Chapter 3: The internal context for our strategic planning
The context for our current strategic planning is, of course, internal as well as external to the University. Perhaps the most important internal context is an honest assessment of the current state of our educational offering and our research. These issues will be picked up in chapters 5 and 6. But also important is an assessment of the infrastructure, both organisational and physical, that enables that work.
Interestingly, the staff and student surveys undertaken as part of this strategic planning process contained some surprisingly consistent messages about this organisational and physical infrastructure. While there was high regard for the research and teaching excellence of the University, and considerable pleasure expressed at being able to work and study in such a stimulating environment, there was also remarkable unanimity concerning the major structural obstacles to achieving our full potential. Two stand out in the feedback and merit particular attention here. A third might also be added to them.
First, the feedback expressed concern that the University seems to be composed of high-walled, largely faculty-based, silos, inhibiting cooperation and collaboration. There was real concern that this leads to excessive duplication and overlap, both in academic programs and curricula, and in administrative support for academic units. Too many resources were being diverted from developing teaching and research to sustaining inefficient administrative practices and overlapping programs. Second, the feedback revealed widespread concern about the University’s infrastructure, in terms of both quality and quantity. These two are important organisational contexts for any process of strategic planning; a third concerns the current state of the University’s finances.
Any effort to refine the University’s mission and achieve its statement of purpose must, of necessity, tackle these three issues as a matter of priority. Overcoming these obstacles will clear the path for reform and improvement in curriculum, teaching and research. Critically important will be improving efficiency to release more resources for research and teaching. Equally important will be sustained investment in physical infrastructure to provide a better environment for the ‘brightest researchers’ and ‘most promising students’. These, of course, are not the only issues confronting strategic planning but they remain core concerns, and if we are to galvanise the enthusiasm and support of our staff and students we have to make substantial progress on these three fronts.
All university organisational structures strike some balance between centralised and decentralised academic decision-making and administrative services. All universities are, to some extent, a federation of self-governing academic communities, with authority shared between local and central decision-making bodies. Moreover, individual institutions, like political federations, tend appropriately to move, over time, between periods in which the focus of the institution is on coordinating activity between individual academic units, and periods in which the focus of the institution is on encouraging local innovation. The guiding principle for that movement should be an ongoing commitment to the principle of ‘subsidiarity’, a commitment to balancing the needs for efficiency and coordination on the one hand, and local expertise and responsiveness on the other, with a bias towards the latter.
The University of Sydney has a strong decentralised faculty structure. Faculties have a considerable measure of independence: they decide on the delivery of programs; offer degrees (with the exception of the PhD, which is a University degree); determine which units of study are taught; develop research and research training programs; have considerable budgetary freedom; operate many self-contained administrative structures particularly around issues of student administration and staff support; operate their own marketing and recruitment teams and so on. Of course there are checks and balances. The Academic Board oversees all academic matters (degrees, programs, research training and so on), to ensure that what is offered conforms to accepted standards and policies. Recent reforms to the Academic Board have been designed to help it focus on this purpose. Central portfolios offer core services such as information and communications technology, corporate communications, international recruitment and support, student support, finance services and more (sometimes in collaboration with faculties). The Senior Executive Group was established in 2008. It seeks to bring coordinated decision-making across the faculties, to operate as a type of University ‘council’ with appropriate subcommittees. On any measure, however, the current structure of the University sits more towards the decentralised end of the spectrum.
Moreover, the fact that the University has 16 faculties of remarkably varying size, where some faculties are smaller than schools in some of the larger faculties, accentuates this decentralised structure. Although faculties range in size from some that have a student load of less than 500 to others that have a student load of over 6000 (see Appendix 7), each has a similar call on University-wide services and each runs a full complement of administrative services.
There are, of course, many benefits to so decentralised a system. It has promoted considerable innovation in academic programs, marketing and student recruitment. Programs are well targeted towards relevant local and international student markets. The high demand for our degrees suggests that the faculties have an excellent understanding of the contexts in which they are operating. Research and research training performance in many faculties is excellent, again suggesting that the decentralised model has many virtues.
