WEEKEND READING: The university – more than a business?

“This blog was kindly authored by Professor Steve Olivier, Principal and Vice-Chancellor at Robert Gordon University. Universities are experiencing the most intense set of strategic, financial, and environmental pressures seen in decades. Robert Gordon University (RGU) has responded with agility, transparency and seriousness. We have established a focused, shorter-term strategic direction through the Roadmap to 2030 and we have undertaken decisive action to stabilise and strengthen our financial position. Yet the sector’s complexity and the severity of the pressures acting upon it requires a nuanced understanding of what kind of institution a place like RGU is and should be, how it operates and what that means for decision-making. The sustainability of RGU depends not merely on tactical responses but on a shared understanding of our nature, mission, identity, and the constraints and opportunities embedded within our operating environment. There has been much comment recently about universities needing to adopt a more commercial mindset. However, a university is not a commercial enterprise and, generally speaking, does not have the systems and processes necessary to access the granular detail necessary for commercial analysis. Nevertheless, universities must be financially sustainable. Achieving this depends not only on understanding the nature and operating model, but also on an understanding of the interplay between surplus, deficit, cash, and investment. In the current climate, universities need to maintain a favourable cash position and, where in deficit, move towards surplus while investing where appropriate and possible. This requires understanding the time lag between investment and return (often a very long time in higher education, with thin and uncertain margins), as well as the structural constraints on revenue growth. We also need to understand and accept the importance of maintaining investment in research. Cutting capacity potentially undermines both revenue growth and elasticity / agility. Surplus in regular universities is not a profit to be extracted; it is the reinvestable margin that allows future resilience, efficiency, estate renewal, digital transformation, research growth and talent development. The long‑term purpose: mission as the anchor of strategy A university cannot be understood without understanding its mission. For RGU, our intended trajectory is clear: by 2030 and looking toward 2040, we aim to be the UK’s leading work‑integrated university, employability-led, and business‑facing with an international reputation grounded in its strengths. This vision reflects not only market opportunity but a set of core institutional values and obligations. Universities do not exist to maximise short‑term financial performance; they exist to create public value through education, research, innovation and civic engagement. Financial performance is necessary, but never sufficient, to define institutional success. The fundamental distinction between a university and a business Like other universities, RGU is several things all at the same time. With complex interrelationships between activities, underfunded for core activities in domestic markets, subject to severe constraints in respect of unrestricted income generation, universities rely on cross-subsidies. In practice, the latter means that some activities (such as international recruitment) financially sustain others (such as teaching and research), and the system only works as a whole. Performance must therefore be assessed differently from a conventional commercial enterprise. This reality underpins every strategic and financial decision a university must make, and it is precisely where the governance / management boundary becomes essential. Governance must ensure clarity about system constraints; management must operate effectively within them. The question to ask is not ‘Why is this activity not making money?’, but rather ‘What strategic or financial value is this activity generating for the University?’ The operating environment: regulated prices and constrained markets Limited control of pricing Unlike commercial organisations, universities do not freely set their primary prices. Fees for Scottish and other UK students are externally regulated. International fees, while unregulated, are influenced heavily by competitor behaviour, geopolitics, demographic shifts, political changes (such as visa policy), economic factors and so on. Pricing power is therefore structurally constrained. Put differently, Scottish universities are operating in a range of markets: a centrally planned economy (Scottish students), a less regulated market but with fixed prices (Rest of UK – rUK), and a brutally competitive free market in international education and research – all with the same ‘products’. In a commercial setting, declining or unprofitable product lines can be discontinued or changed. In universities, subjects carry cross-course and portfolio interdependencies, regulatory body requirements, reputational implications, regional and civic considerations, and of course ‘teach-out’ obligations to students. We cannot just freely exit product lines. In short, closing subjects without deep strategic analysis can destabilise the entire portfolio, create reputational damage, trigger regulatory scrutiny, and reduce institutional agility. Constrained markets and external pressures Domestic learner demographics, Scottish Funding Council policies, and shifting postgraduate and international trends all shape demand in ways largely outside RGU’s control. Market growth is achievable, but it probably requires investment, rather