.
The university as platform
The way that we think about universities needs a clean break. We must escape from our romantic and industrial visions. To do that we need new theory.
Choosing a theory that fits the complexity of universities is hard. We begin with a simple and intuitive insight: universities are organisations that match different groups to trade. They match students with teachers, researchers with industry, donors with socially valuable research, high schools with placements for their students, national governments with a skilled workforce and a national innovation system. We have a name for these modern matching services: ‘platforms’. Through the study of other platforms like ridesharing, shopping malls, newspapers and credit card networks, scholars have developed ‘platform economics’ to understand these new business models. In this essay we use platform economics to understand the modern university.
Platforms are often associated with technology companies, but they have existed ever since we began to trade. Every small town and every great city has had a central place where producers and consumers could meet and exchange. The great medieval trade fairs in Champagne were central places where merchants from across Europe could trade. These fairs had distinct business models: fees were charged in exchange for services like security and safety. These were the first platforms.
The newspaper industry is one of the most significant and consequential platform business models. They embody some typical platform business model dynamics.32 They are intermediaries that match readers with advertisers. Advertisers pay to show advertisements to a readership that is attracted to the platform for its journalism. That advertising revenue subsidises journalism activities. The more advertising revenue there is, the more journalism, which attracts more readers, in turn attracting more advertising revenue, and so forth.
Platforms as matchmakers are major parts of our modern economy. Credit card and payments platforms such as American Express, PayPal and Square match merchants, banks and consumers.33 Shopping malls match retail stores and consumers in a physical location.34 Operating systems like Microsoft Windows, Google’s Android, and Apple’s mobile iOS and macOS match application developers, manufacturers, and consumers. Video game platforms such as Nintendo’s Switch, the Sony PlayStation and Microsoft’s Xbox match developers with gamers. Event ticketing firms like Ticketmaster and StubHub match event venues with audiences.
Digital businesses have proven to be highly scalable matchmakers. They do this by leveraging key technologies of the digital economy: ubiquitous mobile internet access, stable digital identities which allow for reputation management, and large scale data analytics. These features make platforms the dominant business model of the digital economy. Drivers and passengers are matched by Uber and Lyft. Retailers and consumers are matched by platforms like Alibaba and Amazon Marketplace. Holidaymakers and renters are matched with home owners through Airbnb. Social media users and advertisers are matched by Twitter and TikTok. Recruiters and jobseekers are matched through LinkedIn. Audiences and copyright holders are matched by Netflix and Spotify. There are different cross-subsidies in each of these business models, supporting matches in different ways.
While platforms such as ridesharing might match two distinct sides, other platforms can include many more sides. An operating system, for instance, has at least three distinct sides. Users seek the most user friendly operating system with the most applications for their needs. Application developers want to work on a system that is developer-friendly and has the most users. Hardware builders (from the original equipment manufacturers to consumer level retailers selling pre-built systems) want to build for the operating system with the largest market. Operating system markets can get even more complex. With its Android operating system platform, Google operates in a four-sided market, matching a distinct advertiser side with its users, hardware, and software sides.35 The dynamics of platforms get complex quickly as more sides are added. Cross-subsidies need to be managed and pricing structures become opaque.
Multi-sided have distinct economic dynamics because they strongly benefit from network effects, tend to feature seemingly peculiar pricing strategies, and often appear to dominate their markets in a monopolistic way.
Each side of the market benefits from having more possible counterparties on the platform. Every additional user of the platform increases the value of the platform to other users. Existing users do not directly pay for the additional value they receive from each new user who joins the platform—but they receive that value nonetheless. Technically we can say that platforms tend to have increasing network externalities.
The existence of these increasing network externalities makes platform pricing strategy peculiar. In a factory market model, pricing is determined by an assessment of both production cost and how much consumers are willing to pay. Generally the goal is to maximise the difference between production cost and sales price (constrained of course by the competition of other factories who are trying to do the same thing). In a platform market model, access is priced differently because any charges for access to the platform have to be traded off against the possibility that those charges might reduce the number of users of the platform. If the access price is too high it will reduce the value and attractiveness of the platform to new users.
While it is users of the platform making trades, it is the platform itself that sets prices. Platforms make strategic decisions about pricing to boost network effects. The result is that platforms tend to charge different prices to different sides—one side of the market cross-subsidises another. In the traditional newspaper industry, for example, advertisers pay large sums where readers (who want content, but would rather avoid advertisements) pay small sums. Under the ‘free’ newspaper business model, the papers themselves were provided at zero-price to readers and distributed at train stations and other public spaces.
Matching is costly and requires work. If the sides of the market could find each other easily to trade then there is no need for a platform. Typical platform services include payments systems, identity services and reputation management. Someone has to pay for these services. As a whole these services need to be profitable or the platform will collapse. Decisions about where to charge fees, and which side of the market should bear the burden of the fees, is a core strategic decision for any platform business.
Platform pricing is further complicated by a ‘chicken-and-the-egg’ problem—why would you join a platform if there aren’t enough users on the platform already to trade with? Few people are keen to drive for a ride-sharing network with no riders, and few riders will bother registering on a platform with no drivers available. There is a clear need for bootstrapping to expand the size of the platform market. Attempts to solve this problem often involve a dynamic strategy: initially offer services at a discount—using early adopters as loss leaders—and apply fees later as the market matures. Eventually, the pricing strategy of platforms, and the multi-sided markets they support, need to be financially sustainable. The process to get there is fraught with danger.
Platforms don’t only compete on price or services. They also have to decide the rules for participation on the platform—that is, platforms provide governance. Who is allowed to join? What standards are participants expected to maintain? What sorts of market exchanges will the platform allow? For example, Uber requires drivers to pass a police background check, and removes drivers and riders from the platform if their reputation rating drops below an acceptable level. These standards are imposed to ensure the platform keeps up its own reputation for high-quality service. But if the strict rules for participation come at a cost of reducing the number of potential participants on the platform.
At least since Adam Smith, economic analysis has been typically focused on one particular market organisational structure in which goods are produced by producers and purchased by consumers. Smith had his pin factory, where producers optimised the production of pins, from which he explained the central ideas of the division of labor and specialisation. The supply and demand diagrams that are taught in introductory economics courses around the world show how the prices of goods and services are arrived at by the interaction between buyer’s willingness to pay a given price and seller’s willingness to produce a given quantity at that price.
But in the 1970s and 1980s the rise of a school of economic thought—transaction cost economics—made it clear that this simple blackboard model didn’t explain many of the most important features of the economy. The transaction cost economists pointed out that there were many more costs in the economy than just the cost of producing goods. It can be expensive to find goods (search costs), to come to agreement about a price (bargaining costs), to verify that those goods were of a certain quality (monitoring costs), or to ensure that agreements were fulfilled (trust and enforcement costs). These transaction costs act as frictions in mutually beneficial trade, preventing us from coordinating.
Seeing the world through the lens of transaction costs—and the various ways that we can mitigate them—helps us to explain the way that economies are structured. It gives us a way to think about why firms, markets, platforms and governments exist. Different transaction costs of searching, of bargaining, of preventing opportunistic behavior in a counterparty, shift how we might organise our economic activities.
This transaction cost economics understanding has been applied to understand the different structures of firms and markets:
- Economists like Ronald Coase (who won the economics Nobel prize for his work in 1991) and Oliver Williamson (who won his Nobel prize in 2009) looked inside the ‘black box’ of the corporation. They taught us why companies exist and why they might choose to merge with other companies.36
- For Armen Alchian and Harold Demsetz, for instance, the company form exists to monitor the production of goods (or services) that need to be produced by teams of people.37
- For Oliver Hart (whose ideas are at the foundation of what we call the Hart asset, see Chapter 5), the fact that business-to-business contracts cannot fully describe every possible contingency means that some production is better insourced than outsourced.
Then, in 2003, two French economists, Jean-Charles Rochet and Jean Tirole (the 2014 economics Nobel Laureate), published a groundbreaking paper after they observed that many firms don’t look like factories.38 They introduced us to multi-sided markets. Some firms don’t have clearly identifiable inputs and outputs—not all firms bought from primary producers and sold to customers. Rather, many firms look like they perform a matching function. The primary role of these firms seemed to be reducing the transaction costs of finding partners to make exchanges with. These platform business models support multi-sided markets, where two or more participants who want to make a trade use a ‘platform’ as a common meeting ground to do so.
In these tools of multi-sided markets—as well as the broader insights of transaction cost economics—that we find our new vision of universities. Our vision is neither romantic or industrial. Universities are not factories—universities are platforms. Universities don’t produce widgets—they perform a matching function. To understand how universities work, and how they will change in the future, we need to understand what the sides of the university platform are and how these matches and trades are managed. This is our task in the next chapter.
Part 3: Universities are platforms
Picture the dean (president, provost) as a seal with a giant ball labelled SPECIAL INTERESTS precariously balanced on their nose. — Henry Rosovsky (1990: 249)
Pointing out that universities are platforms seems straightforward enough. But universities aren’t simple platforms with one, two or even three sides. They don’t just match teachers with students for one-off lectures. Rather, universities facilitate trades between teachers, undergraduates, research students, researchers, industry, alumni and of course governments. Each of these groups benefit from the others joining and using the platform, but they all want different things at different times. The breadth of trades that university platforms support is remarkable—over the past century they have grown into some of the most complex platforms in the economy. And so we must dive deeper into the notion that universities are platforms with many sides. How many sides are there? What do they want to trade? How are they managed?
The growing university
University education has grown at an incredible speed. The twentieth century saw universities balloon by as much as a factor of 200.39 The percentage of the relevant age cohort attending university grew from less than one percent to over 20 percent worldwide. Today in G20 countries over 40 percent of the relevant age cohort attends university. Why have we seen this growth?
The global population boom (from two to six billion people) together with rising industrial prosperity meant that children of the growing middle classes demanded education. Universities obliged. They added more departments, particularly business schools. Harvard Business School, which pioneered the MBA, was only founded in 1908. All sorts of vocational training was swallowed into the remit of universities, especially after the 1960s. Teaching, nursing, social work, accounting and dentistry came to require university education. Waves of public sector reform meant many former Trade Colleges, Vocational Education Institutes, Arts Schools and Polytechnics were upgraded to university degree-granting status.
Governments became increasingly willing to fund university education to solve societal, economic and military problems.
Universities could ameliorate labour market disruption and demographic bulges. For the vast numbers of returning WWII veterans in the US, the ‘G.I. Bill’ created free university places.40 During the post-war boom, governments in many countries successfully campaigned to make higher education free. University fees were abolished in 1962 in Britain and in 1974 in Australia. Those fees did not return until almost the end of the century.41
Universities became a key part of a long run strategic national investment in ‘human capital’.42 They created smart and prosperous economies. Economists were making it clear to governments that while education had private benefits, there were also significant positive externalities or spillovers from education investments. Private markets would invest too little in higher education. And so governments were advised to step in and subsidize supply, pushing us towards the optimum societal amount of education.
Universities became a tool for industry policy and technological development (now known as innovation policy). They created innovative economies. Eisenhower’s famous parting shot about the military-industrial complex was actually originally titled the academic-military-industrial complex.43 The US’s chief scientist, the MIT engineering professor Vannevar Bush, argued for the strategic importance of large scale support of research universities to drive industrial technological development. Universities have been part of industry policy since the great Prussian political economist Friedrich List argued the strategic importance of Germany’s research universities in driving industrial catch-up with Great Britain in the late nineteenth century.44 These same arguments echoed through the national public funding of new and ambitious universities in the industrial rise of East Asia, and then China.
For these reasons and more, throughout the second half of the twentieth century, public funding of university growth was good retail politics. It worked for burgeoning middle class voters, who wanted better things for their children. It worked for national development, as large scale public investment in a key economic resource. It worked for business, subsidising and selecting skilled labour supply. It worked for industry, delivering early stage R&D. And it worked for society, as universities became increasing centres of cultural progressivism and youth political activism.
Before the twentieth century, universities were still platforms, but they had far fewer sides. Over time the various roles that universities played accumulated. Universities did not just grow. They were doing more things for more stakeholders, and this increasing stack of deals across the economy and society needed to be brokered. Universities didn’t just need to educate, they needed to innovate, research, provide job-ready graduates, create vibrant cultural spaces. Universities became a tangle of stakeholder complexity. And all of that complexity needed to be managed.
There is also a mistaken tendency to see university growth, particularly into more market-facing endeavours, as making universities seem more like big businesses, or ‘degree factories’. This is a beguiling metaphor. But it is wrong. A business, even a vastly complex industrial factory, has ultimately a relatively simple management imperative: make profit, according to accountants, and within the rules, according to law and regulators.
Politicians sometimes try to channel this market sophistication. For instance, in 2018, Australia’s then education minister Simon Birmingham urged universities to “place student outcomes at the forefront of their considerations to meet the needs of our economy, employers and ultimately boost the employment prospects of graduates”.45 Warming to his theme he reckoned that “By further incentivising performance in areas such as employer and student satisfaction, completion and retention we should see better outcomes for graduates and better value for taxpayers.” If it was only that simple.
From shareholders to stakeholders
It is a common trope of criticism to refer to the modern university as a ‘learning factory’. Behind this secular admonishment of industrial corporate pretensions is a romantic belief that the university needs to hold to its avowed charter to faithfully reproduce what Deidre McCloskey calls ‘the clerisy’ and minister to the souls of a priestly knowledge elite.46 The university must be untainted by industrial forms and corporate agenda. The problem with this demarcation of the sacred and the profane, and the allegation that the university has become heretical, is that education production is nothing like factory production.
The typical factory business model is based on assembly and production for profit. The job of the factory boss is to order people around and reallocate resources. Sometimes the boss might add or remove a product line, buy some new machines, or rebalance their workforce. Ultimately their job is to put into practice some strategic vision that accords with fiduciary duty to shareholders. And what shareholders tend to want is profit.
Universities don’t have shareholders, they have stakeholders—and those stakeholders each want different things. The job of a university boss is not to maximize shareholder value. Their job is to manage and coordinate stakeholders. That management involves creating patterns of side-payments that facilitates and grows the multi-sided market. The university boss doesn’t simply deploy resources to a set of objectives. They must continually negotiate complex and often opaque side deals between stakeholders. The job of the university boss is far closer to the dark political arts of negotiating with competing, and even warring, interest groups.
Universities are 15-sided markets
A university platform generates many benefits for many people. Teachers, students, alumni, government and industry make trades for education, research, graduates and more abstract outcomes like a growing economy or a vibrant community. Each of these stakeholder groups—sides—benefit from the others being there. To expand the size of the university platform, university presidents and leaders need an intimate understanding of these sides. Leaders need to know what those sides want, who they must trade with, and how they change over time. This knowledge is a big ask given that there are at least 15 different sides.
Students enter the university platform as unbadged and uneducated and leave with (some) extra human capital and a credential. They benefit by being matched with educated and knowledgeable faculty, and faculty benefit from access to top students. Students pay fees for access to the lectures and tutorials delivered by faculty. Universities often differentiate themselves on this basic student-faculty relationship. They wheel out superstar academics and notoriously rigorous styles of teaching to attract students to their platform.
These trades are not a find-your-own-adventure. There are strict rules, such as the sequences of how those trades must take place. Degrees are arranged into courses. Those courses have learning outcomes, prescribed learning materials, assessments and exams. The structure of these rules are often made closely with regulators. Finally, if all of those trades have taken place—and if the knowledge has been successfully transferred from the faculty to the students—then those students get their credential. It is the university platform that has facilitated this basic education trade. Those trades may have been prohibitively costly without university services: imagine the cost for a student to individually search, negotiate and enforce matches with each individual teacher.
But students don’t just want education—students want jobs. And so they use the university platform to match with industry, alumni and governments. Some students want access to private companies and government graduate jobs (reciprocally, industry wants access to those students too). Research students want jobs too, but those jobs come through connections to faculty and hiring committees. All of these student-industry trades are facilitated within the university through career advisors, graduate fairs, guest lectures, internship programs, ‘applied’ or ‘work integrated’ learning, and professional development.
The distribution of student fees gives clear insights into how some university cross-subsidies work. It is clear that what students pay does not directly transfer to the wages of the faculty that educate them or the industry and career advisors that get them jobs. For many domestic students this is because the underlying profitability of teaching different courses is obscured. High-margin education in the humanities cross-subsidies low-margin education in the hard sciences.