There are, however, inevitably also costs to such a system and feedback from across the institution suggests that those costs may currently be too high. In particular, it has promoted intense internal competition within the University, with every faculty seeking to maximise student load and research performance in order to sustain local budgets. This has resulted in the hoarding of resources through the duplication of programs and expertise. It has also led to the wasteful duplication of administrative services and the correspondent diversion of resources away from our core activities in teaching and research.
There is abundant evidence for this contention. As a starting point, consider the duplication of academic programs and expertise. One example might be found in the discipline of sociology. At present we have three substantial groupings of sociologists (in Arts, Education and Social Work, and Health Sciences) and smaller groupings in several other faculties. Each of these groupings offers programs in social policy as well as sociology. There is substantial overlap in expertise between these groupings (for instance significant expertise in the sociology of health) and each delivers units, especially at the postgraduate level in such areas as research methods, that look remarkably similar in scope and substance. Thus there is duplication in expertise and curriculum, and no one group has sufficient critical mass to generate the impact that such a concentration of expertise deserves. Moreover, because of the overlap in expertise, all three groups tend to be narrowly focused. Thus none of these groups has a substantial expertise in quantitative sociology. In other words, instead of having one large sociology and social policy program with a broad range of expertise (qualitative and quantitative) we have three smaller units covering in part overlapping areas in both research and teaching.
Of course this duplication is driven by many factors. The fact that the University is scattered across many different and widely dispersed campuses inevitably causes some replication (one of the sociology units is based at Lidcombe). Another potent factor is the need to serve the educational requirements of particular professions (in this instance teaching and social work). Moreover, there is cooperation and collaboration in teaching and research between these faculties. On balance, however, collaboration is at the margin. There remains considerable overlap, especially at the postgraduate level, where the desire to capitalise on fee-paying opportunities drives much duplication. Worse, faculty boundaries sometimes prevent students in sociology having access to outstanding sociologists in other faculties. Thus duplication is often an entirely rational response to the context in which staff work. Our concern is that University organisational structures exacerbate duplication and this does not always work in the best interests of staff or students.
A similar situation exists in many other areas of the University. For example we have two substantial groups in applied linguistics (in Arts and Education and Social Work), two groups in the history and philosophy of science (in Arts and Science), two in art history and theory (in Arts and Sydney College of the Arts), four substantial areas of expertise in ethics (in Arts, Science, Law and Medicine), two groupings in mathematics (in Science, and Engineering and Information Technologies), creative and visual arts in two areas (in Sydney College of the Arts and in Architecture, Design and Planning), computer-enabled design in many parts of the University (in Arts, Sydney College of the Arts, Architecture, Design and Planning, and Engineering and Information Technologies) and foundation programs and curricula in the life sciences, particularly in such areas as cell biology and anatomy, that are replicated across a range of faculties (such as Medicine, Science, Dentistry, Nursing and Midwifery, and Health Sciences). Of course some of this makes sense; ethics should be in many parts of the University, as should computer-enabled design. Some of it is driven by geography; Health Sciences and the Sydney College of the Arts because of their distance from the Camperdown Campus inevitably have to replicate expertise elsewhere in the University. It is understandable that faculties such as Dentistry might want to replicate some elements of a basic medicine and science curriculum by greater concentration on oral biology and anatomy. In some areas, however, there is genuine service teaching that reduces overlap; the School of Medical Sciences, for example, runs programs for the Faculty of Health Sciences.