than ‘hollowing out’. Cross‑subsidy and the strategic role of research No university can be understood without recognising the economics of research. Research is loss-making for almost all universities. It rarely makes a surplus in‑year, but it is not designed to. It functions as a driver of academic excellence with significant attendant positive outcomes. It is a strategic investment, a value engine, not a line item. Cutting research may reduce costs in the short term but triggers a cascade of long‑term damage, including poor Research Excellence Framework outcomes, reputational damage, declines in student recruitment, difficulties in staff recruitment; lower quality-related research funding allocation and weakened league table performance. The approach to the research model neatly illustrates the interconnectedness that is a defining feature of a university operating model and a central reason why purely commercial logic and practice can be counterproductive in a higher education context. The Risks of ‘Slash and Burn’ Approaches Cost reduction is necessary, but in universities, indiscriminate cuts often backfire. Cutting academic staff I’ll start with a counterintuitive but critical point: cutting academic headcount radically increases staff cost as a per cent of income (paradoxically), as income falls faster than payroll savings. Reducing staff: weakens curricular flexibility and the agility and responsiveness necessary for recovery; leads to a poorer student experience with consequences for the National Student Survey and league tables; negatively affects recruitment and retention; and creates workload management issues with effects on morale. The latter point is not to be dismissed lightly. Morale is not an abstract notion – it has profound effects on both quality, productivity, and wellbeing. Hollowing out organisational capacity In commercial terms, the university operating model resembles a capital‑intensive sector where stripping down capacity may improve short‑term ratios but destroys medium‑term viability. Universities require depth and optionality to enable strategic resilience. ‘Hollowing out’ results in a lack of elasticity, agility and responsiveness, leaving us unable to respond to changing conditions and leading almost certainly to longer-term failure. We must remain adaptable to emerging markets, new disciplines, and shifting skills needs. ‘Slash and burn’ will remove, irrevocably, a university’s ability to recover. Benchmarking as a Governance Tool Benchmarking is occasionally seen as a defensive exercise, but for universities it is vital. Sector comparisons can help Boards and Executives to: understand external risks and pressures; identify national and global trends; recognise and adopt good practice from elsewhere; avoid blind spots and recognise areas superfluous to our strategy; and ensure that we are sensitised to the best sources of sector intelligence. Finally, good governance requires an external orientation, not internal comfort. Governance/management boundaries in a university context Governance requires clarity of purpose, principles, and boundaries. Good governance will focus on: strategy and its delivery; mission and long-term purpose; living the values/culture of the organisation; risk appetite; financial sustainability; performance against KPIs; regulatory compliance; and institutional reputation. Focusing on operational matters rather than governance carries risk for the institution. Perhaps a useful test might be as follows: if a decision exposes the University to reputational, financial or legal risk beyond routine tolerance, it has governance dimensions – everything else is for management to get on with, and the Board should not become a parallel management team. Once the Board has approved strategy, it should hold management to account for delivering it. Also, I believe that a Board also has a responsibility in respect of individual and collective Executive wellbeing. Management requires agility within constraints Management carries significant responsibility and members of the Executive must remain cognisant of these. They must: deliver against strategy; respond to real-time pressure and crises at various levels; make operational trade-offs where necessary; manage people and processes; navigate sector constraints; and recognise opportunities. Finally, Executive members must consciously exhibit the values of the organisation. Conclusion Universities are among the most complex organisations in the public sector or the wider economy. Their financial, regulatory, reputational, and operational systems interlock in ways that differ fundamentally from commercial enterprises. In a time of enormous pressure on the sector, for RGU and universities of a similar nature to succeed, both governance and management must be informed, disciplined and aligned. This requires a shared understanding of our operating model, awareness of system opportunities and constraints, and a shared goal of riding out short-term turbulence while maintaining the agility to grow in line with a clear and agreed strategy. The task now is to continue navigating complexity with clarity, discipline and shared understanding, ensuring that decisions taken today strengthen rather than compromise the institutions we intend to be. Thanks to William Hardie, Nigel Seaton, Julia Roberts and Duncan Cockburn for comments on an early draft. Get our updates via email Enter your email address to subscribe to this blog and receive notifications of new posts by email. Email Address Subscribe The post WEEKEND READING: The university – more than a business? appeared first on HEPI .

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