Keith Hampson’s Higher Education Management Group‘s blog has an interesting post by Keith about the need for new business models in higher education, includes the recommendation of an excellent book on building successful business models, and a description of the four core components of a business model:

Johnson, M. (2009) Seizing the whitespace Cambridge MA: Harvard Business Press

I think Keith is absolutely right about the need for new business models in universities (and colleges). At this moment, I’m working with a post-secondary institution that is trying to develop an e-learning strategy, and for this to work successfully for this organization, it has to fit several different business models that run within the same institution. Furthermore, although for-profit institutions have been forced to develop alternative business models, I think that this is also needed – perhaps even more – in publicly funded institutions, especially those facing severe cuts in government funding (or as in the USA, a rapid escalation in tuition fees), so long as they are consistent with maintaining quality and access.

One model that has been tried only at the periphery (i.e. in continuing education or business schools) is the full cost recovery program model. In this model, instead of funds all going into a central pot then being re-allocated, funds (including tuition fees and government FTE grants where appropriate) go directly to the program, which then buys back any central services required from the university (or goes outside the institution if it can get them at a higher quality or better price).

One advantage of this is that it leads to great pressure to bring down general overhead costs, which in a large research university can easily eat up half the operating budget, and in the centrally funded model, overheads tend to be a monster that must be fed before the other animals, such as academic departments.

Related to this would be a move away from departmental budgeting to activity based costing. This would allow for instance for different ways of delivering education to be better costed and analyzed. In particular, it would also enable the true cost of research to be identified and would indicate the extent to which it subsidizes – or is subsidized by – teaching activities.

Both of these business models are discussed further in our forthcoming book: Bates A and Sangra A (in press) The strategic management of technology in universities and colleges, Jossey-Bass, available by Spring, 2011


  1. It may not necessarily be so, but isn’t it likely that a full cost recovery program model would make it very difficult to secure funding for research projects?

    It seems very important to have research funding come from unbiased sources (sort of a crude example, but the big tobacco companies would not have been the right folks to look to if your project thirty years ago was to investigate causes of lung cancer).

    Is there a research component to the cost recovery idea or perhaps some other way to ensure academic freedom and research?

  2. Thanks for your comment, Elizabeth.

    I should have been clearer in my posting that I was referring more to teaching than research when I talked about ‘full cost-recovery models’. Second, I am not necessarily meaning ‘for-profit’ programs. Full cost recovery would identify all the sources of funding directly associated with that program., including government grant. These funds would balance out the full costs of offering the program.

    However, on reflection, the principle should also apply to research. Research money is of of at least three kinds: up to 40% of the time of faculty, paid for by the provincial government in Canada; research infrastructure, in the form of research labs, facilities, and increasingly IT support, which is also usually paid for on a matching basis by provincial grants; and cash research grants, which may come from Federal government or private sources such as endowments or direct grants from industry. In an activity based costing model, the research project would identify as precisely as possible the revenues associated with each of these sources, and the costs of doing the research should at the end of the day be the same as the total revenues identified. I believe some universities already use this model for research but not for teaching. Where it is not used, no-one knows whether or not research is being ‘subsidized’ by resources intended for other activities (such as teaching) – or vice versa.


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