UK universities “punch above their weight” in areas such as winning Nobel prizes, citations and attracting EU research funding. Question: how do these institutions create value? Jyoti Banerjee points out that by adopting the principles of integrated thinking and reporting, universities can move away from a focus on reporting short term financial metrics to a multi-stakeholder approach which offers compelling narratives about their value.
As CFO of Exeter University, Andrew Connolly is always seeking to balance the challenges of the higher education sector with the task of managing the finances of a leading British academic institution. He points out, “UK Higher Education punches above its weight in areas such as winning Nobel prizes, citations and attracting EU research funding. Yet our stakeholders are highly focused on student fees and the media’s attention is on vice-chancellor pay.”
It’s not that these aren’t legitimate areas to focus on but “we need to shift the narrative on the bigger and wider issue of how we create value,” explains Connolly. But how do universities create value? What are the drivers of value in an academic setting?
Since the founding of the integrated reporting movement, one of its tenets has been the increasingly flimsy connection between an organisation’s balance sheet and the value it creates. An oft-quoted Ocean Tomo study claims that 84% of the value of Standard & Poor 500 companies in 2015 came from intangible assets. If that is true for corporates, how much more aware do we need to be of the role of intangible drivers of value when it comes to universities?
Exeter is one of ten UK universities that worked with Advance HE to explore, test and evaluate the principles of Integrated Reporting in their sector. The outcome of this collaborative project, and a previous exercise led by BUFDG, is that we now have a number of university annual reports based on the principles of integrated reporting, including reports from Edinburgh, Newcastle, Abertay and Exeter universities. The re-thinking of value by this pathfinder group of universities has shown some real insights on how to tackle the current challenges around the perception and telling of how higher education creates value?
During the past year, I have had the privilege of participating at various points of the integrated thinking journey that these universities are making. For me, the biggest change I observe in these organisations is a shift in perspective. The financial orientation of the way we look at universities means that university managements end up focusing on metrics that drive financial performance. Even though universities are primarily about people, ideas and relationships, management focus is often on KPIs related to financial performance, in a way that is similar to how companies end up focusing on those KPIs they believe their shareholders are interested in.
Connolly agrees on the shift in perspective that integrated reporting is bringing: “Whereas we used to write out financial statements with a narrow audience in mind, primarily our bank, we now have a multi-stakeholder approach to a wider annual report, from students and strategic partners to funders and, of course, the bank and investors.”
Sir Steve Smith, vice-chancellor at Exeter, is appreciative of this change in approach. “Having an annual report based on integrated reporting principles gives us a tool and a resource to inform future narratives about the value that the University of Exeter creates,” Sir Steve points out. “Through this, we can explain what we do and how we add value, enabling us to move away from a narrative where value-for-money is spelt M-O-N-E-Y.”
The implications of a value perspective
So how does the integrated concept impact the way universities work? I see four particular consequences of an integrated approach to managing a university.
One, an integrated approach removes the disconnects between management practice and reporting. This echoes the finding in the corporate sector that reporting is not left out in the cold any more when integrated thinking is being practiced. Two, integrated thinking brings the different stakeholders of a university into the same level playground when it comes to understanding impacts and outcomes. Three, the value created by a university is increasingly being understood across the multiple capitals. This is much deeper and wider than value for money. It’s about understanding the relationships between the resources available to a university, the stakeholders impacted by the activities of the institution, and the consequent creation (or destruction) of value across the multiple capitals.
The fourth issue is transparency – more than half the universities involved in the programme report that they are changing their understanding of what it means to be transparent.
Andrew Connolly is clear in his mind that things needed to change in the HE sector: “The quality of reporting to stakeholders in higher education is generally low. We need to be much smarter about convincing our stakeholders of the value that we create over the short, medium and long term”.
I am entirely in agreement with him on this. But I have an additional personal hope that the work that the universities do in developing tools around the true value drivers in their institutions – around people, ideas and relationships – will end up being widely used across the business world as well, where financial tools have had a hundred-year lead. We can all benefit from the work that the universities do – and that, unsurprisingly, is exactly what we would expect of them.
Note: This blog has also been published by Advance HE and by the IIRC.