The typical foreign student (even out-of-state student) is charged higher fees than domestic students. Higher fees for the same product. Some of this discrepancy can be explained by government regulations, where governments often encourage domestic student places. What we do know is that foreign student fees cross-subsidise other activities on the university platform, particularly research. In turn, those research activities increase university rankings and reputation, attracting more highly mobile foreign students. Aside from cross-subsidizing research, foriegn students also impart other benefits onto the university platform, acting as a bridge into new pools of potential future students and international research income.
Research students (postgraduates) play many roles to many sides of the university platform. To receive research training, these students both pay and get paid. Graduate students require faculty time and resources to learn how to produce high-quality research and how to play the academic game. But they also add value to the platform. They can publish high quality research under the university brand, improving university rankings, drawing in more students, faculty and industry to increase the size of the platform.
Many others also benefit from the activities of graduate students. They are potential tutors or assistants to teaching or research faculty, contributing to the student-faculty trade described above. Governments value them as a key component of the future workforce and as a contributor to the national innovation system. And industry uses them for industry-relevant research outputs, often paying for scholarships and laboratories. So payments flow to and from them among different stakeholders on the platform, often leaving graduates with a zero-price education.
University faculty are often so dazed, confused and bitter about precisely what their job is because they service many sides of the university platform beyond what most people think they do: teaching. They must be both teachers and researchers. As teachers they must ultimately satisfy student demands for quality education. But they must also satisfy governments (skills needed in the future economy), parents (concerned with their children getting jobs) and industry (who demand specific skills). As researchers, faculty are concerned with their own career prospects because most of the promotional game of universities is based on publication. But their research also contributes to the reputation of the university (and its ability to prove that to government funding agencies, and pull in more students), to the needs of industry and society by advancing knowledge, to the prestige of donors and alumni, and—if the miracle does happen—then also to their own teaching.
To successfully navigate and succeed in the university platform, faculty need a suite of skills that map to many different sides. They must get high teaching scores (for students), win research grants and get quality publications (for reputation), impact policy (for governments), lure parents and donors, and impart useful skills (for industry). Of course none of these skills is taught in graduate training.
Industry plays dual roles in the university platform: employers and research customers. As employers industry are interested in the quality and type of university graduates. The university platform matches students to jobs and industry to candidates. Employers demand graduates with specific skill sets complementary to their business. And so industry designs course content and checks it aligns with their needs. They deliver guest lectures to students to tell them the skills that they need. They sponsor hackathons and student events to get preferential access to a competitive pool of talent. These activities are of course all wanted by students, parents, high schools and governments alike.
Industry aren’t just employers, they are research customers. They access the university platform for frontier research that makes their business more productive and competitive. Here they aren’t concerned about the skills of graduates—they want to direct research priorities. And so they fund contract research with leading faculty. They also want people to know they are research customers, and so they sponsor research centers and do signing ceremonies.
Professional associations also trade on the university platform. These bodies can be research customers, often seeking knowledge about the trajectory and future of their industry. They can be quasi-regulators, responsible for different forms of occupational licensing (e.g. accountants, architects, medical practitioners). That licensing can be directly linked to education content and the demands of the industry. Entangled with these roles are demands for executive education and professional development competencies and skills in the profession, often responding to changes in the industry or meeting professional development requirements.
Governments now use university platforms for a remarkable array of goals. Each department and level of government want vastly different things from the students, teachers, and researchers that they find on university platforms.
At the federal government level there is a deep desire for a productive economy. They want universities to produce a pool of productive innovative high-income tax paying graduates. Federal governments want the skills of graduates to match with employers and with the future direction of the economy. And so they tweak funding models and incentives to direct the paths that students take. They want to see evidence of research ‘impact’, ‘translation’ and ‘commercialisation’. And so they make government funding contingent on this evidence.
At the state and local level governments care about, and benefit from, vibrant multicultural university communities. They want students and faculty to invest in local housing and local businesses. State and local governments want effective connections between local schools and university placements. And so state and local governments help build university infrastructure and support necessary zoning changes.
The benefits of a large effective university platforms spillover into local businesses and suppliers. Students and staff use local restaurants and bars, attend the doctor and other professional services, and encourage construction investment. That’s while you’ll find local businesses creating special deals for students and staff, running trivia nights, and sponsoring university activities.
Another group who has a strong and irreversible stake in the prestige of the university platform are alumni. They matter because the value of their degree is tied to the quality of the current student cohort and the university’s research output. Alumni therefore want to ensure that future students are successful. Alumni don’t just take from the university platform, they also provide lasting industry links—they hire other alum. Alumni generate revenue by returning for further study, recommending the university to their children, or bringing in resources from their own companies or network. And of course many alumni become donors. They fund high quality socially valuable research projects, name chairs, and want to tap the networks and social circles of other donors.
Then there are the sides that closely influence and direct the ques to enter the university platform: high schools and parents. High schools and their career advisors want their students well placed and universities want the best students. High school-university partnerships shape student choices, creating institutional pathways. And these pathways connect high schools to the research prestige of the university and its alumni networks.
Many choices of prospective students about where to study are of course made by parents. Parents closely influence, and often directly fund, students. They are a key stakeholder in the key revenue source for the university. They escort their children to open day, counsel them on where and what they should study, and ultimately act as a bridge between high school and higher education. Given the stake in their children’s education, parents benefit from a legacy admissions process. Additionally, industry connections and the prestige and reputation effects that quality research brings.
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New technologies have expanded the scope and size of digital platforms across the economy. Universities must also be understood as part of this digital corporate set. Universities are ‘matchmakers’, which was the title of a 2016 book on the economics of platforms by economists David Evans (from the University of London) and Richard Schmalensee (from MIT).47 As they explain, these matchmakers operate under a completely different set of economic rules.
Traditional manufacturing businesses—factories—would buy raw materials, manufacture stuff and sell that stuff to customers. But being a multi-sided platform is different to being a factory. The raw material for a platform are the different groups of customers that they bring together, not anything they buy. Part of the stuff they sell to each group is access to members of other groups. All of them operate physical or virtual places where the different groups trade.
In the same way, university platforms match 15 different stakeholder sides to trade. Scholar-student. Researcher-government. Employer-student. Government-taxpayer. These patterns are even more complicated than they first seem. Take what for instance looks like a simple match: scholar-student. Undergraduates benefit from the presence of high quality graduate students, as they make fine tutors, as do research scholars, because they make fine assistants. But graduate students benefit from the presence of high quality undergraduates, because they create demand for their services, and from the presence of high quality research scholars, because they can be good supervisors.
Benefits go in all directions, so the question of who pays who is not at all obvious. Now multiply that out by all the other stakeholders who benefit from different parts of the university in different ways. Each one of them is using the university platform in exchange for their interests with many different bargaining points and price points. Hopefully the university becomes more valuable to each group as higher quality and more other groups are on the same platform. Good platforms will leverage these ‘indirect network effects’ because they give platforms a competitive advantage. But then we run into the ‘chicken and egg’ problem—who comes onto the platform first?
Bootstrapping and running any platform is hard, even with only two sides. Universities have 15 sides. Each of these deals needs to be brokered and negotiated. How do you manage a market? How do you manage a 15-sided market? From this perspective we can see why good university presidents are paid a six or seven figure salary. And it also begins to explain what looks like a ballooning university administration and bureaucracy.
In defense of administration: A platform perspective
Our platform model of a university means we must re-examine some basic questions of strategic management. What are the ‘core competencies’ of the university that create its ‘competitive advantage’? We have an uncomfortable answer: administration.
Let’s first look at the factory model. Say the main outputs of the university factory are teaching and research. The inputs into that process are teachers and researchers. These inputs are what is strategically valued by the university. It is the scholars that are important and must be guarded and nourished. University administration is there just to make sure the factory and the process runs smoothly.
Our platform model of a university offers a vastly different strategic perspective. The core competencies that give a university its competitive advantage—which is to say the valuable essential resources that need to be inside the university—can also be its administrative platform. The administrative platform is what manages its complex set of stakeholders and facilitates the functioning of the multi-sided market. In Part 5 below we’re going to give this concept a name—a ‘Hart asset’, named after Nobel Prize winning economist Oliver Hart—but for now let us unpack this problem somewhat.
Our argument makes an intriguing proposal: the most strategically valuable part of a modern university platform is its administrative capability and competencies. Not its front-line scholarly staff or academic workforce, but the administrative capability that facilitates the 15-sided market.
The administrative competencies of the university don’t fit well with the romantic and industrial visions of the university outlined earlier. Administration is always on the sideline. And so we don’t think about administrators very often. So, what exactly do we mean by this administrative infrastructure?
The organizational structure of a modern university is headed by a council or executive board and the university President or Vice-Chancellor. The board of trustees in effect represents the ‘owners’ of the university and the VC is the hired manager, or CEO. Apart from the fact that the board is a board of trustees not shareholders, at this point the university looks like any large public corporation.
Beneath the executive office are a suite of senior administrators, each of which has responsibility for a different function of the university. These will include administrative areas such as Enrollments, Finance, Teaching, Research, International, Commercialization and Ventures, Foundations and Alumni, Property and Services, Athletics, Diversity and Inclusion, Public Safety, Libraries, Community Engagement, Industry Engagement, Government Liaison. The list goes on. Each of these areas have an organizational hierarchy and budget. We will also find CTOs, CFOs, CIOs scattered throughout.
The university itself will be organized into scholarly territories called called Colleges or Schools. Each of them will report to the VC and a Provost. The administrative leaders of these entities are Deans or Heads. Nomenclatures proliferate. There are Vice-, Associate-, Deputies- and Assistant for all of these roles, and often several. All administrative staff have support staff. And that’s without even getting to the Professoriate and Fellows who do the teaching and research.
The depth and breadth of the administrative machine in the modern university is staggering. But why? A well-run factory will have lean administration. A well-run university will have enormous administrations.
The core business of a university is quantifying qualitative factors. It achieves this task through a process—a university is a flow. Universities first take in individual, idiosyncratic, opaque, unique, qualitatively distinct factors (i.e. student candidates, but also academic hires). Then it assesses refinement (teaching) with near continual monitoring and grading (assessment and exams). The process produces certification (credentials). If effective, that certification will be trusted and leveraged by external parties such as employers, family and government. The administrative process is how a university does this. The process creates value through disambiguation of uncertainty.
The administration also maintains the multi-stakeholder bargaining and contracting of a 15-sided market. A university is a nexus of contracts. Production is made with effective coordination and matching. A university is a distributed production process where value is created through quality trades: students with teachers, students with others students, researchers with colleagues, students with employers, scholars with granting agencies, and so on, through the many sided interactions we outlined above. An efficient and effective university is not the same as an efficient and productive factory from an administrative perspective. Its administration does the bargaining and deal-making and brokering or the trade-offs between the stakeholders. It balances different sides of the market to create the best possible environment for high quality, and therefore high value, interactions to take place.
Universities look like they have bloated bureaucratic structures. But that is a mistake that flows from the notion that universities are factories. An efficient university needs a sufficient administrative infrastructure to deal with the process and the nexus of contracts that constitute the university platform.
University administrations have expanded because universities have grown in scope and focus. Now of course universities are simply larger than they were two decades ago, and two decades ago they were larger than they were two decades before. But because universities are matchmakers they haven’t grown in a linear way. The number of possible trades and deals that need to be brokered make universities significantly more complex than they were decades ago. To be sure, there is waste in universities—we are not defending all administration. And of course universities have been recruiting new species of professional administrators and managers to ensure cost-effectiveness. But the size of the administration must always be understood in the context of the university as a platform—to deal with the process and the contracts of a multi-sided market.
Administrators and academics are like the ‘suits’ and ‘creatives’ in Hollywood. There is a lot of suspicion from academics about administrators and their vastly bloated bureaucracies. A new type of non-academic professional has emerged in the functional areas of finance, human resources and quality assurance. Grahame Lock, a philosopher at Oxford University, calls this ‘hyper-bureaucracy’.48 Many administrators have an increased focus on ‘transparency’ and ‘accountability’. From this perspective non-academic professionals (the ‘suits’), suck up too much of the academics (the ‘creatives’) time rather than provide support to do their best work.
University administration has grown and continues to grow because of the complexity of universities. The more units there are, the more relationships there will be. We see horizontal distribution of different special functions with different departments and centres, as well as many administrative units, vertical distribution with central administration, faculties, departments and sections within departments and geographic spread with different units in different places within a particular city. External expectations and demands, formalization of education, and the internationalisation of research. These all need to be administered.
But more administrators with more power are not evidence of some kind of bureaucratic capture. The diagnosis is not necessarily rent seeking by the administrator and executive class, seeking to sap resources away from academic life. That argument might well hold up in an industrial corporation, where the mechanism to deal with that is a board replacement of the CEO, or a hostile merger. But the argument we emphasise here—an argument made by Ethan Kane in his PhD work cited above—is that evidence of administrative growth may actually instead be a sign of university effectiveness and productivity.
As the cost of student degrees has continued to rise and as student debt amasses, many customers (students and their parents) and faculty (who fret about their teaching workloads, service requirements, research allowances and other perquisites) look at the growth of administrative operations and budget and just see what looks like makework and rent-seeking. But if when we misdiagnose the university as a credential or research factory we also misdiagnose the administrative apparatus. From one perspective, administrators are fat that needs to be trimmed. They take away from the efficiency of the factory. But from another, because many university administrators work in or adjacent to income generation functions, it is easy to account for these costs as being covered business expenses.
While the growth of university administration has been widely reported at least since the 1970s, our model of universities as platforms predicts and explains that growth.49 Unlike factories, the university is a complex contracting structure with many different interacting stakeholders that need to be administered. Now we must consider the university platform and its administrative assets in the trying times of technological shocks and a global pandemic.
Part 4: Technology and a global health pandemic
Understanding universities as platforms provides much more than an unpopular defence of administrators. Our theory has predictive and strategic power. We can use these theoretical tools to understand both why universities have evolved into the peculiar 15-sided markets that they are, and to navigate our way through a global health pandemic and a suite of frontier digital technologies. To develop university strategy, we must first understand these technological trajectories and how a virus accelerated them. That is the task of this part.
Universities are remarkably stable institutions. The vast buffeting and grinding forces of history that have shaped and carved modern societies, cultures, economies, cities and even landscapes over the past 800 years have barely touched universities. Walk into one of the lecture theatres or libraries at one of the top universities—say Sanders Theatre at Harvard University, where you might take the legendary CS50 (the course that launched Bill Gates and Mark Zuckerberg, among other tech visionaries)—and you’ll have to look closely just to figure out what century you’re in. Electric lighting is the main concession to industrial modernity, and Occupational Health and Safety signs near the exits are the give-away that you’re in the twenty-first century.
While universities are the origin of many of the foundational technologies of the industrial world, they are poor consumers of technology. The production technologies developed 23 centuries ago in some olive groves outside of Athens (the Lyceum), or in some fields on the outskirts of twelfth century Paris (University of Paris), or by the student’s guild in eleventh century Bologna (the Studium), are still more or less still in use today. Of course, universities embraced the printing press early on. And email was widely used by academics before almost anyone else. We move with the times. But compared to adoption of new technology by modern industry, universities are ‘late adopters’.
So, what could possibly shift a 2300 year old rock? Interestingly, a virus. And technology which has allowed it to navigate around the virus.
Digital technology and the future of universities
Universities have long had an uneasy relationship with digital technologies. To be sure, academics have developed many frontier technologies in their laboratories. But the university platform has been incredibly poor at utilising them.
Just as the printing press washed over the universities of the middle ages, the internet washes over our universities today. Computers and the internet have mainly been deployed in universities for simple tasks: to run messages between departments and deliver the same education goods to the same customers (but digitally).
Universities are poor adopters of the technologies they develop because there is an underlying assumption that the business model remains static. The general idea is that academics keep doing what they’ve been doing forever, but now the internal communications are digital. This digital delivery track is both complementary and substituting.
Our aim here is to provide some broad insights into the technological shock that universities face by observing five technology trends: the falling cost of communication, automation of operations, digital adoption resistance and Web3 as digital infrastructure. As we will see, these trends have accelerated with the COVID-19 pandemic. And understanding them gives us the vision of the university platform into the future.
