European Universities

Diversifying Income Streams

Thomas Estermann

Head of Unit

Governance, Autonomy & Funding

4th Connecting Civil Societies of Asia and Europe:

Changing Challenges, New Ideas

An official side-event of the ASEM8 Summit

2-3 October 2010, Brussels

Brief Profile of EUA

Established in 2001

Non-governmental membership organisation

850 individual university members

35 National Rectors’ Conferences Members

46 countries

Independent voice for the university sector

Focus on EHA and ERA

Pillars of financial sustainability

1

•Identification of costs of activities and projects

• Diversified income structure

• Sufficient & sustainable public funding

Financial sustainability

EUDIS: diversifying income streams

State of play of income diversification in European universities

Role of public authorities:

• Regulatory framework

• Funding modalities

• Incentives

Proactive universities:

• Strategic drivers for income diversification

• Challenges and obstacles

• Success factors

EUDIS data collection

• Online questionnaire (Summer 2009)

• 3 seminars (2009-2010)

• Site visits & case studies (2009-2010)

• Additional questionnaires (2010)

…5…

Monitoring of the economic

downturn

Income diversification

Generation of additional income (through new or existing funding sources) that contributes to balancing the income structure of the institution.

Public sources

Private sources Block grant/ line-item

Project/ targeted funding

Increase of existing

funding

Increase in core

public funding Diversification Diversification

Creation of new funding

stream Diversification of public funding Diversification

State of Play

Average income structure

72.78%

9.05%

6.48%

3.04%

4.50% 4.14% Public funding (national andregional)

Student contributions

Funding coming from contractswith business sector

International public funding

Philanthropic funding

Service-related income

Income structure – direct public funding

Block grants

• Most countries deliver core funding through block grants

• Funding formulae tend to be mostly based on input criteria – however, increased use of output criteria => influences university’s strategic choices (RAE exercise in the UK)

Competitive funding

• Increasingly relevant for universities in context of stagnating budgets – success rate may even be criterion for funding formula

• Requires universities to invest in their research support capacities

Targeted funding

• With economic dowturn: some authorities tend to cut in block grants and re-introduce targeted funding geared towards the achievement of specific objectives => restricts auonomy

Alternative income streams

Alternative income streams

Contracts with the private sector: 5-7% on average

but wide range (up to 25%)

Philanthropic funding: 3-4% - importance of

competitive funding from foundations

Income-generating services: 4% - UK leader –

facilities & catering; consultancy highest sources

Financial activities

International public funding (mostly EU)

Alternative income streams

International public funding: mostly made up of EU funds

Increasingly complex financial management

Expectations on income streams evolution

…14…

74.07% 67.31% 65.00% 62.82% 61.25%

56.92%

0%

10%

20%

30%

40%

50%

60%

70%

80%

European Unionfunding

Philanthropicincome from

alumni

Contracts withbusiness sector

Contributions(fees) from

Internationalstudents

Income generatedby lifelong

learning activities

Philanthropicincome fromfoundations /

charities(including

competitivegrants)

The sources that are most widely expected to increase are:

Expectations on income streams evolution

…15…

Public funding in its different forms is the source that is most widely expected to decrease:

43.04%

30.77% 28.57%

26.53%

18.18% 16.36%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Teaching:national public

funding

Infrastructures /facilities: national

public funding

Research:national public

funding

Teaching: regionalpublic funding

Infrastructures /facilities: regional

public funding

Research:regional public

funding

Crisis Monitoring

Data collected is often partial, not considering:

Increase in costs of activities and changes in inflation

Trends represent 6 categories:

MAJOR CUTS: Latvia, Italy, Greece

CUTS 5-10%: UK, Estonia, Ireland, Lithuania, Romania

CUTS 0-5%: Czech Rep., Poland, Croatia, Serbia, FYROM

NO DIRECT CUTS YET: Norway, Sweden, Finland, Denmark, Netherlands, Switzerland

GOVT. COMMITMENT DISCARDED: Hungary, Austria, Belgium (NL+FR com.)

