University operating model: why cost-cutting won’t cut it
Universities can trim costs or freeze spending all they like…for most, it won’t be enough.
Many years ago, my old boss, Eckhard Pfeiffer, gave me a piece of advice that has helped me many times throughout my business career:
If you want to reduce costs by 5%, squeeze your supply chain a bit harder. If you want to reduce your costs by 50%, then do things differently.”
It was a refreshingly simple observation about something enormously complicated. Incremental improvements might make an existing business more efficient, but transformational change requires you to question how the business operates in the first place.
I’ve been thinking about those words following comments by Professor Wendy Larner, VC of Cardiff University. Speaking at a recent Times Higher Education event, she argued that universities can no longer afford to replicate a “scaled-up Oxbridge (target operating) model”
Larner’s central argument was that the sector needs to rethink its entire operating model, rather than simply its funding arrangements – a.k.a. fiddling at the edges.
She’s asking an important question for sure, but there’s an even more fundamental one to ask:
Are university executive boards equipped to lead that transformation?
Cutting Costs Is Not the Same as Changing the University Operating Model
The financial pressures facing universities are well documented. According to the OfS, 35.8% of English higher education providers reported deficits in 2024-25, with 42.7% forecast to do so in 2025-26.
Universities have responded with recruitment freezes, voluntary redundancy schemes, and even programme closures. Some of these measures are of course necessary, but there’s a massive difference between making an existing operating model cheaper and designing one that will sustain the institution for future generations.
Most universities run dozens and dozens of programmes, each with its own teaching requirements, administrative processes and academic infrastructure. Consolidating purchasing power or reducing vacancies may temporarily improve finances, but it doesn’t necessarily address whether those programmes, delivery methods and org. structures remain fit for purpose.
The evolving landscape necessitates flexibility in the university operating model to ensure sustained relevance.
Pfeiffer’s observation wasn’t really about percentages. It was about recognising when the challenge is so great, so immense, it demands a radical rethink.
The Higher Education model demands a radical rethink
That’s where university leadership capabilities come into sharp focus.
The Challenge Around the Executive Table
Most Vice-Chancellors have built their careers inside academia. A 2025 HEPI study of 153 UK Vice-Chancellors found 115 had already held senior university leadership roles; only eight came from outside the sector. Most were hired from institutions just like their own. That’s comforting in one sense, but hardly surprising. Universities need leaders who understand scholarship, research, culture and academic excellence.
But here’s the twist: those eight outsiders led the institutions that performed best in the league tables. It’s a small sample, and the authors are understandably cautious about saying so explicitly, but it suggests the sector’s “safety first” instinct may be the riskiest choice of all.
Successfully leading academic institutions doesn’t automatically equip someone to redesign a hugely complex, heavily regulated and politically charged operating model. Neither, for that matter, does having a purely commercial background (in case you think this is leading to an unbridled sales pitch).
No, the challenge is assembling an executive team with sufficiently diverse experience, then creating an environment where those different perspectives come together to influence decisions for institutional betterment.
All challenges come with different perspectives: A CFO sees an unsustainable cost base. A PVC may see an essential academic discipline; a COO may identify organisational duplication, whereas an Admissions Director may identify an emergent market opportunity.
All of them might be right in their own way, but who wins out in the strategic plan? The difficulty arises when professional expertise is perceived as a challenge to academic authority, or academic concerns are dismissed as resistance to necessary change.
Neither approach is particularly helpful.
Trust, rather than institutional knowledge, may prove to be the missing leadership ingredient.
The strongest Vice-Chancellors will recognise that they don’t need to know every single answer. They need colleagues who are prepared to challenge assumptions, disagree constructively and ultimately commit to a shared direction.
That kind of team dynamic demands intellectual humility from everyone. Everyone.
The university operating model must adapt to meet the changing needs of students, research bodies and what Warren Buffett calls “Mr Market” (his words).
Rethinking the University Operating Model
Not, I would suggest, with another restructuring announcement.
Before making decisions, the executive team needs a settled understanding of the “as is” and what the university is trying to become, the “to be”.
What will distinguish the institution in 5, 10, 25 years? Which students and communities should it serve? Which programmes deliver genuine academic, social and financial value? Is complexity adding value, or is it adding cost and friction?
Crucially, what activities should the university stop doing?
These are strategic questions requiring evidence, not departmental protectionism.
An effective executive board might explore several alternative models, examining different approaches to teaching delivery, programme portfolios, partnerships, professional services and technology. Each should be tested against financial sustainability, academic quality, student outcomes and institutional purpose.
A flexible university operating model can enhance institutional resilience.
Collaboration is key to a successful university operating model.
The governing body must participate in that challenge, too. Universities should resist importing corporate practices indiscriminately. Their mission of research, academic independence and public good makes them fundamentally different from conventional businesses.
But being different doesn’t exempt them from economic reality.
Exploring different options can lead to a robust university operating model.
The discussions around the university operating model will shape future pathways.
What If We Do Nothing?
A reasonable question and the one that deserves a lot of attention.
Doing nothing doesn’t mean twiddling your fingers because the world will keep spinning regardless. Teaching continues, as does research and also recruiting, maybe even making modest efficiencies too. Hiring freezes, capital investments “paused”, struggling programmes survive another recruitment cycle.
Taken individually, these decisions all seem reasonable but, taken collectively, these decisions simultaneously diminish the student experience, staff morale, institutional competitiveness and financial stability. The danger isn’t necessarily immediate institutional failure; it’s the gradual erosion in the number of choices available.
Of course, transformation carries risks of its own; a poorly handled restructuring can damage the academic strengths that make a university’s reputation so important. Maintaining the status quo, however, comes with its own set of risks.
Nobody said it would be easy.
Leadership Means Making Tough Choices
Wendy Larner‘s argument deserves serious consideration because she is challenging something deeper than the university’s basic expenditure. She’s asking whether the original assumptions underpinning the traditional university remain fit for purpose.
For executive boards, that might mean hard choices, being open to opinions from outside the tent, and creating an atmosphere of trust to have those difficult conversations.
Back to my old boss, Eckhard, who understood that there comes a point when squeezing the existing model harder isn’t enough; we need to do things differently to optimise the University operating model.
The question for universities is whether they recognise that point before financial circumstances dictate the choices for them.
Read: KEF6 and Why Universities Need More Industry Partnerships
Read: The Future of Universities: Protecting What the Markets Cannot