The falling cost of communication
Many of the expected and realised benefits from deep adoption of digital technologies by universities and moving things online—whether as clickbaity ‘7 ways the internet will transform higher education!’ or as tricked-out $200,000 ‘Digital University Futures’ and EdTech strategy consultancy reports—really come down to just one thing: falling costs of communication.
Most academic production, whether teaching, research or engagement, is really just moving information around. Teachers use the university platform to jointly process and share information with students. Researchers must communicate with other scholars and the discipline to advance knowledge. And modern scholars are increasingly tasked with developing new communications channels to engage with industry and the public.
Investment in communication technologies lowers communication costs. Economics tells us that demand curves slope downwards, so when things cost less we consume more. So when the cost of doing all those different modes of communication falls, universities in effect become more productive.
Communications technologies are widely understood to usher in so-called distance learning. While universities have traditionally been highly urban, they have recently used communications technology to expand their footprint virtually across distances and jurisdictions, boosting their productivity and reach. The Open University has been a very successful pioneer in developing this capability and product. Communications technologies mean that the university can come to you, or you can come to the university, with open classrooms called Massive Open Online Courses (MOOCs) or other open educational resources.50
Improved communications technology also has a qualitative dimension. New digital communication channels enable greater bandwidth and processing. Phone calls go to multimedia calls and libraries move to digital collections, and then to networked access. Thes communications improve the potential quality of many trades on the university platform.
But the technology trends pushing at the university business model go much further than distance or online learning.
Automating university operations
Universities are automating their operations. They are utilising new technologies to partially and fully automate the administrative infrastructure that supports a well-functioning university platform operations.
Previously labour-intensive operations—campus security, teaching assistants, student inquiries—are being transformed through technologies such as the Internet of Things (IoT), Virtual Reality (VR) and Artificial Intelligence (AI). These transformations not only promise lower-cost operations through substitution away from high-cost labour, but also the introduction of new learning experiences and products.
The automation is deeper than you think. Smart classrooms and campuses integrate digital and physical spaces through IoT, wireless presentation technologies and access control. AI chatbots and conversational interfaces act as virtual teaching assistants. New augmented learning environments create AR/VR clinical practice simulation for medical procedures or human services or learning languages. Data analytics assist the tracking and monitoring of student progress, facilitating specialised and bespoke learning and identifying locations of intervention. New financial products enable securitization of investment in education.51 Blockchain and distributed ledgers track credentials, proof of work experience, and verify references. This granulated information can be combined with data analytics software to provide career advice and deeper information about student cross-life-cycle activity.
Of course not all aspects of the university will be automated. But these examples all represent a shift from manual university operations—performed by in-house staff or contractors—to digital alternatives.
Private technology partnerships
Universities have never had more technology partnerships. Private sector partnerships are enabled by digital technology adoption and bring new customers and expertise into the university platform.
Many technology partnerships are spin-out organizations from universities, such as EdX (out of MIT), Coursera (out of Stanford) and RMITOnline (out of RMIT University). A particularly interesting example is Swinburne Online, now Online Education Services, bought by Seek, and which is as much a platform and administrative service as a delivery model.
As universities develop digital capabilities in administration and delivery it becomes easier to integrate with other companies. Those companies may have specialist knowledge that can be offered as plug-in education offerings into a broader credentialled program. Specialist engineering modules, for instance, might be taught by an engineering firm into a dual business and engineering degree program.
Partnerships not only provide unique education experiences, but also lower the costs of having industry expertise in-house. In reverse order, large organizations might seek to outsource specialist and firm specific training and certification back to universities.
Partnerships shift the boundaries of the university platform—and the scope of trades that can happen on it—in new and interesting ways. But that shift doesn’t come without resistance. It shifts the existing patterns of trades and cross-subsidies described earlier.
A build-up of digital resistance
We have been how digital technology has the potential to lower costs, facilitate productivity, and grow markets for universities. While these are all welcome technological trends for the platform as a whole, existing stakeholders resist them.
Universities are notoriously bad at adopting new technology because many academic staff resist it. These same staff are for the most part smart and capable people who are perfectly comfortable living in a technologically saturated world. But they resist its implication for the university. They might be automated out of a job, or outsourced to a technology partner.
It’s not just the faculty who resist digital change. The entire university sector is incentivised to resist as regulatory protection and the brand value of university credentials in effect protects against breakaway first-to-digital models. Digital adoption in other industries—such as banking, music, publishing or news media—was driven by the competitive advantages of companies that could successfully adapt to a digital world, but it was also constrained by the need for industry wide coordination of standards.
Student surveys by and large report a disappointing experience with online delivery.52 The most obvious reason for this is that learning and teaching practices have hardly changed at all, and moving online means that a practice that is optimised for one environment almost by definition is going to be worse when forced into another. “Pockets of innovation are found in almost every institution” explains a recent report, “but few have fundamentally changed how they teach.”53
Web3 and digital infrastructure
The internet is not a single invention. It has had distinct phases, with different effects on the structure of our economy. For universities, Web1 and Web2 have largely driven the advances in communication efficiency and productivity gains, as well as the structural changes through learning technologies (the adaptation of information and communications technology to learning). We are slowly seeing Web2 filter through the university business model.
But Web3 is yet to hit. It is a raft of new technologies—including blockchain and smart contracts—for digital and distributed record-keeping and contracting. Web3 is distributed digital infrastructure for coordination and contracting on the internet.54 While Web2 is shifting the front-end of the university platform, Web3 will disrupt the very foundations of the centralised platform.
One vision of a Web3 university future is the blockchain university. Blockchain-based university credentials are now a relatively well-understood application where a distributed ledger provides a new infrastructure layer for the recording of credentials (e.g. marks, degrees). The trust in the credential is provided through a distributed ledger rather than by contacting the university platform directly.
The promise here is not just lower-costs of verification (not having to pay $50 for a new testamur), but also the sharing of credential information across organisational boundaries, including between different universities as students move platforms. This is a fundamental shift in the relation between students and the university platform. They can take control of their records, add credentials such as non-credit courses, internships and other experiences. The student may also provide assessments, endorsements and other validating materials.55 Blockchain technologies, as part of Web3, facilitate the trend towards decentralization of the university.56
Blockchains won’t just transform credentials and the student-teacher trade on the university platform. They also introduce new publishing models for research. They facilitate time stamped proof of priority linked to academic identity. Blockchains can track citations and use of research, including even possibility for trailing payments.57 A similar argument can also work on the production of educational materials (including notes, textbooks and the like).
The types of disruptions that Web3 technologies are bringing to creative industries, media and publishing will also wash through the education sector. These trends began in the decades before 2020. And then there was a global pandemic.
COVID-19 and a tech acceleration
In late 2019, a highly infectious novel coronavirus began spreading around the world. In May 2020, the World Health Organisation officially declared it a pandemic. In response to expert public health advice, governments around the world introduced policies including ‘social distancing’—the avoidance of social contact or physical proximity to others—to limit the spread of the virus. Some of the team on this essay wrote a book published in May 2020 that examined the economic policies required to steer the global economy out of the pandemic.58
Universities have been on the front line of the global COVID-19 response.59 They marshalled resources, people, materials and facilities to the immediate challenges of a global pandemic. They have searched for vaccines, designed and manufactured ventilators and responded to the mental health challenges of self-isolation. University research groups such as Johns Hopkins University’s Coronavirus Resource Centre and Imperial College’s infectious disease modelling unit analysed and shared data to inform policymakers and the public. The latter’s modelling triggered policy shifts on both sides of the Atlantic.
The research and models that universities develop in response to COVID-19 has a clear and demonstrable impact on the world. But we are concerned here with something else: what is the real and lasting effect of the COVID-19 pandemic on universities? Even the deep scars that will be carved into university budgets for decades to come—due to the disruption in particular of the foreign fee paying market on those markets heavily reliant on overseas income such as Australia, Canada, the US and the UK—will not be the main effect.
The most important long-run consequence of the COVID-19 pandemic is to accelerate rapid structural changes and the ‘creative destruction’ that was already taking place in the education sector. For three or so decades, universities have sought to make digital upgrades to their production technology. The digital trajectories we introduced above have been here for decades—but they just sped up in response to a virus. Their effect is not just to make universities slightly more digital with more distance-learning. There will be fundamental shifts in how the university platform operates (and, as we will see in coming parts, this will be different for each university).
Many of the fundamental barriers to digital adoption in universities were swept away. The deep resistance to digital technology adoption in universities was cast aside. Moving online wasn’t optional anymore, it was necessary. COVID-19 unleashed a wave of reluctant but ultimately successful adoption of methods and procedures for digital delivery.
Previously universities faced no real force of disruptive competition—unlike in say retailing or the media industries—where companies that refused to change could be outcompeted by those who adopted new technologies. Universities are well protected by governments and social and cultural expectations with respect to credentials and the way you get them, so change is hard. A virus shifted this dynamic, forcing rapid change.
COVID-19 forced a coordinated digital adoption. One of the deep problems in taking universities digital was that this couldn’t be a partial shift. When one part of a university went digital but other parts did not, then effectively nobody did. Despite its potential, digital online delivery of learning has been a profoundly inferior product.
Technological adoption had been developed and trialed over several decades but had never been fully scaled up. All at once, universities rapidly accelerated the adoption and scale of things they were doing at a smaller scale earlier. What was a secondary mode of delivery became the primary engine. In only a few months universities also experimented with new ways to teach, research and administer from home.
The organizational geography of universities has shifted. Universities are rapidly learning to function as more distributed organizational units. They may not need the vast campus-based teaching operations or administrative headquarters in anything like the scale they had before. However, like all large corporate forms, they need now to solve new management problems related to monitoring staff, building culture and communicating strategy and vision. The role of next generation digital platforms will be key to holding them together as functional organizations.
The immediate effect of the pandemic and responses by governments business and citizens was a rapid acceleration of digital technology adoption to facilitate working from home, and educating from home, shopping from home, getting health and social services delivered to home, and so on. All of this we could do in late 2019, but we didn’t. We had little reason to systematically adapt, and no coordinating mechanism to force us to do it at the same time.
So here we are now. A global health pandemic and, at last, coordinated digital technology adoption. The 2300 year old university rock has been destabilized.
Part 5: The university’s strategic assets
The parody account on Twitter “Associate Deans” tweeted:
Just to be clear: You can’t teach face-to-face because of health concerns. And you can’t (or won’t?) use the digital learning system to teach online. Your research isn’t that good and it isn’t funded. So remind me again, why are we paying you?60
This question would both stump and infuriate most faculty. Yet it is a good question. One of us (Davidson) retweeted, paraphrasing the Forrest Gump character: “… and just like that, Universities entered the 21st century.”
The university platform is under unprecedented stress from technological acceleration and a global pandemic. Decisions need to be made. Should you shrink or expand? Do you really need that department, or that Acting Deputy Associate Dean (Research)? Can you sell off or outsource some teaching? Maybe now is the time to make those risky investments you’ve been discussing for years, or sell a campus.
What you do depends on what type of university you are. While we get to the three types of universities in the next part (spoiler: elite, specialist and platform), to understand that we need to broach a critical question: what is the true strategic asset of your university?
You probably think you know your strategic assets. Your answer is probably too complicated, tied up in the muddiness of a 15-sided market. Your strategic assets are probably not what you think (and there are probably fewer of them than you think). One thing is for sure, they are definitely not what the tenured faculty think. Whatever you do, don’t ask the faculty.
In this part we introduce you to a new and indispensable concept: ‘Hart Assets’. Your Hart Assets are the key assets that you should never sell. You cannot trust other people with your Hart Assets. You must identify them and protect them at all costs. And so we begin by taking you through a quick seminar on modern microeconomics of incentive design and contracting in a complex firm. We’ll take questions at the end.
Incentives and opportunism inside universities
Adam Smith—the founder of modern economics—had a very poor impression of the quality of teaching at Oxford University. Smith had been a student at Balliol College and wrote, “In the university of Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching”.61 Smith had a theory to explain why teaching at English universities was poor, while Scottish universities enjoyed better quality teaching. As he put it, English professors had no incentive to teach well because they derived no income from their students per se. They were paid irrespective of their classroom performance.
Good teaching is unobservable. There is a monitoring problem and a metering problem. Observing the inputs into teaching is easy: Does a professor attend classes for a given number of hours per week? Does a professor have appropriate slides? Does a professor provide feedback on assignments in a timely manner? Observing the outputs of teaching is hard. Whether or not a student has actually learned anything of value in a class—beyond passing an examination of some sort—is unknown. Perhaps it can never be known. Of course, student satisfaction is regularly measured, but positive evaluations do not necessarily correlate with learning outcomes.62
University graduates are often able to retell horror stories of old Professor Jones (names have been changed to protect the guilty) who had never updated their notes or slides since they had been a student, never changed their clothes, was obnoxious or downright disdainful towards their students, but was nevertheless an excellent researcher and so was left alone by the university authorities.
These horror stories are fortunately becoming rarer over time (nowadays, Professor Jones would never see the inside of a classroom, if for no other reason than management would not allow such a drag on the student evaluation scores).
But we need to understand why these bad employee behaviours—shirking, laziness, lack of monitoring—are much more pervasive in the academic world than the business world. Sure, they exist in business. But we all know it’s worse in academia. There are two main reasons for this. First, universities do not have an explicit profit motive. And second, the business world deploys explicit mechanisms to suppress this sort of behaviour.
To suppress some of these behaviors we need to ask some odd questions. Thankfully economists have worked on these questions for over half a century. And they’ve introduced a range of concepts that are central to identifying your strategic assets: transaction costs, opportunism and asset specificity.
Why firms exist
Ronald Coase (1910–2013) was an English economist who won the economics Nobel in 1991 for asking an apparently silly question very early in his career: if markets are so good at allocating resources, why do firms exist?63 This question always strikes hard-headed practical people as being entirely self-indulgent. To many it is obvious why firms exist.
Coase’s question was subtle but made a deep contribution to how economists think about the world. A lot of economic activity takes place within firms and by firms, Yet in the 1930s economists had not incorporated firms into their thinking. There was some idea of what firms did in an accounting and legal sense, but economists had no idea what it was that firms did in an economic sense.
To explain why firms exist, Coase argued that using markets incurred costs. When you transact with others you need to know who you can transact with, at what prices, what goods and services are available for sale, how to secure the transaction, and so on. It is costly to use markets. Today these are known as “transaction costs”.
Coase argued that firms existed because they could economise on those transaction costs. Some costs of using the market were suppressed within the firm. And so we had a new understanding of why some economic activity occurs in markets and some economic activity is arranged in firms.
Coase’s insight has given rise to a massive academic literature and has been highly influential (he is recognised as being the founder of New Institutional Economics or Transaction Cost Economics).64 Yet by 1972 Coase was still suggesting that his paper was more cited than read. A nice problem to have (better than read and not cited, or neither read or cited). The problem was that Coase had identified that costs affect how we organize our economic activity, but he had not operationalised those costs. That task fell to Oliver Williamson.
Oliver Williamson (1932–2020) was an American economist who won the economics Nobel (with Elinor Ostrom) in 2009. Building on Coases’ insight about why firms exist, Williamson examined the ‘make of buy’ decision: should a firm produce goods in-house or buy those goods on the market?
The assumptions of standard mainstream economic analysis were unsuited to answering this question, and so Williamson deviated by introducing bounded rationality and opportunism.65 Bounded rationality is the recognition that there are limits to human cognition. The computational power of our brains are limited. We are often unable to articulate the precise nature of the transaction we are contemplating. Opportunism is “self-seeking with guile”. In standard economic theory people do not lie, steal or cheat. Reality is much different. Williamson suggests people engage in “the incomplete or distorted disclosure of information, especially to calculated efforts to mislead, distort, disguise, obfuscate, or otherwise confuse”.
As someone in the education sector, opportunism should come as no surprise to you. Students cheat on term papers. Faculty publish in predatory journals or fake research results. Parents may bribe university officials to enrol their students. The number of scandals involving universities seems to be increasing over time. And we all know the faculty who haven’t researched in a decade despite the fact you pay them for it.
Added to opportunism and bounded rationality, Williamson introduced the notion of asset specificity. It is here that his work overlaps with that of another economics laureate Oliver Hart. The London-born Oliver Hart won the Nobel in 2016 and is now at Harvard University.