Duplication and overlap is also apparent in the provision of units of study. Faculties try to protect load in order to sustain funding levels. What they often miss in this equation is that they then replicate expensive structures (academic and administrative staff, administrative processes) to keep that load. Although in these circumstances, it may seem at the local level as if the income earned from these units of study offsets the expense of running them, it rarely does so if one takes a University-wide perspective. For example, Engineering and Information Technologies, concerned at the amount of load lost through the outsourcing of mathematics training to the Faculty of Science, in the early 2000s, built their own in-house mathematics program to keep the load, thereby undermining an element of the funding base for the School of Mathematics and compromising economies of scale. This also meant that Engineering and Information Technologies had to divert resources to maths teaching that might have been spent on building new fields within the faculty. From the perspective of Engineering and Information Technologies this was a perfectly rational response to the funding drivers in the system. From the perspective of the institution as a whole it was not necessarily a desirable development.
Exacerbating this problem of the duplication of units of study is the fact that the complexity of our organisational structure often makes it hard for students to cross-register for units of study in a faculty other than that in which they are enrolled. It is undoubtedly the case that one of the key strengths of a University of Sydney education arises from the flexibility of, in particular, our principal generalist degrees and the range of choice open to students. Indeed our degree rules allow for a third of a degree in Science and in Economics and Business, and over two-fifths in Arts to be taken outside the faculty of enrolment. A high proportion of students do take this cross-faculty enrolment opportunity. However, our organisational complexity puts arbitrary barriers in the way of students moving between faculties in this way. There are fundamental differences between faculties in, for example: the definition of the requirements to obtain a major; entry qualifications for honours; credit transfer; prerequisites and corequisites; and the extent to which students can take subjects from other faculties. Some of this is driven by the specificities of particular disciplines but much of it is also the result of habit and history. These idiosyncrasies create problems for students, especially when many of them pick subjects from more than one faculty to complete their degree. For example, a student taking a Science subject needs to know that they have to do 24 senior credit points to qualify for a major, while the same student has to be aware that a major in Arts requires 36 credit points. If a student gets these resolutions confused they can face the aggravation of being denied a degree because they have not fulfilled the formal requirements for a major. Caught in this administrative mire, students sometimes have to undertake additional units of study to complete the degree.
This is also evidence that our current academic organisation leads to the proliferation of degrees. Faculties in the University often seem to be in competition as much with each other as with other higher education providers. There is strong incentive, when a good niche market has been uncovered, for others to enter the fray. For example we have two relatively healthy applied linguistics postgraduate coursework programs in the University – one a broad ranging program in Arts with a TESOL component, another, a narrower but very successful TESOL program, in Education and Social Work – where there is marked overlap in content and method. Until recently there were two Psychology degrees in the University, one through Science, the other through Arts, the major difference between them being a prerequisite for mathematics in Science. Until the department of Government and International Relations was transferred from Economics and Business to Arts (in 2008) the University had a Bachelor of International Studies in Economics and Business and a Bachelor of Global Studies in Arts. (They have now been amalgamated as a Bachelor of International and Global Studies). In 2009 both the Faculty of Nursing and Midwifery and the Faculty of Medicine presented new postgraduate degree programs in clinical trials to the Academic Board, though cooperation between the two is currently being explored. We could cite more examples but these give some indication of the persistent problem of duplication, overlap, internal competition and wastage of resources driven by these heavily decentralised faculty silos.
Duplication and overlap is not merely a matter of wasted resources. It is also a question of failing to achieve our potential. The University has an extraordinary range and depth of expertise in many areas, but sometimes these strengths are hidden. For example, the University has over 600 social scientists (a significant group by any measure), but they are scattered across 10 faculties and often work in complete ignorance of each other. This problem was highlighted in the 2007 Review of the Social Sciences (see Appendix 8), which led to some efforts to bring greater cohesion to this field through the creation of an Institute of Social Sciences and the transfer of some social science departments from Economics and Business to Arts. These have been important initiatives but the essential fracturing of the social sciences remains a key issue for the University. Lack of collaboration and hence critical mass means that the University is not capitalising on its expertise in this field. Similarly in the life sciences there is considerable overlap and duplication both within Science (there are two life science schools – Molecular and Microbial Biosciences and Biological Sciences) and between Science and Medicine (the School of Medical Sciences in particular). Certainly there is much more cooperation between these units than is the case with the social sciences, but there is a pervasive feeling that we are not achieving our potential in the life sciences because of the distribution of expertise and resources across different administrative structures. Despite goodwill, faculty structures inevitably constrain collaboration.
