Part 1: Introduction
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.
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. 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 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. 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. 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. In Part 2 we ask: What is a university?
 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.
 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.