August 16, 2017

University cutbacks loom but productivity a key obstacle

Keith Houghton

Australia’s universities are facing a potential $1.2 billion funding cut. An essential ingredient to the announced cuts is the ability of universities to absorb them without unintended and undesirable consequences. 

In recently published research, my co-authors and I demonstrated Australian universities had enhanced sector-wide productivity by 15.2 per cent across the period from 2007 to 2013. However, the improvement in productivity varies widely by institution.

The proposed funding cut appears to assume that all universities have an identical capacity to absorb cuts. That is to say, all universities are equally efficient or inefficient. Our research suggests that this is not so.

It is our belief that the scale of the proposed cuts, as a proportion of the government’s present contribution to higher education, implies an increase in efficiency that may not be reasonably achievable by the university sector generally across the proposed period.

Put simply, the viable likely level of efficiency gain is lower than the scale of required cuts. Either the universities (or, more specifically, their management) will need to “pull something out of the bag” or there will be repercussions. Some of these, perhaps many of these, will have consequences for the nation.

Essential but less popular and “commercially viable” education programs may be cut back further. In 10 years, how many undergraduate programs in physics or Australian history will our nation have?

There are a large number of other potential consequences including issues to do with teaching quality, the cross-subsidy of teaching income to research expenditures and the ability to fund innovation within institutions.

As shown in our research, productivity improvement can be divided into two categories: efficiency enhancements that are institution specific (described as managerial efficiency); and industry-wide efficiency (often because of changes in technology and can include generalised work practices).

While the sector-wide enhancements have been significant during the past decade or more, there are certain instances of significant inefficiency within individual institutions.

Our research shows a small number of universities are stagnating or going backwards year on year in terms of efficiency. Dealing with these inefficiencies may well mean that the suggested funding cuts may be achievable for those individual institutions.

What might the next steps be? Careful construction of the productivity estimates of each institution would seem to be a useful starting point. These also need to allow for special circumstances.

Some universities have extensive programs catering for students from remote or regional backgrounds or have highly desirable equity and diversity programs. Other institutions focus on research of an especially high quality or research that has observable impact.

Our research has shown that some universities use academic staff with considerable efficiency while their use of infrastructure and other non-academic resources is poor. Some institutions demonstrate the reverse, some are efficient at both, some inefficient across the board.

Perhaps a government with a bent towards efficiency dividends would seek to measure the efficiency starting point and would have regard to the variation in the sector as a key part of the process.

Productivity in the case of universities must be measured by reference to the efficiencies of inputs relative to combined output of each of two key elements of the outputs of universities: teaching and research. Rather than being a productivity point or productivity target, it is more correct to identify a productivity frontier to reflect the many possible positions an institution can adopt with respect to research and education.

An institution can be more research intensive, with research outcomes reflecting this, or more education focused with high levels of efficiency in respect of this more dominant activity.

Measures of productivity and an institution’s position relative to the productivity frontier is potentially a key performance indicator of each university.

In future, university councils may wish to monitor their own institution’s efficiency performance and its position on that performance relative to the frontier.

It may become desirable for the federal government to assess such productivity relative to the frontier as part of future funding arrangements, rather than treating all institutions as equally efficient or being capable of being equally efficient.

Keith Houghton is chief academic officer of the Higher Education and Research Group and Research Coaching Australia and a former dean of business and economics at the Australian National University.