Overall, collaboration in academic programs certainly exists but the diversification of expertise across so many faculty silos is debilitating and frustrating for staff and students. The evidence of areas of significant duplication and overlap is compelling. The consequences include lack of critical mass, concentrations of staff in some areas at the expense of other areas, confusion for students, duplication of expensive equipment and infrastructure, and constraints on the development of new areas of study (as so many resources are tied up duplicating programs offered elsewhere in the University). Funding mechanisms (from Canberra and internally) perpetuate this tendency to duplication. Nonetheless, the overwhelming impression, one captured in our staff and student surveys, is that the University of Sydney is characterised more by fractured, disconnected and overlapping programs than a coherent plan of structured offerings or groupings of critical mass.
The barriers that exist to collaborative teaching within the University, also create problems for research collaboration, an issue explored in greater detail in Chapter 6. Although there are policies promoting the creation of cross-disciplinary centres and institutes, there are hurdles that some schools and faculties find difficult to overcome. These include investment of sufficient resources from all partners, workload, difficulties reporting multidisciplinary research to Canberra, and allocation of research quantum to the respective areas. These problems are even more acute with respect to research training, where the desire to secure load to a single area, rather than distribute it across departments, means some schools and faculties discourage joint supervision. Moreover Academic Board policies support associate rather than co-supervision, where associate supervisors are accorded lesser significance and thus have less claim to load as a result of their efforts, a further disincentive to cooperation.
A similar situation arises with the provision of administrative support to faculties. Each of the 16 faculties, regardless of size, operates a full suite of administrative services for staff and students: these include student advice counters, student administration services, student recruitment and marketing units and so on. In other words, while faculties have services to meet their distinctive needs (such as those provided by some technical staff), they also replicate services common across each of the faculties. For larger faculties, or those distributed across a number of locations, there are also multiple school and faculty sites where services are again duplicated. Of course, geography is a powerful factor. Distant campuses, such as Rozelle, Cumberland, Camden, Phillip Street and Macquarie Street, will always require a measure of duplication. But most duplication of administrative services in the University cannot be justified in this way.
Evidence suggests, however, that this decentralisation of administrative services is wasteful and inefficient. Some of our preliminary benchmarking research suggests that in many of our core administrative programs we have a staff cost profile at least 30 percent (and arguably as much as 50 percent) above the benchmark norm (see Appendix 9). Such a finding comes with the obvious caveats. There are limitations in the usefulness of any benchmarking exercise. Sometimes the comparisons are far from appropriate. Universities are complex organisations with multiple purposes and missions (teaching, research, public outreach and so on). Even when we can benchmark with other universities, particularly overseas institutions, the comparison is not always exact. Moreover information about how other universities operate is often difficult to access, making direct benchmarking with like institutions difficult. Nonetheless, even when we consider these limitations our current analysis does suggest that the way we have devolved administrative services to faculties (and to so many faculties) is a factor in higher administrative staffing costs in comparison to some of our competitors.
This benchmarking conclusion is further strengthened by qualitative and case study data. Let us take just two examples for closer study. The first is that of research degree thesis examination. At the University of Sydney the administration of thesis examination (receipt of the thesis, contacting examiners, sending out the thesis, receiving examiner reports and supporting the committees that then deliberate on the outcome) is devolved to the 16 faculties (although some of the health faculties – Dentistry, Pharmacy, and Nursing and Midwifery – have outsourced this function to Medicine). Overall the number of administrative staff in the faculties who have thesis examination as the whole or part of their position description is around 25 people. In terms of full-time equivalent staff this works out at around 10 to 11 staff. In comparison the University of New South Wales, which has a centralised graduate studies unit for all administrative purposes, manages the examination process, for an equivalent number of theses, with a full-time equivalent staff of four to five. In other words it takes twice the staff at the University of Sydney (at roughly an additional $350,000) to perform exactly the same task.