GOVT. COMMITMENT UPHELD: France, Germany (some Länder) ,Portugal

…16…

The role of public authorities

Autonomy as a pre-requisite

Correlation between level of financial autonomy and degree of diversification (share of alternative income)

Financial autonomy is key to allow university to develop partnerships, borrow from banks, create satellite entities

In turn, a diversified funding base enhances autonomy (reduced dependency towards the funder)

Authorities see autonomy reform as a key driver for income diversification

BUT not enough: needs to go with appropriate support for skills and structure development

Funding modalities

Impact income diversification:

Funding formulae

Competitive project funding

Excellence schemes

Targeted funds

BUT no sustainable income diversification if:

Excessive complexity and administrative burden

Extreme complexity of European funding schemes

CO-FUNDING requirements

Co-funding

Requires the university to self-finance part of the activity – in effect does not drive diversification as universities will take from the core resources

Typically applies to competitive funding, notably at EU level

But increasingly used by main public authorities

Universities with diversified income structures are more confronted to co-funding: this is not sustainable.

28.38%

39.19%

16.22%

1.35% 14.86%

Only for funding coming from Europeanschemes / other international sources

For a minority of the funding comingfrom public sources

For most of the funding coming frompublic sources

For the funding coming from privatesources

Both for public and private funding, thisis common practice

Co-funding

Measures taken by public authorities

31.1%

45.2%

45.5%

48.5%

55.9%

8.2%

12.9%

4.5%

7.4%

23.5%

60.7%

41.9%

50.0%

44.1%

20.6%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Matched funding schemes

Favourable regulations on intellectualproperty rights

Tax exemptions

Specific funding for lifelong learningactivities

Reforms increasing the degree ofautonomy of HEIs

existing or under implementation under consideration no

Recommended measures

Matched funding schemes: instrument with much potential, under-used in Europe

Improved funding modalities:

Simplification of funding schemes

Funding on a full cost basis

Support to development of full costing in universities

Improved framework conditions – autonomy and governance reforms

Support to leadership development and professionalisation of management

Universities

What drives institutions to diversify?

General economic context

Risk management and dependency on state funding

Mission expansion

Additional funds to exisiting activities

Funding new activities for which there is no external support

Need for flexibility and “unconstrained” money

Enhancing competitiveness

Academic prestige of certain competitive schemes

Internal obstacles

51.25%

59.52%

60.53%

61.45%

66.67%

67.07%

67.86%

72.84%

80%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Conflict with academic ethics

Negative attitudes towards relations with business

Uneven distribution of possibilities in the institution

Limitations set by law

Negative attitudes towards diversification

Lack of managerial expertise/competence

Internal structure/Lack of specific structure

Divert academics from core mission/activities

Lack of information/awareness among academics

Measures taken by universities to support

income diversification

28.57%

29.63%

34.15%

49.41%

55.81%

58.02%

64.29%

65.48%

70.24%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Market new activities

Internal reward mechanisms at faculty level

Internal reward mechanisms at individual staff level

Creation of foundation

Creation of development office/equivalent structure

Training/information campaigns for staff

Internal funding allocation mechanisms

Orientation towards lifelong learning activities

Creation of spin-off companies & science parks

Integrating income diversification in the

university’s strategy

1. Identify the strengths & specificities of the university to develop a branding strategy – strategic approach

2. Analyse perspectives for income generation of your activities

3. Invest in people, leadership and management

Professional HR & staff recruitment – bringing experts in, including from outside higher education

Investment in new positions at all levels (from research administrative support to fundraising director and vice-rector for enterprise)

Define leadership roles, both academic and professional

4. Communicate Internal (creating the case for change and raising awareness)

External (projecting the brand)

Integrating income diversification in the

university’s strategy

5. Change structures and organisation Creation of specific units (Advancement/fundraising offices)

Reorganisation of governance structure or specific competences for groups within governing bodies

Investment in information tools to guide the process

Good data and reporting/monitoring systems

6. Provide internal incentives Individual rewards and incentives – eg. promotions, remuneration

Faculty/departmental rewards –eg. commercialisation revenue apportionment

Seed money for new initiatives

Making things easy for academics through better support

In a nutshell:

Integrate income diversification in your strategy in line with missions

and identity

Invest in people: training of academic and administrative staff,

establish strong & stable leadership and management

Incentivise your faculties & staff to take an active part in income

diversification

Interact smartly:

set up professional stakeholder management and communication

strategy

"in" strategy

All actors need to work together!