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As the funding crisis in UK higher education goes on, it is becoming increasingly clear that a wave of strategic and operational changes being undertaken by virtually every provider in the country is reshaping the whole sector.

PA Consulting¡¯s latest of university leaders makes clear that, rather than wait for government direction, vice-chancellors and their teams are recognising that they are best placed ¨C with both the agency and the vision ¨C to build their own futures amid near-unanimous agreement about the scale of the challenges facing the sector.

Until recently, most UK universities built their business strategies on expectations (or hopes) that rising demand for their services ¨C especially from premium-paying international students ¨C would insulate them from looming difficulties. But our survey shows an almost universal retreat from this mindset, with most universities now planning to consolidate and even cut back on student recruitment and concentrate on a reliable core of fee income.

This more cautious ¨C or, arguably, more realistic ¨C outlook is coupled with extensive measures to boost operational efficiency. Universities are adopting turnaround strategies similar to those adopted by other public and private sector organisations in response to the 2008 financial crisis, including cost-cutting, financial restructuring and organisational streamlining. ?

The visible effects of this have mainly been downsizing and efficiency measures, often generating painful redundancies and portfolio rationalisations. Such measures are sometimes crisis-driven, aimed at stemming financial shortfalls and reassuring nervous creditors, but are nonetheless necessary for a sector whose core business streams have become structurally loss-making.

Still, it is critical that universities look at their whole range of activities, across both academic and professional services, and avoid reactive and uncoordinated measures that may reduce costs in the short term but fail to address the underlying structural issues and fail to align with the evolving demands for higher education.

Survey responses highlight growing confidence in demand for academic programmes with high employment rates and for online provision ¨C particularly lifelong learning and industry-focused education and training contracts. But to stay relevant, institutions must adopt new models of teaching and learning and embrace digital technologies, especially AI, to support more flexible and efficient ways of working.

Vice-chancellors recognise the potential of AI but also note that both the technology and institutional readiness are still developing. They should adopt an agile approach ¨C start small, learn from failures and scale fast ¨C initially in detailed areas such as policy standardisation, assessment management and student engagement. They should avoid overly complicated plans that promise the world but fail to deliver practical benefits.

There is considerable scope to derive efficiencies from inter-institutional co-operation, such as sharing back-office processes or IT systems or coordinating course provision across localities. But while some vice-chancellors have realised real benefits and savings from such initiatives, others have been held back by perceived practical, cultural and even legal constraints.

Part of the challenge lies in the internal complexities of universities themselves. Academic programmes and operational processes ¨C often built up over many years ¨C can become deeply embedded, leading to substantial duplications and suboptimal outcomes between providers, especially at city and regional levels. And universities¡¯ strategic plans tend to focus on institution-centric metrics rather than their impacts on broader local and national outcomes that might be best furthered by collaboration, such as improving workforce skills and productivity, enhancing community well-being or boosting industrial competitiveness.

The complex cultures and structures of universities can also make it difficult for external partners, such as local authorities and small businesses, to engage with them. This can mean they are overlooked in local planning and development efforts. It helps explain why national and regional initiatives aimed at fostering collaboration between universities and local stakeholders have not always translated into meaningful, on-the-ground impact.

In addition, collaboration and community focus is inhibited by the marketised system in which universities operate, pitting them in zero-sum competition with each other for funding. A culture of insularity and futile competitiveness is not inevitable but it gets reinforced when concerns about potential institutional failures leads universities to look first to their own survival.

Nevertheless, collaboration could generate strategic advantage rather than structural risk if, in addition to pushing through the Lifelong Learning Entitlement and regional economic devolution, the government were to reduce policies and regulations that currently limit it, particularly at regional and city levels. Universities could diversify their service portfolios through industry- and place-based partnerships.

While the full impact of the major changes already under way will take time to unfold, it is already clear that a systemic realignment is occurring. And while that might remain painful in many respects, there is quiet confidence among sector leaders that the end result will be more efficient and adaptable provision.

The opportunity now is to build on this momentum and ensure a healthy sector that delivers even greater value for students and society in the future.

Jonathan Barton and Mike Boxall are higher education experts at PA Consulting.