A second example might be found in the area of marketing. In this area we have university-wide domestic student recruitment, corporate and international communications, and international student recruitment teams, and faculties have their own staff. In all there are around 115 marketing and recruitment staff in the University and our annual spend in this area is around $21 million. It is true that we have had some significant success in this area, particularly in student outreach. However, much of our expenditure is uncoordinated and goes on producing bespoke special interest publications, events and advertising, the impact of which is often limited. We are spending more than we need to, to deliver less effective results than we might do. Because there is little coordination, we often see initiatives undertaken without clear goals; confusion as to the identification of, and best means of reaching, our target audiences; and wasteful spending on ineffective advertising and glossy brochures. There is a lot of duplication and overlap in these areas.
Case study and comparative quantitative benchmarking indicates that the University’s highly decentralised faculty administrative structure results in higher staffing costs in comparison to some of our competitors. Thus funds are being diverted from the core business of teaching and research to administrative support and this is a key issue for the University. Recent years have seen a steady rise in the number of administrative staff in the University, without a universal sense among academic staff and students that their administrative needs are being better serviced.
It is important to emphasise that, on the whole, our administrative systems do work. They work because of the enormous dedication of our administrative staff, who are extremely committed to the mission of the University. But these staff often have to achieve results in spite of, rather than through, the administrative structures of which they are a part – structures that can give rise to considerable frustration and to the concerns that so many staff expressed in our survey.
Thus there is substantial evidence to support the view of staff and students that duplication and overlap, in academic programs, organisational structures, degrees, and administrative services, is a crucial impediment to the University achieving its potential. A major causal factor would appear to be the strong faculty structure, with many faculties of varying size, supported by a heavily decentralised administrative system. This has created rigid silos that inhibit collaboration and cooperation, promote internal competition and replicate processes, procedures and administrative structures. Overcoming these problems, reinvesting potential savings and unleashing the creative spirit of staff and students, is a critical challenge for the University’s strategic planning process.
Another significant challenge identified by staff and students in response to our consultation exercise, is poor physical infrastructure. The concerns of our community were about both the amount of available space and its quality. To their concerns might be added the need to maintain our data networks.
We shall focus our discussion here on the Camperdown/Darlington Campus. Taking this campus as an example is not intended to suggest that the problem is one for Camperdown/Darlington alone, but the situation at that campus exemplifies many of the problems that hold true for our other widespread locations. Indeed, a major constraint on our ability to meet the organisational challenges outlined in the preceding section of this chapter is precisely the fact that the activity of the University is spread across a large number of campuses and outlying teaching and research locations.
The Camperdown/Darlington Campus is situated in a densely developed area with only limited scope for expansion. Much of our infrastructure spending here in the last fifty years, fuelled by a significant post war increase in students and funding, resulted in poor quality buildings that are now in significant need of refurbishment. Many of these buildings use their footprint in a less than optimal fashion, reducing the square metres available for teaching and research purposes in relation to land size. For a number of decades, particularly from the late 1970s to the late 1990s, the University was only able to maintain staffing levels and a diversity of programs largely through under investment in infrastructure. This neglect of infrastructure coincided with a dramatic increase in student numbers, exacerbating the shortage of suitable space.
