The importance of transformation for UK universities

72% of universities in England may encounter financial shortfalls by 2025-26, as highlighted by the Office for Students (OfS). This stems from factors such as declining international student recruitment, fewer UK undergraduate entrants, and the impact of increased National Insurance contributions (NICs), which have added £372m annually to universities' staffing costs.

Projections suggest that significantly more universities than anticipated will face financial difficulties in the years ahead. Without proactive measures, which may include mergers, federations, closures or scaled-back operations, as well as individual institutional transformation, some of these outcomes could harm economic growth and industries reliant on graduate talent and innovative research.

This article explores the strands of transformative strategies that UK universities can assess to overcome fiscal challenges and safeguard their vital contributions to growth and global competitiveness.

Cost-sharing collaborations for UK universities

Collaboration offers a practical approach for universities to reduce costs without compromising their missions. By working together, universities can share support service functions such as payroll and IT infrastructure, and explore the potential for shared resources, such as libraries.  

In the US, initiatives like the Big Ten Academic Alliance demonstrate the benefits of pooling academic resources, where universities such as the University of Michigan and the University of Illinois have been able to offer their students large amounts of research materials that would be unaffordable individually. In the UK, methods such as inter-library loans facilitate sharing of materials, and UK Research and Innovation (UKRI) funding often comes with a requirement to mandate open access to research publications and to make research data as open as possible, fostering further collaboration.

The Scottish education sector provides several examples of shared services, including the joint management of educational resources, research partnerships and procurement alliances. Across the UK, there are other examples such as the Crescent Purchasing Consortium, which specialises in procurement for the education sector. Given some of the challenges in recruiting staff with the industry and technical skills needed for delivery of apprenticeships, there could be merit in further development of collaboration in respect of staff recruitment and sharing of specific staff with high-demand skills.

Over and above business-enabling functions, Penryn Campus is an example of two UK universities, Falmouth University and the University of Exeter, sharing buildings, facilities and services provided by Falmouth Exeter Plus, with a particular emphasis on the environment and sustainability. Similarly, the Vet School partnership between Keele University and Harper Adams University, and the Hull York Medical School collaboration, highlight the potential for shared delivery models in specialised areas. 

Pilot programmes and feasibility studies into cost-sharing collaborations indicate that these sometimes yield minimal lasting impact due to challenges in sustaining such initiatives at scale. To overcome these barriers, UK universities must build reliable and scalable shared services frameworks, identifying which functions are of strategic importance and which could be outsourced or co-managed with other institutions. Successful examples of staff sharing and joint research centres highlight opportunities for deeper collaboration that sustains quality while managing costs effectively.  

Hybrid learning investments

The shift towards hybrid and online education has become more of a necessity rather than a choice. With rising tuition costs and changing career demands, many students are opting for alternative education routes, such as degree apprenticeships, online courses, and the over 10,000 free programmes offered by major tech companies like Google, Microsoft, and Amazon. The sector has also long since been integrating these trends into their own hybrid learning strategies, with Massive Open Online Courses (MOOCs) and other online provisions, for example through FutureLearn.

A larger proportion of hybrid and online programmes are offered at the postgraduate level, with Neil Mosley Consulting identifying over 3,250 online postgraduate courses available at UK universities in 2023, compared to 394 online undergraduate courses. With increasing numbers of universities now offering hybrid or online-only programmes at the undergraduate level, expanding these offerings could break down geographic barriers, further attract international students and reach underserved or non-traditional populations. 

To thrive in the future, universities must build on the investments and lessons learned from the pandemic, balancing the on-campus student experience with the flexibility of digital learning. By adopting the right tools and platforms, such as AI-driven adaptive learning to deliver engaging hybrid content, universities can enhance the student experience. These innovations could personalise learning to an even greater extent and also contribute to retention and continuation through early identification of struggling students and the offer of tailored support. 

Revenue diversification

Relying solely on traditional income streams and student number growth is no longer viable for the sector. The widely reported changes in visa arrangements have already had a significant impact this past year, and the longer-term effects of declining demographics will further challenge future growth. Financial sustainability measures include universities continuing to explore innovative revenue streams, such as collaborating with industries through further research partnerships. Many universities already do this, but there are opportunities to take it a step further by adopting ‘Innovation-as-a-Service’, which feeds into the innovation agenda, for example as part of UKRI’s Innovation Accelerator programme.

For instance, universities could offer research and development (R&D) capabilities as subscription services, focusing on advanced fields like quantum computing, generative AI, or biotech. Further developing relationships with businesses could continue the move from transactional collaborations to integrated partnerships to create deeper ties, align long-term goals, and provide consistent funding streams. This may help to reinvigorate the number of interactions between universities and businesses, which have fallen recently.

Leadership-driven transformation for sustainable growth

Determining the need for change is a significant first step, but how universities navigate and implement that change is equally critical. From discussions within the sector, the strategic imperative is clearly understood, as is the time commitment and encouragement needed for staff to embrace change. For UK universities to thrive amid today’s fiscal and demographic realities, they must align aspirations with actionable goals and ensure leadership is both engaged and empowered. This requires board-level support to prioritise transformation, clear goals that align financial results with the institution’s objectives, and leadership that is ready to implement decisions. 

Establishing effective governance and reporting frameworks to oversee and direct transformation plans will be important focus areas. This supports the continuation of ‘business as usual’ for current students and staff, with time and resources set aside to ensure that the intended benefits and savings of the transformation materialise.

Introducing new programmes or refining recruitment strategies are unlikely to be sufficient to address current and future challenges. Instead, institutions must differentiate themselves in meaningful ways, creating distinctive pathways and services that support students throughout their lifetimes. This differentiation will involve incorporating the legacy model of residential education as part of a portfolio of delivery models to engage new and wider cohorts. 

The urgent need for transformation for UK universities

The fiscal challenges facing UK universities are undeniable, which brings into sharp focus the opportunities to adapt and progress. There are a host of ideas that universities can implement, some of which we highlighted: cost-sharing collaborations, investing in digital learning, and diversifying revenue streams, through which universities can reaffirm themselves as global leaders in learning, education and innovation. Without a bold approach, institutions risk missing opportunities to thrive — and for some, to survive — in the decade ahead. The path forward requires brave decisions and strategic investments, though with the right approach, the sector can transform challenges into opportunities for growth and success.

For more information about the higher education sector, please contact Lisa Randall or your usual RSM contact.