Government approach to efficiency can hurt unis: Houghton

There have been productivity gains but some official expectations may be misplaced, says researcher Keith Houghton.

Bridget McKenzie.

A number of universities may be unable to absorb the government’s 2.5 per cent efficiency dividend without damaging the quality of teaching and research.

“Year after year universities have made productivity gains but not of the scale that could consume $1.2 billion without some consequences,” said researcher Keith Houghton, a former business dean at the Australian National University.

With colleagues he studied the efficiency track record of universities, finding a sector-wide productivity increase of 15.2 per cent between 2007 and 2013.

However, the performance of individual universities varied widely, with some showing great efficiency and others struggling. And although all institutions benefited from system-wide changes such as better technology, only half were able to lift their institution-specific efficiency.

“The way the government has (handled this 2.5 per cent efficiency dividend) it seems to imply that every university is equally efficient or inefficient — that’s just not true,” Professor Houghton said.

“Overall, the industry has done well in terms of efficiency, it has been saving the taxpayer.

“But there are a small number of universities that, when you look year on year, they have either stagnated in terms of efficiency gains or, in one or two cases, they’ve actually going backwards.

“If I was the federal government I would want to know which those institutions are — to try to support them to turn around that level of inefficiency.”

But the government’s present indiscriminate approach threatened teaching and learning — unless university managers could “pull something out of the bag”. “If you push too hard, you’ll get unintended consequences — some of those might be important for the nation,” Professor Houghton said. Less commercially viable subjects such as physics and Australian history could come under renewed pressure.

Yesterday, Education Minister Simon Birmingham said “all (universities) should be able to find some efficiencies to deal with our slightly lower rate of growth in taxpayer funding”.

“With growth in student numbers projected to reach 37 per cent and real per-student funding at high levels, surely there are economies of scale our universities can achieve and reductions in unnecessary discretionary expenditure they can apply?”

During the Senate inquiry into the higher education bill, chair Bridget McKenzie grilled universities about vice-chancellors’ pay, how much they spent on marketing and their teaching costs.

On the 2018-19 efficiency dividend, the Senate majority report last week cited a Deloitte finding that although funding per student had increased by 15 per cent between 2010 and 2015, course delivery costs only rose by 9.5 per cent. And the report gives examples suggesting further efficiencies could be made without compromising quality.

“Victoria University, for example, explained that over the past five years it has reduced staff levels and developed a ‘fit-for-purpose staff profile’, while simul­taneously increasing its level of student satisfaction,” the report says. “In Queensland, only one in four universities have a cost management framework in place, while other Australian universities fund extracurricular marketing including sponsoring football teams.”

The report highlights the injection of demand-driven funding and the fact that universities on the most recent figures enjoy an averaging operating surplus of 6.1 per cent. It cites the economies of scale available to institutions, offering as an example the Australian Catholic University, which recorded a 220 per cent rise in subsidised teaching places, with a 227 per cent jump in federal funding, yet increased its academic workforce by only 68 per cent.

Professor Houghton said funding negotiations with universities should use data showing their performance on a “productivity frontier” — a concept acknowledging that given the same resources various institutions might allocate them in different proportions to teaching and research.

It also made sense for university councils to draw on the same idea when judging the efficient use of resources by management.

With an objective starting point, there could be more rational discussions about funding, productivity and efficiency dividends.

“Is it rational to cut someone who is already highly efficient, or should you cut someone who is inefficient?” Professor Houghton said.

By contrast, the government might recognise that small regional university campuses made efficiencies of scale difficult and instead take into account other, social and economic benefits.