As a consequence of this history, the University of Sydney is significantly constrained by a shortage of quality space. At Camperdown/Darlington, the Campus 2010 program and its flagship projects such as the School of Information Technologies building, the new Law School, and the Jane Foss Russell Building, has made some headway in meeting this need. However a significant shortfall remains. This shortfall has been exacerbated by our growing success in competitive research grant funding. In this sense we have become the victims of success. Our excellent research performance over the last decade, in particular our outstanding performance in terms of competitive research grants, has added to the demand for more infrastructure. In the Faculty of Science, for example, research-only academic staff, funded by grants, now constitute half the academic staff. Thus the demand for offices has grown exponentially. Similarly new staff expect high-quality research facilities – wet and dry lab space, specialised equipment, meeting and seminar space and so on. Lack of adequate infrastructure is also fuelled by increasingly sophisticated and expensive equipment that often needs to be housed in large research facilities.
Importantly, space constraints on the Camperdown/Darlington Campus restrict our ability to grow our higher degree research student numbers. We have, for example, a significant lack of adequate laboratory facilities on the campus. Similarly, the Faculty of Arts has over 500 research students but only around 150 desks in large open plan facilities for such students. These must be shared, through a hot desk system (except for students in the final writing up phase of their degree). We are clearly falling behind some of our competitors in terms of quality and quantity of infrastructure. Moreover, the growth in overall student enrolments of the last decade (an increase of around 8000 since 2001) has also placed enormous pressure on the availability of lecture theatres, seminar and tutorial rooms. Overcrowding in some courses is a serious issue and the lack of adequate teaching space exacerbates this problem.
In addition to this need for improved physical infrastructure, our information technology infrastructure is also in need of a significant upgrade. Indeed, there is a symbiosis between the development of our virtual and physical environments as better information technology systems, such as desktop and server virtualisation, can help us better to manage our space requirements. Crucial to the maintenance of appropriate information and communication systems on the Camperdown/Darlington Campus is a redevelopment of the data network that has already commenced, and that builds upon our work establishing a data centre and stabilising our systems. Importantly, we have been bringing together planning for capital expenditure on our buildings and networks in a coordinated way, so as to maximise the effectiveness of our spend on both.
These problems of the availability and quality of space, and the maintenance of our data networks, must be met if we are merely to maintain our current performance in teaching and research. Several large- and small-scale projects crucial to the maintenance of our activities are currently in planning. In relation to physical infrastructure, two major aspirations for expanding upon what we do will create an even more significant demand for growth.
First, we must expand our available residential accommodation, both for students and for visiting and relocating academic staff. International students, interstate, rural and regional students and some local students demand affordable accommodation close to campus. The University is significantly unable to meet this demand. This is imperilling our capacity to attract and retain the best students from overseas and around Australia. Thus we need to encourage the independent residential colleges associated with the University to build more accommodation, and we must acquire more land, either alone or in collaboration with other institutions, to build much more student accommodation of a variety of different types. We have a target of 6000 places in student accommodation by 2014. Without such levels of accommodation, the University may face a decline in international students and this will have a significant impact on the overall University budget.
As for academic staff, at present we provide almost no accommodation for them even on a temporary basis, although a few of the independent residential colleges have staff apartments. Again this puts us at a disadvantage. There is genuine need for newly appointed staff to have temporary (up to three months) accommodation to ease their transition into living in Sydney. Our failure to do so makes the process of adjustment to working here even more difficult and stressful. Perhaps even more significant is the fact that, as suggested in Chapter 2, one of the key priorities for sustaining our international standing will be developing much stronger collaborations with researchers at overseas universities. If we are to take collaboration seriously, facilitating exchange of staff and research students requires suitable short-term accommodation for those coming from other countries.
Second, the University has been developing plans for a large-scale infrastructure project in multidisciplinary research and teaching. This project, planning for which began in 2006, is a Centre for Obesity, Diabetes and Cardiovascular Disease, with space to accommodate nearly 1000 researchers in these fields, and estimated to cost $395 million. Funding from the federal government of $95 million has already been allocated. This is the first of what we hope will be a small number of such projects. That such projects advance our growing understanding of the future of the University’s research and teaching will be evident from Chapter 6. Such large-scale multidisciplinary projects may be essential if we are to develop the University’s potential, but they will place even more strain on existing resources of both capital and space.