Asset specificity is the notion that capital is not homogeneous. Once again, for many real-world practical people this is obvious. Many people would be familiar with the notion that a particular machine or process is vital for the production of a particular output but has no other useful purpose. Williamson set out the implications of the existence of such assets for the ‘make or buy decision’, while Hart explains who should own those assets.
The heterogeneity of assets ultimately drives the ‘make or buy decision’. Asset specificity means that the firm should make the goods, while homogeneity means that the firm should buy whatever it needs on the market. That is, specialised inputs or specialised equipment indicate a make decision (not a buy decision). From this perspective, the firm is a “nexus of contracts”. Some contracts are short-term contracts (or market transactions) while others are long-term contracts—what Williamson calls governance relationships.
But long-term contracts are difficult to manage and police. Think of tenure in the university environment. An academic is given life-time employment with little ability to control their future behaviour. It is here that what Williamson calls ‘maladaptation costs’ become important. The notion of ‘maladaptation’ was developed by the Japanese economist Masahiko Aoki.66 He suggested that the ‘optimal’ contract that people wanted to enter into deviated over time due to changing circumstances. This deviation imposes costs on at least one of the contracting parties. If both parties were adversely affected they would agree to renegotiate. But if only one party were adversely affected the other party could refuse. This gives rise to what economists call the ‘hold-up problem’.
It is because of hold-up that Oliver Hart argues there is more to a firm than contracting—there must be ownership over assets. Hart provides the following example in his Nobel Prize lecture:
Consider a power plant that locates next to a coal mine with the purpose of burning coal to make electricity. One way to regulate the transaction is for the power plant to sign an arms-length long-term contract with the coal mine. Such a contract would specify the quantity, quality, and price of coal for many years to come. But any such contract will be incomplete. Events will occur that the parties could not foresee when they started out.
For example, suppose that the power plant needs the coal to be pure but that it is hard to specify in advance what purity means, given that there are many potential impurities. Imagine that ten years into the relationship, ash content is the relevant impurity and that high-ash-content coal is more expensive for the power plant to burn than low-ash-content coal but cheaper for the coal mine to produce. Given that the contract is incomplete, the coal mine may be within its rights under the contract to supply high-ash-content coal. The power plant and coal mine can, of course, renegotiate the contract. However, the coal mine is in a strong bargaining position. It can demand a high price for switching to low-ash-content coal. The reason is that the power plant does not have a good alternative: it may be very expensive for the power plant to transport coal from a different coal mine given that it is located next to this one.67
This is an easy problem to understand. Hart’s solution to the hold-up problem is ownership; the power plant buys the coal mine. In the example, the power plant’s business model is to burn coal, to generate, and then sell, electricity. In order to do so, it must own the coal mine. In principle, it should also own the generators.
Finding your university’s ‘Hart Assets’
While Hart does not perform this particular exercise, three of us have previously argued that it is possible to flip the analysis: what asset(s) does a firm need to own in order to develop a profitable business model?68 That asset is the firm’s ‘Hart Asset’. A Hart Asset is the asset that the firm cannot trust someone else to own. It is important to recognise that ownership of the Hart asset per se is not the business model. The Hart Asset will be a specific asset (asset specificity in Williamson’s terminology) to the firm but it may not necessarily be the highest earning asset in the firm or be at the point of sale in the business model.
You must own your Hart Asset. No one else can be trusted with it. And so you must identify it and never let it go. Your university probably holds millions or billions of dollars worth of assets in its portfolio: property, buildings, sporting facilities, libraries, equipment, some intellectual property, financial assets, accumulated goodwill (i.e. reputation) and other intangible assets.
Which one is it? Unfortunately we cannot identify it for you (that’s your job, using your deep institutional knowledge). What we can do is set out some broad parameters to help you find it. Many universities will misdiagnose their Hart Asset. They will probably mistakenly ask their faculty to identify it. So let’s begin with what is not a Hart Asset to the university: individual faculty members.
Universities do not own their faculty, or their faculty’s intellectual output. Many universities claim to own the intellectual capital of their employees. Although it may be shocking to many faculty to realise they are employees, that is what they are (albeit with some unusual characteristics).
Although faculty are employees, in practice this is not correct. Imagine a brilliant lawyer, genius, top-of-her-field, with a long client list bringing in millions of revenue, and who is knocking on the door of the top-tier firm’s partnership. Imagine that she suddenly resigns from her current employer and signs on to a competing firm. What would happen? Her current employer would place her on ‘gardening leave’ for the period of her notice period—perhaps lasting a number of months—where she would be effectively barred from working. Her open files would all be assigned to other lawyers in the firm and she would be legally prohibited from approaching her former clients to encourage them to move firms with her.
Now imagine the same person, but as a brilliant professor of law and economics, with a stream of ground breaking publications, millions in research funding, dozens of PhD students, and is touted as a potential Nobel prize winner. Imagine now that she resigns from her current employer and moves to a competitor university (not that universities view other universities as competitors, of course). What would happen? Well, something very different. She would simply update her forthcoming papers with her new affiliation, move offices, take her funding and many of her PhD students too, and simply carry on her work under a new letterhead (or perhaps, email address). The kudos of being her employer would seamlessly transfer from one employer to the other as she transferred all her human and intellectual capital to her new employer.
To reiterate, neither the faculty nor their intellectual capital are Hart Assets to the university.
If we think of faculty within the make or buy framework, faculty are ‘bought’, they are not made. If a university wishes to have an academic with particular skills they do not begin training up an undergraduate. Rather universities go to the (labour) market to acquire (employ) such an academic. To be sure, universities train academics. But many universities are reluctant to employ their own graduates. And in many circles, the practice of employing too many of your own graduates is viewed as being disreputable.
The implication of this is that universities are not subject to the ‘hold-up problem’ that Hart describes when employing faculty. This insight will come as an unwelcome surprise to many faculty (and your authors may no longer be welcome in the staff room for making this point). But it turns out that academics and faculty are not the most important asset a university has, despite university Presidents and Vice-Chancellors often claiming “our staff are our most valuable asset”.
Returning to our initial list of possible assets included “property, buildings, sporting facilities, libraries”. These are not Hart Assets either. Whether it is a particle accelerator or a football stadium, despite being very specific and specialised, the university will not need to own these assets. These assets can be governed through contractual arrangements. Instead, the physical aspects of the university that we can touch and see is the infrastructure that delivers the intangible assets that universities actually provide.
Hart Assets are intangible assets
In our list of assets that we said universities own, we were a bit vague in listing “other intangible assets” without being specific. What are those intangible assets? Clearly reputation is an intangible asset. But reputation isn’t the only intangible asset that universities own.
Jonathan Haskel and Stian Westlake provide four characteristics of intangible assets:
- Intangible assets represent a sunk cost;
- Intangible assets generate spillovers;
- Intangible assets are more likely to be scaleable; and
- Intangible assets have synergies with other assets.69
The University of Maryland emeritus professor of economics Charles Hulten has argued that intangible assets, “typically involve the development of specific products or processes, or are investments in organizational capabilities, creating or strengthening product platforms that position a firm to compete in certain markets”.70
Universities are repositories of massive amounts of intangible capital. Two examples provide an illustration. First, recall our earlier argument that university education is a credence good (see Part 2). What can a university say about a graduate? Graduate X was exposed to information Y, and assessed in process Z. How was graduate X originally selected? How were they exposed to information Y? What information is Y? What were the assessment processes Z? How was progress recorded?
All these questions suggest that there is some process in place that underpins what universities do, how they do it, and why they do it. What universities do is they match students, faculty, and facilities in a process that results (hopefully, and more often than not) in graduates that can claim to have mastered a particular body of knowledge and they communicate that information to the world in a credible way.
Second, every week of term, every one of the many thousands of students on every university campus is matched with a classroom and a teacher for lectures, tutorials, and laboratory classes. Thousands of students are selected, as are the teachers—who can only be in one place at a time. Nobody in the selection process is obviously a fool and the facilities are, more or less, fit for purpose. But this is a non-trivial task.
No university ever advertises how good their back-room operations are, or how comprehensive their policies and procedures are, yet for all universities this is a Hart Asset. This is the most important thing the university does. It is a logistics task done by the back room operation. For all universities, the administration is the most valuable Hart Asset.
Every university must have a Hart Asset—an intangible asset that the university cannot trust another entity to own. That is not to say that all Hart Assets are equally valuable. Some Hart Assets are more valuable than others and not all universities will have the same asset being their Hart Asset (or, at least, not their most valuable Hart Asset). Further, some Hart Assets are scaleable. Others are not. What your Hart Asset(s) are determines what type of university you are (and what choices you should make in that direction).
In the next part we explore more deeply three different university types. But here’s a teaser. Harvard University has two Hart Assets: policies and procedures that are, no doubt, excellent; and a reputation as being one of the best universities in the world. For Harvard it’s reputation is its most valuable Hart asset because Harvard is an elite and exclusive school. Scaling its reputation might not even be possible. Harvard epitomises elite universities.
Now consider the University of the Arts London. While Harvard provides elite education across multiple areas and disciplines this university is small and highly specialised in the performing arts, art, design, and fashion. Their Hart Asset is their reputation in those narrowly defined areas. These are the specialist universities.
Then you have those universities that have their policies and procedures that can be scaled up. Their Hart Assets are their back office operations, their administration. Those universities can massively expand their operations. These are the platform universities.
Part 6: Three university types
There are three possible futures for your university based on its Hart Asset. We outline these three university types in this part, but here’s a preview.
If your Hart Asset is your brand and reputation, you’re probably an elite institution. Or you’re pretending to be elite. You probably talk a lot about small exclusive clubs, endowments, legacy and prominent alumni. If your Hart Asset is a focused expertise in researching and teaching a specific area, you’re a specialised institution. Or at least that’s what you hope. You’re the world’s best in an applied domain such as engineering or a natural ecosystem. And if you don’t fall into these two categories, your Hart Asset is your administration. You have advanced and scaled administrative operators across multiple campuses. Your future is a networked university. If your administration is poor, panic. If your administration is world-leading, and you play your strategic cards right (together with the technologies we discussed in Part 4), you’re about to get much much bigger.
A new era for the university
From the early days in the 11th century to the 19th century, universities were of a particular type. They were centres of learning that matched students with scholars. They were romantic and monastic.
In the 19th century we saw the development of the industrial model in Germany and the United States. When it turned out that the frontiers of knowledge was the main driver of economic growth and development, this model spread throughout the world.
In the 20th century universities industrialised. They became massive. But they each became massive the same way. Some did it better, but each university grew to do everything. John Quiggin, an Australian economist, once said ‘There are not good universities and bad universities, there are just old universities and young universities’.71 He’s not wrong (although that aphorism doesn’t always carry over to the schools and colleges within universities, which can be both good and bad).
We have entered a new era for universities because there are a new set of evolutionary forces. We identified these in Part 4: the COVID-19 pandemic sharply disrupted the revenue model of the industrial university, accelerating technological trajectories from automation to the coordinated adoption of digital infrastructure. But what will these forces create? Are we really entering a new era?
Our prediction is that this era will be dominated by three university types. We could call these three viable ecological niches, three avenues of speciation, three dominant designs or three archetypes. But as someone who owns and runs a big steaming-and-clanking industrial era university you don’t care about what we call them. All you need to know is that you have three strategic options before you.
Unfortunately your options are constrained by your Hart Asset. You can’t just become whatever type of university you wish. You must choose a university type that aligns with your Hart Asset. We repeat: identifying your Hart Asset is critical.
Correctly identifying your Hart Asset means that you can see the type of university you have and the strategic directions that are open to you. You can move into the new era. Misidentifying your Hart Asset will set a hopeless course. You will misunderstand the type of university you have and your strategic assets won’t provide any advantage to you.
Not even trying to identify your Hart Asset is irresponsible ignorance. You are ignoring the new era. You’ll survive for a little bit. All failed business models do. You will continue as an industrial enterprise, doing a little bit of everything, dealing with your 15 sides. But the end is near: you will be outcompeted on each margin. Now of course you might be a small regional campus, with tight political connections, and see very little possibility that technological adoption is a distant concern. Perhaps then you might survive. But you’d better be cut off from the world: make sure no technology is entering your region and that no students are leaving. Ultimately, you will fade into insignificance as these new species evolve around you.
In the next decade universities around the world will speciate into three viable forms. Those that don’t adapt to one of these forms will be broken apart and absorbed by those that do. The next decade will be the most disruptive that the global university sector has experienced in 900 years.
The Elite University
In the US legal drama Suits the New York law firm Pearson Harman only employs Harvard Law School graduates. This unconventional hiring approach provides the firm with many benefits. It has a clear understanding of the knowledge base of its associates and their work ethic. Employees are held to a known standard and employees are a relatively known quantity.
Into this world comes Mike Ross, who is not only not a Harvard graduate, but a law school dropout. Nonetheless, he is so brilliant that he earns a living by sitting the law entrance examination on behalf of prospective lawyers. Ross is a professional contract cheat (a form of cheating that has come to plague the university system in the digital environment). Ross, and his principal Harvey Specter, have to conceal the fact that he is not a Harvard graduate—despite him being a brilliant lawyer. This makes for entertaining television and the exaggeration of the real-world situation is only slight. Many “Big Law” firms rarely venture beyond top law schools when hiring new associates.
This brings us to our first university type in the new era: the Elite University. There will always be a demand for elite institutions to provide an elite education. Sometimes this education will be to children of the elite. But elite graduates are and will always be carefully selected, curated, and moulded into a very specific graduate. The Elite University provides not just a given body of knowledge (a body that may be indistinguishable from that of a self-educated contract-cheat dropout), but also intangible attributes. Graduates are accustomed to an educational and cultural milieu that others see as valuable.
If you have to ask whether you are elite, then you are not. Intuitively we all know who the elite are, but people like to rank them anyway. Both the QS World University rankings and The Times Higher Education World University Rankings provide a similar list for the very best universities in the world.72 While individual university rankings may move around from year to year, overall the rankings are remarkably stable.73 In 2020 eight of the top ten universities were identical across the two lists.74 The four universities that did not overlap the two lists are all in the top 20 in both lists.75
What is it that makes these Elite Universities elite? They have strikingly similar characteristics. While this may simply represent an English language bias, they are all located either in the United Kingdom or the United States. Elite Universities also tend to be small. Oxford and Harvard each have just over 20,000 students. And they tend to be old. Imperial College London being the only elite university established in the 20th century. Oxford is the oldest university in the English speaking world, having been established in 1096. Harvard is the oldest university in the US, established in 1636 by the Great and General Court of the Massachusetts Bay colony. The US universities in that elite group are private universities with large endowments.
Of course there is much more to being elite than just being old and small. The University of Glasgow was established in 1451 and has just over 25,000 students. Adam Smith, the father of economics, taught there for a period of time. While it is an excellent university, it does not have the elite status of, say, an Oxford or a Harvard.
This raises an interesting question: how does one become an Elite University? This is a similar question to: how does one become a noble (i.e. some form of royalty)? Eliteness can be earned through good deeds or it can be inherited. It tends to be inherited (a true snob would argue that nobleity can only be inherited—that was certainly the view of the characters in the Suits program). Importantly, it can’t be bought. As an Elite University your reputation, brand and legacy cannot be bought and it cannot be subcontracted in.
The Elite University will survive at both the global and the regional level. The Harvards and the Oxfords are easy to understand. But many small liberal arts colleges will also survive. These institutions, like Harvard, are not just providing an academic education, they operate to provide other valuable skills and signals to potential employers or life partners or even rich parents. At a national level, institutions such as the Australian National University or the University of Melbourne, the University of Tokyo or the National University of Singapore, may survive as elite institutions. Or they may not.
Elite Universities are like exclusive brands. They are old, small universities with very strong brand recognition. They also tend to have deep pockets or large endowments. And it’s very hard to become one quickly.
The Specialist University
In the 2015 movie San Andreas the west coast of the US is threatened by earthquakes. Lawrence Heyes (played by Paul Giamatti) is a professor at the California Institute of Technology (Caltech) who has discovered that even larger earthquakes are imminent. When asked if he has access to equipment that could warn the general population, he answers “This is Caltech”. Of course one of the world’s leading Specialist Universities has a particular piece of equipment.
