Australian universities either have to radically reinvent themselves or get ready to close their doors, according to a new study from Ernst & Young. The report, entitled University of the Future, finds that the problems that have been facing U.S. schools for the last few years—slow recovery from the Great Recession, declines in enrollment, and disruption from online education—are exaggerated in Australia to the point that “not a single Australian university can survive to 2025 with its current business model.”
After an analysis of the various business models for universities throughout Australia the report’s author, Justin Bokor, an executive director in Ernst & Young’s education practice, argued that for any of the school’s surveyed to survive they will have to “get much leaner, both in terms of the way they run their back-office and in use of assets.”
The Ernst & Young report follows similar themes from reports issued earlier this year by Moody’s, Standard & Poor’s, and Bain & Company, all of which found that U.S. colleges are facing severe challenges. One of the major difficulties facing both U.S. and Australian colleges and universities is the disruption to the traditional business model caused by the spread of online education.
According to Bokor, while online college courses and online degrees will not cause the disappearance of residential experience-based college or university, it will transform the way schools operate around the world by “fundamentally transforming the way value is created within higher education.” He goes on to say that one of the already emerging example is the ability for more content and service providers to participate in, what he calls, the “value chain.”
“New technologies will enable public and private providers to participate in parts of the value chain—content generation, content aggregation, mass distribution, certification, commercialization, and so on,” writes Bokor. The new technologies will enable both large and small companies to enter the higher education marketplace, either in partnership with a college or university or on their own.
He goes on to cite the explosion massive open online courses as “an early stage example” of the search for a new business model for higher education. Bokor predicts that over the next 10 to 15 years the disruptive impact of emerging digital technologies will force colleges and universities around the world to experiment with different methods for delivering content and different models for monetizing the delivery of content.
“Some of these models will decline and fail, others will create very substantial economic value,” wrote Bokor. “Winners are likely to be a mix of new, pure play online businesses and traditional businesses with powerful online models and capability.”
As part of his research Bokor interviewed 40 university administrators many of whom echoed sentiments expressed in the Moody’s, Standard & Poor’s, and Bain reports. One of the themes running through all three reports is that only a handful of schools are well-positioned to compete in the coming global higher education marketplace.
Bokor’s research shows that currently there are only about 15-20 colleges and universities throughout the world who will be able to rise to the status of a truly worldwide university brand. Among those that will be able to survive the disruptions coming over the next 10 to 15 years will be schools that are already market leaders in the West—like Harvard, Yale, Oxford and Cambridge—and up-and-coming Chinese universities, which have the resources and government support to compete at a global level.
The report predicts that universities will have to shed support staff as they develop new business models. Public research universities will increasingly be run like corporations, a governance style that has already caused problems at the University of Virginia and Purdue.
Bokor believes that as their role and funding sources change, public research universities will struggle to maintain the academic freedom that defines their brand. Although, the predicted changes for public colleges are substantial, they pale in comparison to what Bokor thinks will happen to private universities.
Private colleges and universities will have to navigate themselves into already existing profitable niche markets or create new niches that add value, such as specializing in certain parts of the education chain, writes Bokor. He goes on to say that public and private colleges and universities will have to “rethink the role of digital channels and third party partnerships in recruiting students and delivering teaching and research programs.”
Follow Alex Wukman on Twitter @AlexWukmanCMN