This picture of our need, for both academic and financial reasons, to reduce the complexity of the University’s administrative organisation and to release funds for both investment in our staff and in infrastructure, should be rounded out with a discussion of our current financial situation, the third important internal context for strategic planning.
The University is in a comparatively sound financial position. We achieved a net operating margin of $68 million for 2009, and are projecting one of $119 million for 2010. In the context of the sector more generally this would be a reasonable outcome. Another factor in our favour is that currently we have no borrowings.
Nevertheless, this is a situation in which considerable financial prudence is required if we are to meet the strategic purpose outlined in Chapter 1. It is important to understand that our current sound financial position is more vulnerable than it might appear. Although our financial situation is sufficient for our immediate capital expenditure commitments, it does not provide a firm basis for undertaking the type of significant borrowing program that may be necessary to fund a program of much needed major capital expenditure.
This is for several reasons. First, the margin, as a proportion of expenditure, is relatively small. For example it is a little more than one month of our total salary bill ($67 million). Thus in an emergency we could not guarantee more than five to six weeks salary for staff out of our margin. Moreover the margin is to some extent the product of timing differences between the receipt and expenditure of various types of income designated for particular purposes, such as research grants, and capital grants that are tied to agreed projects. Second, this margin has only been made possible by significant reductions in expenditure on repairs and maintenance, and a range of initiatives to reduce non-salary expenditure. Third, while we currently have around $400 million in reserves, most of this is in fixed assets that would be difficult to realise in cash to fund short-term crises or long-term borrowings. Indeed in the present financial climate any attempt to realise the value of these reserve assets would incur a significant loss in relation to their potential real value if sold at a higher point in the market cycle. Fourth, our ability to fund capital works in 2009 and 2010 was due to a significant draw down of our cash reserves. Thus when we examine the situation more closely, removing these extraneous factors, the underlying reality is that operating and capital expenditure currently exceeds our revenue by as much as $60 million based on the 2009 capital program.
This financial vulnerability is partly the product of the global financial crisis, which has resulted in a loss of recurrent income from investments of over $100 million annually; it is partly a result of the historic underfunding of higher education; but it is also partly the product of the administrative complexity that we have outlined in the preceding section. It is worth noting both that our losses from the global financial crisis were well below the sector average, and that it is unlikely that we will regain the levels of investment return that fuelled our growth before 2008 for at least another decade.
If this assumption is correct, then the University faces some stark choices. We could, of course, do nothing: we could manage our situation as at present, grow our income to pay salary increases and manage our non-salary expenditures (that would require an annual revenue increase of around 6 to 7 percent). The consequence, however, would be little investment in new infrastructure, limited capacity to borrow beyond our current commitments, and limited capability to extend our strategic investment in the most promising students and the brightest researchers. We would see a further decline in the quality of our building stock, and have no capacity to build the infrastructure required to sustain the 7 percent growth projections. Given that both staff and students have highlighted infrastructure as one of the major weaknesses of the University, this seems a less than desirable course of action.
The easiest course of action might be to embark on an ambitious growth strategy, one that a number of Australian universities are likely to employ. This growth strategy would need to focus on fee-paying international and postgraduate students. For example, an increase of roughly 50 percent in international fee-paying students would deliver an additional return of over $100 million. However, these places would either be in substitution for domestic places, or in addition to our current student enrolments. If we adopted the former strategy, it would set us at odds with the government’s agenda to increase domestic student participation. If we adopted the latter strategy, it would place new strains on our already over-crowded infrastructure, and lead to the type of problems outlined in Chapter 2.
An alternative path, noted already, involves modest increases in fee-paying student enrolments, matched by significant reductions in expenditure to increase our margin to support an ambitious borrowing program. The success of this strategy is by no means guaranteed and is critically dependent on a number of factors. First of all we will have to grow our revenue streams. These need to increase our revenue overall by around 6 to 7 percent just to stabilise our financial position. In other words we need annual growth at this level to fund salary and other non-salary cost increases. So we really need to aim for 7 to 10 percent annual revenue growth to move ahead of the cost curve. This is not easy. Achieving such a target requires significant growth in international student enrolments in areas other than the Faculty of Economics and Business. It is also dependent on a modest recovery in our investment income (a further downturn in the stock market could be a serious setback).