Specialist Universities specialise. They offer courses and pursue frontier research in a much narrower field of expertise than universities. Their focus is much more specific than the typical university that dabbles in anything from the humanities to mathematics. The Hart Asset for the Specialist University is this research and teaching specialisation.
The difference between an Elite University and a Specialist University is blurry. Caltech looks both elite and specialist. They manage NASA’s legendary Jet Propulsion Lab, for instance. Caltech is best understood as a Specialist University because of its specialisation in engineering. By contrast, MIT, one of Caltech’s bitter rivals, is an Elite University. MIT is not just strong in engineering and science. It also has a world-leading architecture school, the famous MIT Media Lab, and a top MBA program at The Sloan School of Management. Because MIT could conceivably be (at least) three specialist universities it is merely an Elite University.
While many Specialist Universities have elite characteristics, they need not have them. Our own employer, RMIT University, is ranked highly for Architecture and for Blockchain. Yet we make no claim to being an Elite University. Are the many small liberal arts colleges in the US Elite Universities or Specialist Universities? Because Specialist Universities must operate on the frontiers of applied knowledge, many small elite liberal arts type institutions that don’t focus on engineering and the sciences are best understood as Elite.
One key difference with Elite Universities is that Specialist Universities also do not need to be old. You could become a Specialist University. Some existing Specialist Universities will choose to remain as stand-alone specialised universities. New specialised universities will also be created in various ways. They might emerge as spin-offs from existing universities and through mergers between specialised units of existing universities and existing specialised universities.
A Specialist University must, above all else, be specialised. It has to provide an elite level education and research output in a small range of disciples. It must have a concentration of elite-level faculty and facilities to match. It has deep connections to their relevant industry and is on the frontiers of applied knowledge. The Specialised University is mostly judged on performance and impact on the world.
The Networked University
It’s likely that you didn’t identify as Elite or Specialist. You might feel elite on some margins and specialist on others, but you don’t think that your Hart Asset is either your brand reputation or your deep applied expertise. How do you survive in this new era? Is it time to pack up the campus? No, but expect a lot of consolidation and expansion over the next decade. Many research groups and centres will be subsumed into specialist and elite institutions over time. Others will try and buy your specialist departments. What you need to become is a Networked University.
The Networked University will consist of digital networks that connect and serve multiple buildings and campuses around the world. This is something new and unfamiliar. This will be the least familiar university type in the new era. This type is enabled (and pushed) by the technological trends in Part 4. Attempts have been made to create such institutions in the past. Early prototypes of the Networked University exist (our own employer for example). But they have never really scaled to world-domination. Think of the largest university network you know. Now think much much bigger.
To understand the Networked University we must imagine a university as a supply chain. Supply chains clearly demonstrate the fundamental “make or buy” decision we introduced earlier. Firms manufacture some components of their product themselves, buy in others, subcontract some assembly, and so on. The most effective organisation of a supply chain changes over time due to shocks and technological change.
Today most universities are not supply chains. All activity takes place more or less at a central location (campus) with most, if not all, inputs owned by the university—except the faculty who are employees (whether permanent or adjunct). Few aspects are subcontracted out except the student cafeteria, cleaning services and gardening. Over time we have seen supply chains become longer, more complex and more globalised.
How do universities, like supply chains, go global? There are two ways to think about how to go global: bring the world to you, or go out to the world. The former is interesting but obvious. You can become global by attracting students from all around the world. Your reputation draws students to you. Over the past 30 years or so international student markets have grown phenomenally. Australia’s third largest pre-pandemic export was education. But of course this approach is limited by physical and other cost constraints. As we write this, bringing students to you is essentially prohibited.
The second way a university can go global is by going to students all around the world. This is where things get interesting. Some world-famous American universities, for example, teach their MBA programs in Sydney. This involves flying their world-famous professors to teach subjects in intensive mode. Similarly Australian universities offer many of their degree programs into Asia. This usually involves having a local partner (not a local university) that recruits students and acquires venues and so on. Some Australian universities have experimented with having offshore campuses. Monash for example had a campus in South Africa for many years, while RMIT University (our employer) has two campuses in Vietnam.
No university today is truly global. Partly this is because managing this second global university model is difficult and expensive. Questions are raised about the compatibility of standards across the campuses. Are the students at the “subsidiary” campus really getting the same experience? These concerns are valid because those institutions that can credibly address those concerns are more likely to survive than those that do not: Monash South Africa was eventually abandoned; RMIT Vietnam appears to be thriving.
Think about the University of California. It has ten campuses. Some of those campuses are highly ranked universities in their own right Berkeley, for example, was ranked equal 13th in the world by The Times World University Rankings in 2020.76 A different campus of the same university was ranked between 351-400 in the same year. To be fair, the Merced campus was only established in 2005.
The University of California is not really networked in the manner we are imagining. It can be thought of as being a federation of universities—it shares a board of regents (what we would call a university council) but it does not share management practices, and each has its own reputation and brand. In essence those campuses do not have the same Hart Asset or leverage off the same Hart Asset.
Universities have not been able to expand their operations at the scale of other multinational corporations such as car manufacturers. Toyota, for instance, delivers its product to the market via a supply chain, and has full control over the supply chain. The supply chain may exist in many markets, across many different countries, and service paying customers around the world. Some vehicles may be custom produced for specific markets (in the US people drive on the right-hand side of the road, in Australia people drive on the left-hand side). Universities have never done this. And up until 2020 that global scale didn’t really matter. Until 2020 we lived in an ever increasingly globalised world where travel and international mobility was both taken for granted and became ever more affordable.
Universities can no longer be global by having students come to them. To justify a massive organisational change we need to see changes in both the demand and supply side of the market. The demand for a good quality education has not changed. But the costs of delivery of that education have changed. It is now prohibitively expensive, if not impossible, for students to attend university classes (especially if they are foreigners). This change leaves an open question of whether future consumers will want to be packed into large lecture theatres or write exams in large examination rooms. Social distancing etiquette following the pandemic might prohibit such activities. At the same time the cost of replicating classroom experiences has fallen.
Universities have both seen massive technological changes over the past millennium and have remained remarkably stable. Despite the advent of the printing press, recording technology, video technology, the internet, and MOOCS, the fact is that the basic model of educating students in 2020 is similar to 1020. Students attend lectures and tutorials. Lectures tend to occur in large classes where the lecturer usually presents material for an hour or two (with limited student imput or interaction). Tutorials tend to reinforce previously-delivered lecture material in a smaller class setting but with an emphasis on application and interactive discussion. The online classroom draws off this traditional model, with students will listen to pre-recorded lectures before attending a webinar tutorial.
Despite students (or indeed anyone) being able to buy a textbook and read it (or watch a series of Youtube clips), universities have been able to survive and even thrive in the face of extremely low-cost alternative competition. That’s because most universities do not sell access to secret knowledge. Universities are remarkably open institutions. They often give away their knowledge at close to zero cost. A student studying first year economics at an Elite University and another student at a third-rate college may use the same textbook, have similar powerpoint slides and tutorial exercises, and complete much the same assessment tasks.
The vast majority of universities (not the small number of Elite or Specialist models we described above) are providing matching and credentialing services. That is their Hart Asset. Their Hart Asset is not reputation or prestige or specialisation. The Hart Asset of many universities, and indeed the Networked University of the future, is the administrative platform that facilitates a complex multi-sided market.
Some universities have excellent matching and credentialing services. They are large, with processes and procedures that coordinate a 15-sided market at scale. Of course you could never admit this. At Open Day you do not tell parents how excellent your bureaucracy is. You will tell them about your other features such as research active faculty and industry links (both not at the level of their Elite and Specialist competitors). These are of course just marketing tactics that allow operation as a credible university (while leveraging off your Hart Asset).
Soon everything will be much more out in the open. It will have to be. The digital trajectories will bring into clear view the global Networked University, with its world-class administrative matching infrastructure. Some universities will scale like never before.
Just three types?
Basically yes. Everything else is just a variation of these archetypes. Mixed strategies will be outcompeted by pure strategies, unless there are significant barriers and stickiness or other forces. So what might those barriers be? Why might our three university theory be wrong, or take longer than we think?
People are sticky. The Elite and Specialist Universities both presume a relatively high willingness for students to go to where the university is. The growth of the university sector through the 20th century widely accommodated the industrial model. If you don’t want to move in order to go to university, perhaps because you have work or family in your town or city, that creates demand for the large, full-service local university. But the alternative model is that the university comes to you, which is what the Networked University is designed to do.
Universities are protected and funded by the government. This presents another barrier to the evolution of the industrial model. Governments have many reasons to value a large, full service, good-quality, physically imposing university. These reasons may be a mix of local politics and industrial planning. But on several important margins, this suggests adaptation toward the Specialist University model, which is compatible with the economic and regional planning agenda.
Resistance is futile but predictable. This barrier comes from within, from resistance from one or several of the 15 sides. Perhaps academics resist this change.77 Perhaps parents or local businesses do? Perhaps undergraduate students do? But these can each be picked off at some margin, such as by rewarding specialists or lowering prices. Could they form a blocking coalition? Could mass protests stop this (remember universities pioneered protesting)? Perhaps, but the global nature of this shift makes that unsustainable.
And of course our three types model is overly simplistic. The university sector is messy and complicated. And it’s become more complicated over time with the Cambrian explosion of variety in organizational and business forms in higher education. We have seen experimentation in new types of digital and education content delivery such as MOOCS, edtech, Khan Academy, Udacity, and microcredentials. Adjacent markets such as the rise of superstar private tutoring (e.g. in Korea) have also developed and flourished. Digital markets for recommendation and matching facilitate this trend. As higher education markets have become more international we have seen the rise of private feeder colleges and private stock market listed education businesses.
But the growing richness of the market ecology of the education industry and services is simply further grist for the mill of pathways shaping into the three university types.
As the economy continues to evolve to become more knowledge intensive and complex, new types of competition, and potential partners, emerge. Many large organizations, including services and technology companies, or even governments themselves, require specific inhouse training for their workforce or new entrants. This will be somewhat idiosyncratic to their own platforms or corporate systems, so there is a certain asset specificity to these skills. But because they can also supply and certify these skills in-house, they face a ‘make or buy’ decision. Whether these organisations end up partnering with or competing with universities depends on the relative efficiency of what universities can offer. The Networked University offers a potentially considerable comparative advantage to a contractual relationship.
The Networked University facilitates unbundling of university components, with possibly substantial productivity and efficiency gains. Do tutors need to be on campus? Do we all need to do big introductory lectures? Probably not. Elite and Specialist Universities will want all of these services in-house for other purposes, but these were points of inefficiency for the full service industrial university that can be transformed by the platform university.
Despite these barriers, the competitive position of the industrial university will be eaten away. And so we enter a highly disruptive era of friendly and hostile reorganization of the university sector.
The great disruption
Our argument is that the industrial era model of the university, now about 200 years old, is collapsing and that universities will evolve into three forms: Elite, Specialist and Networked. In the next and final Part we want to explore your strategic choices in this space, whether you’re an owner or manager of a university (you’re a university President), or you’re a general custodian or funder of the entire higher education space (you’re an Education Minister). Here we look at how evolution has already happened in the university sector. The seismic activity and glaciation processes have already begun.
Consider Mergers and Acquisitions (M&A). Any corporate organization can grow in broadly two ways: continuously or in lumps. Converting investment capital into new productive capital (buildings, stock) is one way. The other way is to buy and absorb going concerns. In Australia almost every university is the product of mergers.78 The same pattern is observed in the UK and in the US.79 While traditionally universities have been more like territorial fiefdoms, during the industrial era mergers and acquisitions have been a common way for universities to grow, particularly as smaller specialist institutions have consolidated into larger industrial forms. Small institutions seem especially vulnerable to financial challenges and common targets for M&A activity because their fixed costs increase (and are allocated) across fewer students.
The M&A process for universities is particularly hard. Because most universities are not traded on public exchanges the gradual acquisition of an equity position or an aggressive leveraged buy-out is not an option. A university President or VC must have the full support of their board—and vice versa—to drive a successful university merger. This must be true on both sides of the transaction. Everyone must understand the imperative of the merger, the difficulties that lie ahead, and grasp the need for consistency and support. Authority, vision, and clear honest communication are crucial to successful mergers.80
Consolidations, alliances, affiliations, partnerships, co-ventures, and consortia are also viable alternatives to full institutional mergers or closures.81 Partnerships can bring together complementary assets and business models, and forge alliances and co-ventures with international partners to broaden academic markets or create consortia.
Of course consolidation is challenging.82 The costs of doing it wrong are enormous and the merger of two different institutions with two different cultures is hard and slow.83 A common obstacle is failure of the institution’s leaders to even contemplate and explore a merger as a proactive option in their strategic planning because considering a merger signals weakness or inability to manage the existing organization.84
The standard arguments about the benefits of mergers in the university sector—often repeated in both the media and in faculty lounges—are that university mergers create scale economies and synergy benefits.85 For instance cities with multiple universities with complementary interests and culture may see directed mergers as a likely way to benefit from increased scale and breadth. Merged institutions could build on the strengths of each to drive higher quality and consistency, multiplying value for teaching and learning through sustaining more comprehensive course offerings and research by enabling the benefits of concentration and collaboration in complementary disciplines. Merging institutions will create more diverse student groups with richer exchanges between international and domestic, regional and urban, privileged and disadvantaged students.
Don’t fall for it. This is not a viable forward strategy in the new era. It’s an industrial era mirage.
These old-style mergers onto a single or multi-campus larger hierarchic structure will be outcompeted by the new Networked University model that will deliver the scale economies and administrative efficiencies but without all the pain and suffering of corporate mergers and replication of all the separate pieces into an integrated whole. This strategy worked in the past, and still has relevance for building Specialist Universities, but it will not work in the future for generalist universities.
A better option is for the premerged parts to plug directly into a larger Networked University. Or better, for the viable parts (say a school or research centre) of a struggling university to modularise and break away, and plug into a Networked University.86
Secondary markets are already very well developed for academics and top researchers, who regularly churn through universities. There is a growing and more developed market for functional bundles of such, with research teams or whole research centres tradable. In a platform world, these markets would greatly extend to entire courses, schools or programs. This would unbundle and modularise the currently hierarchical university. The other side of this equation is the disposal of entire components of universities, such as the sale of entire campus infrastructure (much valued land and buildings). Another possibility is simply to open or start universities anew, or to undertake a significant strategic pivot—often with rebranding and renaming—to emphasise a shift into new markets.
The notion of a spin-off is unusual in the university space. Historically universities have tended to merge—more of less voluntarily or, at least, on friendly terms. The trend has been consolidation not break ups. It has happened that one university transfers a research unit to another university. The Centre for Policy Studies, for example, moved from Monash University to Victoria University. Similarly universities have sold campuses to other universities. Again, in Australia, Monash University sold two of its campuses to Federation University.
Much rarer is a large university breaking up into smaller universities. At first glance this seems extremely counter-intuitive. After all there are fixed administration costs that would have to be covered by the smaller constituent parts. It is also unclear how the gains from such a transaction could be realised and shared.
Demergers and spin-offs are regularly seen in corporate contexts. It is well-known in corporate finance that conglomerates are inefficient and corporate value can be enhanced by breaking up large inefficient firms into smaller more efficient firms. The costs of maintaining a hierarchy are significant. Corporate raiders and hard-nosed management consultants are able to earn millions by identifying inefficiencies and eliminating them. Horizontal or vertical disintegration can bring efficiencies. This mechanism functions because corporations may have publicly listed stocks on exchanges (providing management with an ever-present threat that a significant stake in the company could be acquired by a hostile third party) or in any case and are able to distribute profits to shareholders (providing management with a profit incentive given their own remuneration tends to be linked with the company’s performance). What’s more, inefficient companies that aren’t taken over and stripped down might find themselves facing insolvency where value is realised in the liquidation process (with creditors having the financial motivation).
But most universities are non-profits or public sector entities. There are no spontaneous mechanisms to distribute rewards to those managers who take on risk (perhaps reputation rather than directly financial) and realise efficiency gains. These incentives are of course a wider problem facing public sector management more generally. The notion of a “hostile” takeover in this space is entirely unknown. But should it be? We return to this discussion in the next Part.