The University will also have to develop other sources of revenue. Some of these may build upon our work in teaching, such as offering more non-award and executive short courses to spread the burden. We are working at the moment on better coordinating our offerings of this kind across the University, and their place in our educational mission is outlined in Chapter 5. Some of these will build upon our research work. Our approach to the commercialisation of the fruits of our research is outlined in Chapter 6. We are also confident that we can build our work in the area of philanthropy. In total the University now has a bequest and donation portfolio of around $1 billion, well short of that of the leading North American or British universities but substantial by Australian standards (only Melbourne has anything equivalent). At present the University averages around $35 million a year in new bequests and donations. This puts us ahead of any other university in Australia by about $10 million annually. In 2009, a year in which many were suffering financially, we saw an almost 20 percent increase in the number of donors to the University, and we are confident that we will be able to grow our philanthropic income. The University has a history in this regard that we are working with some success to revive (indeed between 1920 and 1939 income from bequests and donations was roughly equal to that provided by the government).
Nevertheless, these other sources of income are not yet sufficiently mature to be the whole answer to our financial difficulties. Given the uncertainties involved in the plans we have for building our revenue, it is inevitable that the University will have to look very closely at the expenditure side of the ledger. We have already in 2010 introduced significant new expenditure controls. Close examination of faculty budgets reveals wide variations among our 16 faculties in their approach to the control of various types of expenditure and we have begun the process of developing clearer central guidelines. Moreover, we believe that there are savings to be realised in continuing a program of the consolidation of administrative services. In 2003 a detailed investigation of our non-salary expenditures by external business analysts suggested that there was between $60 million and $90 million worth of savings to be found in improved processes, technology platforms and procurement strategies. As a consequence, the University has implemented a ‘shared services’ strategy over the last three years, in an attempt to ensure economies of scale through large-scale transaction process units undertaking high volume work formerly done in faculties. The aim here has been to reduce transaction costs and capitalise on effective process changes possible in large-scale units. The success of this strategy will be assessed in Chapter 4 but we have certainly made some gains. For example in the area of procurement, we have realised around $3 million a year in savings by renegotiating our electricity supply contract. There are further gains to be made on this front. We currently have over 31,000 suppliers to the University: 1500 stationery suppliers alone. By negotiating preferred supplier deals we should be able to use our size to arrive at significant discounts in a number of areas. Nonetheless, these strategies alone will not deliver the required results. Some of the evidence suggests that ‘shared services’ has not delivered the savings originally envisaged. A refinement of the ‘shared services’ model that we are proposing is outlined in Chapter 4. There is a need to reduce the organisational complexity and compartmentalisation that we saw in the first section of this chapter leads to so much duplication of activity.
These three aspects of the internal context for the current strategic planning exercise tend, therefore, to point in a similar direction: that the University needs to release resources consumed in maintaining its complex organisational life and to direct them towards teaching and research, towards salaries and infrastructure. The external context of the planning process makes it clear that a failure to do so may well render us unable to operate effectively in the international competition for the most able staff and students, and also to meet the increasing public expectations of the role of universities. In chapters 5 and 6 we shall see in greater detail some of the negative effects of our organisational complexity on our core activities of education and research. In order to give a context for the discussion of those two areas, and for the realisation of our vision for them, we introduce in the following chapter the proposed academic and administrative structure that we believe would most adequately equip the University to achieve its strategic purpose. Changing the academic and administrative structure of the University will not of itself realise our vision for education and research, but we believe that it is a necessary precondition to doing so, and that our preferred model for the organisation of the University should be outlined at this point.