Another form of growth and integration that has played out in industrial universities is the formation of associations and coalitions of often similar types of universities, often for marketing of political purpose. In Australia, think the Group of Eight or the Australian Technology Network. In Canada, think the U15 Group. In the UK, think the Russell Group. In the US, think the Ivy League. These are not platforms however, but network alliances to create superclusters.
The new university is an acceleration of all of these forces. This time it’s supercharged by technology disruption and global pandemic induced shifts in demand, competition, and preferences for university products. This is the shape of the great disruption. So now, let us consider how you navigate this.
Part 7: Strategy for the great disruption
The 1980s are back, baby!
The 1980s are remembered for its great music, the Rubik’s cube, the Sony walkman. They were the years of deregulation and free market reforms. It was the decade of greed, of junk bonds, financial scandals, and black Monday. It was the decade when Gordon Gekko told us that lunch was for wimps. Lee Iacocca had just saved Chysler from bankruptcy and Donald Trump was a respected businessman. Competition was raw. Competition was, in that Darwinian phrase, red in tooth and claw. For many universities the near future will feel like going back to the future (also a great movie from the 1980s).
In a 1990 article, Andrei Shleifer (almost certainly a future Nobel prize winner) and Robert Vishny described the 1980s as being a decade of fundamental change.87 The corporate world was characterised by takeovers. Many of these takeovers were friendly but many were hostile. These takeovers (and management buy-outs) saw many conglomerate corporations bought out and broken up. It was a decade of specialisation. The previous merger wave of the 1960s was reversed. As Thomas Peters and Robert Waterman recommended in their 1982 bestseller In Search of Excellence, companies returned to their knitting.88
The parallels for universities should be obvious. Many universities are inefficient conglomerates that should be broken up. Others are efficient and should expand.
There are some 200 million university students. These paying customers are out there for the taking. Competition for them will be intense. But the competition looks different for each university type.
The Elite Universities won’t be competing for the entire 200 million. They don’t want them all. Elites only want the ‘best’ ones (by their criteria). The Elite Universities will compete with the other Elite Universities, as they always have. The Specialist Universities will only be competing the ‘brightest’ ones (by their criteria). In many ways the Hart Assets of these universities mean that tha don’t need to compete at all. The ‘best’ and the ‘brightest’ will come to them.
Where things get interesting is for the Networked Universities. They will be competing for students on a scale never seen before. For many of these networked universities this will be a Darwinian struggle. The Hunger Games will be on.
Now beyond the obvious retail politics of middle-class voters wanting nice things for their children, higher education policy in the 20th century has been dominated by the economic prerogatives of industrial planning. The ‘linear model’ saw investment in basic science in universities turned into industrial technologies to power economic growth.89 Higher education policy is fundamentally innovation policy, which is fundamentally economic growth and development policy.90 Innovation researchers these days call this the ‘Triple helix model’ of industry-university-government interactions.91
And so it’s easy to forget that universities are also creatures of the market. They can respond to incentives and devise new business models. Of course this varies across countries and structures, but what we’re about to see is entrepreneurial dynamics pushed back into university decision making. We haven’t seen much of this over the path millenia. Universities have grown, but they have all grown in the same ways. The sector is too homogenous. Specialisation is coming. The 1980s are back, baby! So what should you do?
Well, that depends who you are.
So, you’re the VC (or want to become one)
It has been a long road for you, but you finally made it. You have carved out a leadership career in higher education. You’re in the C-suite with your corporate-pegged salary and holding the reins on a billion-dollar organisation.
Over the years you’ve implemented some big strategic decisions. Perhaps you’ve shifted the focus to particular disciplines, purchased research teams, and crafted a five year vision. Rip up those plans.
The next decade could be the most challenging time to manage a university at any time in history. Most universities will need to fundamentally change. You need to pivot. Universities are hard to kill, but they are difficult to run at the best of times. When all 15 sides are caught in a zero sum game, it’s deathly grim.
The good news is that at no point in the past 900 years have the opportunities been greater for a clear strategic vision. That vision must be well conceived and executed. Most of your colleagues will think you’re crazy. But it’s you who’s in the chair. You will need to act decisively, or at least offer a clear idea of what you’re going to do and why. You must be devastatingly persuasive.
The bad news is that a poorly devised and executed strategic vision will drive your university onto a terminal path. Business-as-usual is deadly too. You will be eaten. ‘Will this impact me?’ is not part of your strategic decision set. Wake up. Of course it will.
Step 1. What type of university do I have?
First, you need to figure out which of the three types of university you’re running. Open your window. Look out at your campus. What do you see? Ivy and serenity? Bluestone arches and cranes? Shiny new hybrid-electric cars, effortlessly parked in the Nobel-Prize winner reserved spots, next to expensively-named buildings made by award-winning Spanish architects? Protests and smoke grenades?
Trick question.
All universities look the same from your window. You’re looking at an industrial era university. What you see is the result of the great convergence. Academies, colleges, institutes and polytechnics all became universities. Over time they all came to resemble one another. They converged. Evolutionary biologists call this convergent selection.
Keep looking out your window and try and see your Hart Asset.
That’s another trick question. Hart assets are intangible. To be clear, that means that if you can see it then that is not your Hart Asset. It might be some other asset that you are very proud of, or spend lots of money on, or have lots of meetings about. It may be listed high on your University Board papers. But that isn’t your Hart Asset.
You will find your Hart Asset in the answer to this question: what asset(s) does the university need to own in order to develop a viable business model? You cannot trust others to own them. Remember from Part 5 that ownership of the Hart Asset per se is not the business model. The Hart Asset will be a specific asset to the university but it may not necessarily be the highest earning or most conspicuous asset, or even be at the point of sale in the business model. There are really only three things you can identify as your Hart Asset: brand (and you’ve got an Elite University); specialised focused expertise (and you’ve got a Specialized University); and administrative systems (and you’ve got a Networked University).
As an Elite University you’re basically a high-end fashion company. Your business model is that of an exclusive club. You are selective in the extreme. You have high hurdles to entry. You are defined as much by who doesn’t get in, which is of course most people. Your students care immensely about telling other people they went to you. The logic of this model is costly signalling to solve the problem of asymmetric information about quality. Every university wants to be this, or the local variant (“we’re the Harvard of Elbonia”). But statistically, you’re probably not, so let’s move on.
As a Specialist University your Hart Asset is focused expertise and you’re basically a guild workshop. You are industry forward, practical, integrated into industry and investment funding (both public and private) about a particular domain of useful knowledge. Students come to you for this and only this. You’re a vibrant, brilliant, grungy, entrepreneurial part of industrial knowledge capitalism. Every university wants to claim specialist expertise assets. Of course every department in your university thinks that they’re special. And so the Specialist University will be the most overdiagnosed university type in the new era.
It is nice to be an Elite or a Specialist university. It is still hard to run these universities well. But these categories are familiar from the romantic and industrial era.
The most likely scenario is that your Hart Asset is administration and you have a Networked University. This is a much harder idea to get your head around than the other categories. It is also a much harder proposition to sell to your board and stakeholders.
Few of the 15 sides of your market will be happy when you front up to any executive meeting of your Networked University and argue that the university’s most strategically important asset is administration. Elevating the most unglamorous, despised and ignored part of your university will not go down well. You can reassure them that you mean administration is the most important asset and not the most valuable asset, but they still won’t like you. Nevertheless, the rapidly approaching digital era means that the ability to effectively use and deploy these assets will shape productivity and performance going forward. It gives you strategic options.
Let us give you three strategic options. First, for your university to transcend geography and to go to where students or clients are. You may have been talking about expanding into a nearby region. Now you can go much further across the world. Second, scale that important digital infrastructure to add new schools and units to your platform. People will want to pay you for your administration, and that can expand the side of your multi-sided market. Third, harnessing new digital technology to build on these platforms. You can leverage AI, blockchain, IoT, 5G and AR/VR to build new products, services and tools for your customers. Each of these are growth strategies, and interdependent. They all derive from the same key strategic resource of effective administrative infrastructure and processes.
Step 2: What type of university do we want to be?
Is it the same as the answer to Hart Asset diagnostics? If yes, then go on to step 4.
If not, then we have a problem. Do you have a massive endowment or a lot of political protection? Do you have a significant trove of gold buried in the quadrangle? In the absence of special powerful friends you’re probably making a mistake. You should go back and align your Hart Asset with the university you want to be. Maybe resign. Otherwise your most likely future is to fragment, whither and be reabsorbed into a growing Networked University.
Your problem is that most of the 15 stakeholder groups you deal with each day are strategically invested in the industrial era full service model. They are wrong. They like to think they’re in some kind of elite or specialist club.
You need to tell them that they are wrong. And you need to be persuasive about it. Because the real disruption will be when all of the complex delicate bargains struck between the 15 sides fall apart as you start to use someone else’s administrative infrastructure.
The internal bargains for Elite Universities won’t change much. For Specialist Universities, this is simplified further, as the tighter focus means fewer or less complex bargains to be made. But for Networked Universities, as Tancredi Falconeri says in The Leopard, ‘For things to stay the same, everything will need to change.’
Step 3: What’s best for my university?
The hard choice ahead is that a lot of existing university architectures will be non-viable, unless they are competitive in providing administrative infrastructure. The test is if others are joining it. But those others will be coming from the fragmentation of universities that are administratively uncompetitive.
If you lose control of your Hart Asset, your university will begin to unravel. Now maybe you need to let that happen. That might be what’s best.
Our prediction is that we will transition to a new equilibrium where some Networked Universities are much bigger than even the biggest universities are now. These are the enormous gains to be had, but not everyone can win that. Digital platform economics tells us that the Networked University market will verge on winner take-all.
The industrial era model had a clear sense of the top 100, top 200, and top 500 rankings that VCs could benchmark against. That is over. That’s a game for elites, who will only care about the top end.
There is also a distinct possibility that your university will be more valuable in parts. If that’s the case, then your job is to extract that value and facilitate the carve up, the unbundling, and unpicking all the trades made in the diagram above.
Step 4: Implementing Hart Asset consistent strategy
Okay. We’re doing this. You’re going to be one of three types. Here is your playbook.
Elite University Strategy Playbook
Your Hart asset is your brand. Protect and control it at all costs.
The best students will always come to you. Reject most people that come to you, and never explain why.
Do not merge. Never open foreign campuses. Never partner with anyone except entirely on your own terms. Brand dilution is your major risk.
Run your own University Press. Hold original manuscripts of famous texts in your library’s vault. Coddle your professors. If full professors want to ride ponies in the hallways, let them.
Your main client is alumni and donors. Be loyal to them above all. Be secretive and maintain your traditions. Call ordinary things by weird names. Control the sale of your own merchandise. Think on 1000 year cycles. And never, ever, ever sell land.
Your model is British Royalty, Italian fashion houses, and Walt Disney. Maybe change the locks on your endowment every so often for security reasons.
Specialist University Strategy Playbook
Your Hart Assets are your specialist core capabilities at the leading edge of a particular but important thing. Everything you do is about that thing.
The thing must be applied and useful. You must be bold and staggeringly competent explorers and experts of the thing. You are a medieval guild.
Get a supercollider and do cool things with it. You can lease the supercollider if you want (you don’t need to own it because it is not your Hart Asset). Launch rockets and stay geeky cool. Look down on people who don’t understand the thing. Also feel sad for them.
Students come to you, but they don’t need to tell anyone else. Who would they tell? Your brand is vaguely known by people but probably not, except for people who are into the thing. They know your brand to 23 decimal places.
Everyone at your university is obsessed with the thing. Blur where the university ends and where the startups and spin offs begin. Get all the grants for the thing. You don’t need donors because you have finance. You talk in code and have your own rich thing-based language. Your students speak it. And employers compete hard for them.
You opened a satellite campus in Elbonia, but only because a bunch of serious people are there who are really into the thing too. You publish the main journal about the thing and host the serious conferences about the thing. Your merchandise has the thing on it. Your opinions about the thing shapes how everyone else thinks about the thing.
You think in 10 year cycles because that is how fast the thing moves. Your model is Tesla, SpaceX, The Boring Company, Hyperloop, and Scientology.
Networked University Playbook
Your Hart Assets are your administrative systems. No one thinks this is awesome except for you. You now understand that this is The Way.
You know that your administrative systems didn’t just get good by accident. When other universities were having offsite school meetings, you mastered integrated digital teaching and learning systems. They built new football stadiums and played with their rockets. You developed a modularised credential stack across two continents. They invested in global brand marketing, you built an integrated internal digital identity system.
And now that the universities are on fire with digital competition, now that their precious foreign fee paying students have deserted them, you know that when they come wanting to plug into your systems, that you can own them all. You knew that one day they would come knocking.
Step 5: Protect your core (quality assurance)
A standard trope of branded strategy-based business consulting is the question ‘what business am I really in?’ You gather your senior leadership team around a whiteboard, with sharpies and post-it notes, take a few hits of Ayahuasca (you can skip this step if you’re East Coast), and with steely eyes look bravely into your company’s soul and identify your core competency and value add.
Ignore your leadership team. The answer to this question is your administrative processes, and the reason is that the business you are in is not education per se, but quality assurance over a very complex production process of a credence good (See Box 1 above).
Universities do research (in fact, to legally call yourself a university, you must do research). But the ultimate (rather than proximate) reason you do research is to solve the problem of quality assurance under asymmetric information for the main revenue-earning product you offer, which is teaching. Students pay money to receive the service of education, but because quality is hard to observe, students and governments look to reliable hard-to-fake signals of quality (research).
So universities do research in order to sell education. That’s all well and good. But things get weird because students aren’t actually at university to buy education. They are also trying to solve a similar ‘quality assurance under asymmetric information’ problem. The quality they are trying to show to others is themselves (employers, business or romantic parents). These qualities may be ‘am a member of the elite’, or ‘know how to do the thing’, or ‘have a skill or capability in X’.
So students are buying a bundled product from us: education and proof of that education, or certification, or quality assurance. That quality assurance is the base product. It is what your high quality administrative systems deliver. It is why this is your Hart Asset. And it’s why even though you can safely contract out teaching (but not research), you should never contract out your administration.
Step 6: Fire all the faculty (unbundle)
Once you understand the significance of Step 5, then it becomes safe to outsource anything from your university that is not your Hart Asset. At first this seems insane.
This is the classic ‘make or buy decision’ in strategic management that we explored in Part 5. Maximise value creation by economising on costs. Transaction costs are the costs of contracting, monitoring, bargaining and administration. These are the costs of coordinating the university. Coase argued that where the costs of using hierarchical organization are less than using markets, firms are the most efficient way to organize economic activity.
The observation that the enormous complexity of universities is actually a way to reduce coordination costs. You and your management team search for and find all the side deals and internal trades and cross subsidies and managed spillovers that enable a complex skein of arrangements to minimize the cost of production. That is your job, and you’re good at it.
But what about when the costs of contracting are less than the costs of internal management? The efficient and strategically rational choice becomes not to make, but to buy.
Let us illustrate this with an extreme case, which we will over-dramatise to make the point. Consider firing all your teaching faculty, then selectively hire them back on the market at piece rate. Allow them to form their own companies that plug into your administrative platform to connect them to students wanting to purchase units of education.
You’re unbundling the education part (teaching) from the administration part: matriculation, administration and scheduling, timetabling, quality control assurance, identity management, dispute arbitration and resolution, transcripts and certification, examinations, awards, scholarships, payments. The faculty might even be happy for being fired, they no longer have to do the things they’ve been complaining bitterly about being required to do.
This is a general point about the prospects of unbundling a university. Anything that is not a Hart Asset can be potentially unbundled and then organized using market relations rather than organised within the firm.
Today each university runs its own administrative platforms and produces everything in-house by coordinating a 15-sided market. It’s a quasi-stable equilibrium. But it’s about to unravel. And with the powerful scale economies of Networked Universities leveraging new technologies, the full service industrial business model of the university is over.
Step 7: Defend against attack (digital post-MOOC)
Soon we will see an increasing voley of friendly and hostile mergers and acquisitions. Networked Universities with better administrations will seek to acquire other units, freeing those units from less efficient administrative platforms. And so now that you know your Hart Assets and the university you want to be, you should also be ready to defend against attack.
The best defence against attack is to have a strong, effective and efficient administrative platform. That makes it hard to leave. If you seek to go on the attack, you will need a strong, effective and efficient administrative platform. That makes people want to join. Neither strategy requires superstar research or teaching teams. Both require good administration. You get the idea.
Don’t make the mistake that building world class administration in a digital world is the same as getting really good at digital delivery (ie. MOOCs and affiliated programs). To be sure, there are some overlaps. Effective MOOCing will certainly test your own digital administrative competency. But MOOCs are the sort of thing that only Elite Universities can really do. They probably shouldn’t even do them (it’s the opposite of exclusive), but they are the only ones that can make them work.92
A much better defence focuses on what we call the post-MOOC university: a university-centred technology platform that will reliably replicate the interactions of the old university model. The printing press and the MOOC didn’t destroy the university. The university will still organise and coordinate the production of education and its quality-assuring certification. See the Epilogue for a more detailed analysis of the post-MOOC university.
But it will do so based on a digital technology stack. The base of that stack is an administrative infrastructure. Built on top of it are virtual and augmented reality interactions, webinars and digital-mediated interactions, and so on. You need to defend from attack by building a better stack.
So you’re the Minister (or you advise one)
It has been a long road. Over decades you’ve carved out a public policy leadership role. You or your boss are elected to develop education policy. You think you need to act fast because your term is only three years and soon you’ll be preparing for the next election. No reform even gets achieved in an election year. But trust us: you need to act fast for a whole different reason.
There has never been a more important time to get higher education policy right. How universities are regulated, how they are subsidised, how they are licensed, and how they are governed will shape how successfully universities can navigate the great disruption.
You probably think about higher education as an international export market. Your domestic universities sell education services to foreign students that enter on special immigration visas. Yes, education is a global business. The market for students is an international one (at least in the developed world). In 2017 there were 5.3 million international tertiary students globally, up from 1.9 million in 1997.93 Some countries rely heavily on foreign students. In Australia, for example, more than 21 per cent of students in higher education are international students. In the United Kingdom more than 17 per cent are.94
The surface-level policy problem you face is that the COVID-19 pandemic showed the risks of that international business model. But that business model has always been vulnerable to geopolitical risks, such as domestic anti-immigration sentiment and concerns about ‘brain-drain’ in students’ home countries that might hinder travel. The risk has always been there.
Thinking about international student risks is deeply infused with the industrial vision of education. Behind all of this is the idea that universities take the input (students) and produce skilled workers. In this industrial vision universities are factories. And we know that when factory inputs are harder to obtain the factory shrinks or changes its business model. Similarly, universities that can support a large production of students will have to shrink or change their business model. And as a policymaker, if not enough skilled workers can be obtained (or there are too many workers with the wrong skills for your economy) you tweak the policies to ensure the factories are better aligned to national needs. As a good education policymaker you will shift all of the dials on the industrial university system to produce jobs, innovation and growth.
You’re thinking about it all wrong. You’re trapped in the industrial vision. You must think bigger. Our understanding of the university as multi-sided markets and the three models in the new era suggest a much bigger opportunity for policymakers. A global opportunity.
Don’t think of university as an export market where international students are the customers.
Think of the university itself as an export. That is your global play.
In the new era, successful export-oriented university systems won’t export degrees. They will export their high quality administration. A successful Networked University will export a set of administrative standards to partner universities in other jurisdictions. They will become the digital infrastructure on which a host of education and research multi-sided markets operate right across the globe.
Your government has been talking about national competitiveness for decades, and here is a significant new opportunity to achieve it. But you must move fast. The higher education landscape will feature only a small number of global Networked University platforms. There will certainly be a magnitude fewer than there are current higher education institutions. Whoever establishes these platforms are in a position to shape higher education standards globally. Their home countries in turn will be in a position to set global standards.
It is a truism of international cooperation that countries which set standards can set those standards in a way that supports their competitive advantage. When the world was developing a regulatory framework to govern international banking in the 1980s, the countries that were first at the table (the United States, Japan, the United Kingdom) were in a position to influence that framework so that it was in their interests. Countries that joined the framework later had no choice but to adopt the already mature rules.
The same standards-setting dynamics will play out in the higher education sector. Influence over global coordination means the chance to export standards for all 15 sides of the market. You can set standards around education quality frameworks, how research is governed, the publication access, recognition and management of credentials, student qualifications and equity, industry support and contracts, industrial relations and quality control.
The few Networked Universities that expand and control the digital platforms will be those that control the standards. Their home country—your jurisdiction—will be in a position to influence those standards.
The future of the university offers a new dimension for global education competition. No longer is global competition solely about selling to 5 million international students. Global competition is about capturing a market of more than 200 million students enrolled in higher education worldwide. Those students might be studying domestically in their home countries (and so you haven’t really cared about them before). But in this new era those students are being educated in a university that sits on some digital infrastructure. That infrastructure likely isn’t built in their country. It could be built in yours, influenced by your standards.
Stop thinking about credentials as exports. The winner of this competition will export regulations.
Global Networked Universities will be quasi private sector regulators around standards and quality. And your country has the opportunity to influence that. Historically, the university sector has been a key player in geopolitical power. Some of that power—and more—is up for grabs.
This is a massive opportunity for your university sector. You can facilitate it, or you can impede it.
Over the next decade there will be many universities that fail to make the transition, that discover their business models are no longer suitable for the new environment. We have tried to lay out steps to make the right choices. Not every university President will read them and follow them faithfully. And some who do will not succeed regardless. So you’re going to be faced with two related but distinct problems that we will now step through.
Step 1: How to respond to rapid reorganisation among universities
A thriving market economy is one that is constantly reorganising itself. One of the strangest features of the university sector is its stability. The scholar Kieran Healy points out that a typical list of the top universities of the second decade of the twentieth century looks a lot like the top universities of 2011.95 It’s also true further down the list. A vanishingly small number of institutions down the league table go out of business or merge (even if that number has increased in recent decades).96
Stability will not remain. Sure, the elite universities will remain as the massive global brands that they are. But there will be enormous disruption (read: destruction) everywhere else. Destruction is good. When the great economist Joseph Schumpeter coined the term ‘creative destruction’ he pointed out that business failure is part of the natural upheavals of market competition. Destruction is part of the evolutionary process.
But destruction is costly. If history has shown us anything, companies that face destruction inevitably beg the government for help. Think banks, airlines, automotive manufacturers.
As a policymaker throughout these destructive times: please don’t bail out failing universities.
Bailing out universities is not helping the sector. You will definitely not be helping the cause of productivity growth and national competitiveness. This is a once in a century moment for the university system to restructure, to reorientate, and to rebuild. Let it.
The demand for the services of a university that we have outlined here have not diminished. They are projected to grow in coming decades. Universities form a vital part of the national economy and they need to be productive, not protected. This means actively encouraging universities to merge or close if necessary, and resisting the political pressure that might protect uncompetitive institutions.
The flip side of declining to help universities when they fail is ensuring they are best placed to succeed, which leads us to the next step.
Step 2: Ensure your universities are best placed for platform supremacy
A university sector that is heavily controlled—heavily regulated—will struggle to make sudden market changes. You must ensure that this is not the case.
A very real risk for your sector is having domestic university leaders smart enough and entrepreneurial enough to recognise the opportunity. They may have even read this essay dutifully identifying their Hart Asset and ready to follow the steps into the new era. But then they can’t grasp the nettle because your government’s regulations make it impossible to adapt. Don’t let this happen.
Globally the higher education sector is a mess of regulatory complexity. Public and semi-public rules govern the quality of education offerings. For professional qualifications (think law, medicine, accounting, and so on), universities have to contend with both government regulators and government-empowered professional regulators. Many systems subject higher education to strict price controls, claiming to finely balance government and student contributions against the needs of the future workforce and a desire to study.
Complex rules and funding arrangements are the direct result of the romantic and industrial visions of higher education. They’re regulating universities like they are factories with special inputs and outputs. Despite their intentions, they have perversely reduced the productivity of the sector. Perhaps you could afford this in normal times. These are not normal times. Read Part 4 again. Universities need to adapt to change.
Regulations and rules designed for the discrete unitary universities of the twentieth century will not be appropriate for the Networked Universities of the twenty-first. Rapid adaptation requires flexibility in regulation. The constituencies for regulation are everywhere. But there is too often a direct trade-off between the viability of an industry under stress and regulation for favoured constituencies.
Don’t let your industry collapse because just because the special interests that have built up over the last century want to fix the old world in place.
Consider yourself briefed
The university sector is about to enter its biggest period of disruption in 900 years. Some parts will be barely touched, other parts will come through more lean and focused, and other parts will be radically, fundamentally transformed. There will be creation and destruction.
We have described the forces driving these transformations, and the configurations that we expect to emerge on the other side.
We are optimistic. You should be optimistic too. With a clear diagnosis of the situation and a well-formed and powerfully-implemented strategic vision, you have an unprecedented opportunity.
But don’t be complacent, the new era could also kill you.
The single most dangerous thing a university can do right now is to continue as if nothing has changed. Unless you’re one of the very few Elite Universities, this is certain death. Or, more accurately, suicide. Even Specialist Universities will need a tightened focus and regrouping.
For most universities, however, the transformation will be profound. Some will lean into administrative platform capabilities and seek to grow, pulling other modules and schools into them. These will be the dominant Networked Universities of the new era. They will run the digital administrative platforms and control the standards.
This is kind of what happened in the banking system though the 1980s and 1990s, with mergers of many small and regional banking branches and operations into mega banks. Similar things have also happened with telcos, radio and tv stations, as well as supermarkets and newspapers, all in living memory and driven by the same logic of technological and administrative economies built through network consolidation. This will also happen to universities. Indeed, it has already begun.
Consider yourself briefed.
Part 8: The use of technology in a university
Historians of technology have long emphasized that change comes in waves, gathering about superclusters of technological innovation. These are techno-economic paradigms.
The industrial revolution emerged in 1770 with factory mechanisation in textile mills. By 1830, a technological revolution in steam power, telegraphs and railways. By 1870, a technological revolution in steel, electricity and heavy industry. By 1910, a technological revolution in oil, chemicals, automobiles and mass manufacturing. By 1970, the age of information, telecommunications and computers.
Each techno-economic wave builds on that which came before. They are centred on a new cheap source of value that fundamentally disrupts markets, firms, industrial organization.
By 2010, we had a new technological revolution in digital tools. This was a new supercluster of technologies from advanced computing to the third-generation of the internet (also known as Web3). This is business and market infrastructure for a global digital economy. Much of it is built on open source software (a revolutionary design concept from the hacker community).
This supercluster might be hard for you to see today, but it is here:
- Blockchain and distributed ledger technologies are the base-layer administrative record keeping for identity, ownership, smart contracting and payments using machine protocols. These are the decentralised institutional infrastructure.
- Artificial intelligence and machine learning create prediction engines. They facilitate automation, and robotic control of autonomous objects. These technologies expand agency and choice.
- 5G communications infrastructure. These communications speeds will power real-time integration of machines, including Internet of THings (IoT) devices, and people.
- Additive manufacturing and 3D printing. We’re entering a world of distributed bespoke manufacturing with digital designs.
- Virtual and augmented reality. The next generation of interfaces for semantic-context data representation and human-machine interaction, or machine mediated human interaction.
This software-based technology stack pushes algorithmic operations and decision-making deep into the economy. The combined effect of these digital technologies of business and service automation will be as disruptive as previous technological revolutions across the whole economy. What is being automated here is complex human-machine interaction, including the facilitation of a machine-to-machine economy.
Universities have never been entirely immune to technological revolutions. But they have been surprisingly little affected by industrial era technological innovation.
Ever since the printing press, new information and communication technologies have disrupted the university. Computers and the internet improve the efficiencies with which the university communicates with itself (email), and search engines and digital content have lowered the cost of research.
Since 2000 or so there have been repeated endeavours to digitise delivery of both teaching and research. These efforts have resulted in some success but mainly frustration. MOOCs and other web-based educational content delivery platforms (e.g. EdX, Udacity, Coursera, Udemy) have certainly been popular on some margins, but have also been less revolutionary than was initially hoped. The near zero price offering of many of these business models clearly showed that the university’s value-add extends well beyond efficient content creation and delivery. Furthermore, open access journals have not been widely adopted (although digital preprints such as arXiv and the Social Science Research Network have been more successful).
But now we now have the new technological supercluster we described above. These are the tools of the digital (cf the industrial) economy. And they could well be the most significant technological disruption to the university since elbow patches for tweed jackets.
Blockchain and the post-MOOC university
The supercluster of new digital technologies will affect the three different types differently.
Elite Universities can do what they like. They can go back to using stone age tools or mindmeld themselves with positronic beams. They will do whatever maintains and signals quality and prestige. And it doesn’t even really matter because others copy what they do, not the other way around. (Remember, Facebook started at Harvard, then spread from there.)
Specialist Universities will use whatever is useful and best suited to their needs. Practical and utilitarian, like they always have been. The technology is in service of their comparative advantage, which is deep focused expertise and its teaching and application.
Networked Universities are different. This is where the new supercluster finds its home. Here technology is the decisive part of transformative competitive advantage. Blockchain technologies in particular are likely to be central to the technology infrastructure for a platform university. It is perhaps not immediately obvious why this is so, given that centralised digital administration works reasonably well (despite all the administrators).
Blockchain technology is a way to create secure, digital record-keeping in a decentralised environment and to enable the flexible creation of automated processes on top of that. It facilitates a more decentralised and protocol-based model of a university. This reveals its value most clearly when an administrative platform begins to grow and integrate other modules and schools through, say, merger and acquisition, and especially when that growth takes place on a global scale. A blockchain based platform university can scale. It facilitates permissionless growth as other administrative units can plug into the system and engage with other parts and operations with high trust.
Blockchain technology also enables other digital tools to be built on top of a secure, distributed digital environment. This includes the stack of digital technologies coming from big data analytics, artificial intelligence and virtual reality, all of which benefit from secure interaction with distributed digital identity, data markets, digital credentials, registries, access control of digital objects, intellectual property creation and transfer, smart contracting, financing, and payments, all of which can be natively built on blockchain technology-based infrastructure. We call this the Post-MOOC technology university.
References
- This is Part 1 of an eight-part essay, ‘So, You Run a University?’. This essay is authored by Darcy W.E. Allen, Chris Berg, Sinclair Davidson, Leon Gettler, Ethan Kane, Aaron M. Lane and Jason Potts. ↩︎
- See, for example, https://thesiswhisperer.com/2018/05/02/slow-academia-is-for-the-privileged-but-then-isnt-all-academia/ ↩︎
- For a recent book on some of the incentives in academia see Brennan, J (2020) Good Work if You Can Get It: How to Succeed in Academia, Johns Hopkins University Press. ↩︎
- de Ridder-Symoens, H., & Rüegg, W. (Eds.). 2003. A History of the University in Europe: Volume 1, Universities in the Middle Ages (Vol. 1). Cambridge University Press. p xix ↩︎
- See Gabriel Compayre (1893) Peter Abelard and the Origin and Early History of the Universities. (republished 2002, The Minerva Group) ↩︎
- Woods, T 2012. How The Catholic Church Built Western Civilization. Regnery Publishing. ↩︎
- Jacques Verger, A History of the University in Europe, v1, p40 ↩︎
- Wellmon, C., 2015. Organizing enlightenment: Information overload and the invention of the modern research university. Johns Hopkins University Press, p4. ↩︎
- Collini, S., 2012. What are universities for?. Penguin UK. ↩︎
- Otterspeer, W. 2008, The Bastion of Liberty: Leiden University Today and Yesterday, p 9-10. ↩︎
- Newman, JH. 1873. The Idea of a University Defined and Illustrated, p 177-178 ↩︎
- Oakeshott, M. 1950, The Idea of a University, The Listener. ↩︎
- Oakeshott, M. 1950, The Idea of a University, The Listener. ↩︎
- Bloom, A. 2008, The Closing of the American Mind: How Higher Education Has Failed Democracy and Impoverished the Souls of Today’s Students. Simon & Schuster. ↩︎
- ibid. p 254. ↩︎
- Davis, JA and Farrell, MA 2016. The Market Oriented University: Transforming Higher Education, Edward Elgar. ↩︎
- For general lifetime earnings, for instance, see Carnevale, A. P., Cheah, B., & Rose, S. J. (2011). The College pay off. https://vtechworks.lib.vt.edu/bitstream/handle/10919/83051/TheCollegePayOff.pdf?sequence=1; Carnevale et al 2015 https://cew.georgetown.edu/wp-content/uploads/Exec-Summary-web-B.pdf. On a specific profession (law) see Simkovic, M., & McIntyre, F. (2014). The economic value of a law degree. The Journal of Legal Studies, 43(2), 249-289. Also see (discussed below): Caplan, B. (2018) The Case Against Education. Princeton University Press: Princeton. ↩︎
- Spence won the Nobel Prize in 2001. ↩︎
- Caplan, B. (2018) The Case Against Education. Princeton University Press: Princeton. ↩︎
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- For an overview of non-market private benefits see Macmahon (2009: ch 4). ↩︎
- Macmahon, WM (2009) Higher Learning, Greater Good: The Private and Social Benefits of Higher Education, Johns Hopkins University Press, Chapter 5. ↩︎
- https://www.washingtonpost.com/opinions/americas-miracle-machine-is-in-desperate-need-of-well-a-miracle/2017/05/05/daafbe6a-30e7-11e7-9534-00e4656c22aa_story.html ↩︎
- The basic case was made by Richard Nelson: ‘were the field of basic research left exclusively to private firms operating independently of each other and selling in competitive markets, profit incentives would not draw so large a quantity of resources to basic research as is socially desirable.’ ↩︎
- Oakeshott, M. 1989. The Voice of Liberal Learning, Yale University Press. ↩︎
- Michael Shattock ↩︎
- https://meanjin.com.au/essays/the-australian-idea-of-a-university/ ↩︎
- https://www.timeshighereducation.com/news/academics-minority-more-two-thirds-uk-universities ↩︎
- The Fall of Faculty ↩︎
- Kennedy D 1999, Academic Duty, Harvard University Press 1999 ↩︎
- http://www.oecd.org/education/imhe/42348745.pdf p28. ↩︎
- A good overview of the broader implications of platform economics is Tirole, J. (2019) Economics for the Common Good. Princeton University Press: Princeton. ↩︎
- See Rochet J and Tirole J 2003, Platform competition in two sided markets, Journal of the European Economic Association, June 2003, Vol.1(4), pp.990-1029. Also see Berg, C, Davidson, S., Potts J. (2018) “Outsourcing vertical integration: introducing the V-form network,” Medium. ↩︎
- Earl P and Potts J 2000 Latent Demand and the Browsing Shopper, Managerial and Decision Economics 21, p. 111-122. ↩︎
- Takakuwa K 2015. A Survey on the competition between the multi-sided platforms: Mobile platform competition between Google and Apple, Annual conference of The Infosocionomics Society, At Tokyo, Japan, Volume: Vol. 10, No. 1. ↩︎
- See Coase, R. 1937. ‘The Nature of the Firm’, Economica, vol. 4(16), p. 386-405; Coase, R. 1960 ‘The Problem of Social Cost’, Journal of Law and Economics, 3(1), p 1-44; Williamson, O. 1975 Markets and Hierarchies: Analysis and Antitrust Implications. The Free Press; Williamson, O. 1985 The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting. The Free Press. ↩︎
- See Alchian, A., Demsetz, H. 1972. ‘Production, information costs, and economic organization’ American Economic Review, 62(5): 777–795. ↩︎
- See Rochet and Tirole 2003, ibid. ↩︎
- Schofer, E. and J. Mayer. 2005. ‘The worldwide expansion of higher education in the 20th century’ American Sociological Review 70(6): 890-920. ↩︎
- See Servicemen’s Readjustment Act of 1944 (USA). ↩︎
- See Education Act 1962 (UK); States Grants (Universities) Act 1973 and States Grants (Advanced Education) Act 1973 (Australia). ↩︎
- Schultz TW 1960 Capital Formation by Education, Journal of Political Economy, Vol. 68, No. 6, pp. 571-583; Becker GS. 1964. Human capital : a theoretical and empirical analysis, with special reference to education, Columbia University Press. ↩︎
- Giroux, H. 2007. The University in Chains: Confronting the Military-Industrial-Academic Complex. Paradigm Publishers. ↩︎
- List, F 1841. The National System of Political Economy, trans. Sampson S. Lloyd, Green and Co., 1909. ↩︎
- https://www.senatorbirmingham.com.au/improving-the-employment-potential-of-graduates/. ↩︎
- McCloskey, DN. 2006. The bourgeois virtues : ethics for an age of commerce, University of Chicago Press. ↩︎
- Harding et al. (2007) calls them ‘bright satanic mills’ with an obvious wink to Dickens’s ‘dark satanic mills’. See Harding, A., A. Scott, S. Laske, & C. Burtscher (2007) (Eds.) Bright satanic mills: universities, regional development and the knowledge economy. Ashgate: Aldershot. ↩︎
- See Lock, G and Lorenz C 2007. ‘Revisiting the University Front’ Studies in Philosophy and Education 26(5): 405-418. ↩︎
- Brown, A. 1981. ‘How the administration grows: A longitudinal study of growth in administration at four universities.’ Research in Higher Education 14(4), p. 335-352; Gornitzka A, Kyvik S and Larsen IM. 1998. The bureaucratisation of universities, Minerva, Volume 36, p. 21-47. ↩︎
- Saykili, A. 2019. Higher education in the digital age: The impact of digital connective technologies. Journal of Educational Technology & Online Learning, Volume 2(1), pp. 1-15; Deming, D. J., C. Goldin, L. F. Katz and N. Yuchtman. 2015. “Can Online Learning Bend the Higher Education Cost Curve?”, American Economic Review 105, p. 496–501; Neylon C, Gilles M, Montgomery L, Hartley J, Leach J, Potts J, Gray E, Huang K, Hermann-Pillath C, Ren X, Skinner K, 2018. Open Knowledge Institutions: Reinventing Universities (MIT Press PubPubs); Reich, J., Ruiperez-Valiente, J. 2019 ‘The MOOC pivot’ Science, 363(6423), p. 130-131. ↩︎
- Bayern M 2019, 10 technologies that will impact higher education the most this year, Tech Republic; Marcus J 2020, How Technology Is Changing the Future of Higher Education, New York Times. ↩︎
- Selwyn N 2016, Digital downsides: exploring university students’ negative engagements with digital technology, Teaching in Higher Education, Volume 21:8, pp. 1006-1021. ↩︎
- Davies S, Mullan J and Feldman P 2017, Rebooting learning for the digital age: What next for technology-enhanced higher education, Higher Education Policy Institute. ↩︎
- Berg, C, Davidson, S., Potts J. (2018) “Outsourcing vertical integration: introducing the V-form network,” Medium. ↩︎
- See Schroeder (2019): “We are moving from a degree-centric environment in which the university is engaged in the life cycle of the student while on campus to one that is more of a supply-chain design providing lifelong learning. The continuous delivery and documentation of learning will be secure, learner owned, documented and certified. That is in stark contrast to the mostly degree-centric, institution controlled and very thinly documented approach of years past. And the movement to a supply-chain approach is one that will transform higher education as certainly and radically as the iPod and its derivatives changed music as well as our mobile society.” (Schroeder R 2019 A Fresh Look at Blockchain in Higher Ed, Inside Higher Education.) ↩︎
- Roebuck K 2019, 5 Ways Blockchain Is Revolutionizing Higher Education, Forbes; Tapscott D and Tapscott A. 2017. ‘The Blockchain Revolution and Higher Education’ Educause Review. ↩︎
- See Smith (2019) “As intellectual property and assets have become more valuable, however, the sharing of innovative ideas has become more problematic in terms of tracking ownership, etc. Once again, setting up a consortium blockchain would allow individual professors and institutions to share information openly while also having an undisputed track record as to who owns what information. Data and innovation are often cited as the drivers of the modern economy, and increased transparency with blockchain-based solutions is a logical step…a decentralized consortium allows the sharing of courses, faculty expertise, and institutional resources across a globally accessible platform.” (Smith SS 2019 How blockchain could change higher education, Blockchain Pulse: IBM Blockchain blog.) ↩︎
- Allen, D., Berg, C., Davidson, S., Lane, A. Potts, J. (2020) Unfreeze: How to create a high growth economy after the pandemic. AIER Publishing: Great Barrington, MA. ↩︎
- Gann D and Dodgson M 2020 ‘How an entrepreneurial approach can help end the COVID-19 crisis’, World Economic Forum. ↩︎
- https://x.com/ass_deans/status/1280586870251028480 ↩︎
- Smith, A. 1776 [1976]. The Wealth of Nations, p. 284. ↩︎
- See Braga, M, Paccagnell, M, and Pellizzari, M. 2014. Evaluating students’ evaluations of professors. Economics of Education Review 41: 71-88. ↩︎
- Coase, R. 1937. ‘The Nature of the Firm’, Economica, vol. 4(16):, p. 386-405. ↩︎
- Strictly these transaction costs should be broken up into transaction costs per se and information costs. Economists also have recently become aware of how important the notion of trust is in securing transactions. ↩︎
- Williamson, O. 1975. Markets and Hierarchies: Analysis and Antitrust Implications. The Free Press; Williamson, O. 1985. The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting. The Free Press. ↩︎
- Aoki, M. 1983. Managerialism revisited in the light of bargaining-game theory, International Journal of Industrial Organization, 1(1), p. 1-21. ↩︎
- Oliver H. 2016. Incomplete Contracts and Control, Nobel Prize Lecture, available at https://www.nobelprize.org/uploads/2018/06/hart-lecture.pdf ↩︎
- Davidson, S., Berg, C., & Potts, J. 2020. The Hart asset at the heart of your organisation. Available at SSRN 3738418. ↩︎
- Haskel, J and Westlake, S. 2018. Capitalism Without Capital: The Rise of the Intangible Economy, Princeton University Press. ↩︎
- Hulton, CR. 2010. Decoding Microsoft: Intangible Capital as a Source of Company Growth, NBER Working Paper No. 15799 <https://www.nber.org/papers/w15799>. ↩︎
- www.johnquiggin.com. ↩︎
- These were previously the Times Higher Education–QS World University Rankings. ↩︎
- See https://www.timeshighereducation.com/world-university-rankings/2020/world-ranking and https://www.topuniversities.com/qs-world-university-rankings. ↩︎
- California Institute of Technology (CalTech), Harvard University, Imperial College London, Massachusetts Institute of Technology (MIT), Stanford University, University of Cambridge, University of Chicago, and University of Oxford. ↩︎
- Princeton University, Swiss Federal Institute of Technology in Zurich (ETC Zurich), University College London. and Yale University. ↩︎
- https://www.timeshighereducation.com/world-university-rankings/2020/world-ranking. ↩︎
- Parthenon-EY (201) explored strategies for universities to merge and build models for collaboration and cement their position as a leader in this new era of higher education. It divides universities into four categories: strong niche, large and thriving, small and at risk and large and languishing. The approach to collaboration within each group should follow a similar playbook. Institutions will take one of two pathways depending on their situation: they are either pursuing collaboration out of survival or taking advantage of an opportunity. According to a survey Parthenon-EY conducted of 38 institutional leaders the toughest barrier to overcome is pushback from internal stakeholders in the process. This means universities need to lay the groundwork for collaboration and be sure internal priorities are realigned and various constituencies (trustees, faculty, alumni) understand the need to collaborate before you offer up potential models and partners. See Parthenon-EY 2016 ‘Strength in numbers’ Parthenon-EY. ↩︎
- Gordon Technical College and Geelong Teachers’ College merge to become Deakin University. RMIT merges with Phillip Institute of Technology to become RMIT University. University of Adelaide and the University of South Australia merge to create UniSA. State College of Victoria at Burwood, Rusden, Toorak and the Prahran College of Advanced Education merge to create Victoria College. Victoria College merges with Deakin. Warrnambool Institute of Advanced Education merges with Deakin University. Kuring-gai College of Advanced Education and the Institute of Technical and Adult Teacher Education of the Sydney College of Advanced Education merge into UTS. Caulfield Institute of Technology merges with SCV Frankston to become Chisholm Institute of Technology. Chisholm Institute of Technology merges with Monash University. ↩︎
- United Kingdom: New University of Ulster merges with Ulster Polytechnic to form Ulster University. There have been mergers between colleges of the University of London, of particular note is the merger of Royal Holloway College and Bedford College in 1985 by Act of Parliament. Cardiff University merges with the University of Wales Institute of Science and Technology and then re-merges with University of Wales College of Medicine. Victoria University of Manchester merges with University of Manchester Institute of Science and Technology to form the University of Manchester. London Guildhall University merges with the University of North London to form London Metropolitan University. University of Glamorgan and University of Wales Newport merge to form the University of South Wales.
United States: Merger of Southern University and Birmingham College creates Birmingham Southern College. Carnegie Institute of Technology merges with Mellon Institute of Industrial Research to form Carnegie Mellon University. Cornell University absorbs New York Hospital Training School for Nurses. University of Cincinnati absorbs Medical College of Ohio; Cincinnati Law School, Cincinnati College of Pharmacy and Cincinnati College-Conservatory of Music. Harvard University merges with Radcliffe College. Miami University absorbs Oxford College of Music and Art and Western College. New York University acquires Bellevue Hospital Medical College, New York College of Dentistry and Polytechnic University. Purdue University acquires Kaplan University. Thomas Jefferson University merges with Philadelphia University.
↩︎ - Azzis et al. (2019) found that successful higher education mergers have decision makers that were already managing the institution well while proactively managing the merger process. See Azziz R, Hentschke GC, Jacobs LA and Jacobs BC 2019, Strategic Mergers In Higher Education, John Hopkins University Press.
Azzis et al (2017) argue that successful mergers require (i) a compelling unifying vision and set of common values; (ii) a committed and understanding governing body; (iii) the right leadership; (iv) an appropriate sense of urgency; (v) a strong project management system; (vi) a robust and redundant communication plan; and (vii) sufficient dedicated resources. “It may take as much as a decade to determine whether a merger can be considered a “success,” and even then, success may be in the eye of the beholder.” See Azziz, R., Hentschke, G.C., Jacobs, B.C., Jacobs, L.A., Ladd, H. 2017. Mergers in higher education: A proactive strategy to a better future?’, TIAA Institute. ↩︎ - Martin J and Samuels JE. 2017, Consolidating Colleges and Merging Universities: New Strategies for Higher Education Leaders, John Hopkins University Press. ↩︎
- Bain & Company reported in 2012 that one-third of colleges in the United States had “unworkable and unsustainable business models”. ↩︎
- Ludlow M 2019, ‘University mergers no silver bullet to compete globally’, Australian Financial Review. ↩︎
- Ricardo A, Jacobs LA and Haven L. 2020. ‘A Merger Can Save Your College, but Don’t Wait Too Long’, The Chronicle of Higher Education. ↩︎
- Lacy WB, Croucher G, Brett A and Mueller R. 2017. ‘Australian Universities at a Crossroads: Insights from Their Leaders and Implications for the Future’, UC Berkeley Center of Studies in Higher Education and the University of Melbourne Centre for the Study of Higher Education. ↩︎
- In the same way that in the 1980s and 1990s a good loan book could exit an old regional bank and get acquired by a big consolidated bank. ↩︎
- Shleifer, A., Vishny, R. 1990. The Takeover Wave of the 1980s, Science 249: 745 – 749 ↩︎
- Peters, T and Waterman RH 1982. In Search of Excellence. Harper and Row. ↩︎
- https://www.nsf.gov/od/lpa/nsf50/vbush1945.htm ↩︎
- The leading scholarly journal in this field, tellingly, is called Research Policy. ↩︎
- Leydesdorff, L. and Etzkowitz, H., 1996. Emergence of a Triple Helix of university—industry—government relations. Science and Public Policy, 23(5), p. 279-286. ↩︎
- Indeed, if you look at where MOOCs have succeeded it’s Stanford (Coursera), Harvard (EdX), etc. ↩︎
- http://data.uis.unesco.org/Index.aspx?queryid=172# ↩︎
- https://data.oecd.org/students/international-student-mobility.htm ↩︎
- https://kieranhealy.org/blog/archives/2014/08/06/persistence-of-the-old-regime/ ↩︎
- https://jhupbooks.press.jhu.edu/title/consolidating-colleges-and-merging-universities ↩︎