By Dr Tim Cahill
It is accepted that Australian universities run research at a loss, with research cross-subsidised from student fees. Across the sector this results in around a $4.1b difference between research revenue and research expenditure, or about 42 per cent of research which is funded from non-research revenue.
Australia’s $9.7b university research sector is massively underwritten by the international student market. This would be fine – loss leading business units are cross-subsidised all the time in other sectors – except that the countries in question are building domestic capability to train students in-country and create an education industry of their own. China’s Double World-Class Project, aims to have 42 world-class Chinese universities by 2050, while India’s Institutions of Eminence program, will grant 20 institutions academic and administrative autonomy to drive their global competitiveness and growth. These longer-term risks aside, the unfolding impact of coronavirus should be evidence enough that this is a fraught basis upon which to build our national research agenda.
Recent policy changes are going to significantly increase the need for cross-subsidy – changes to the Research Block Grant (RBG) formula from 2021 diminish the weight of ARC and NHMRC grants on the allocation, which means a greater overhead from these grants will be absorbed by universities. And the decision to include Medical Research Future Fund (MRFF) grants as Category 1 in the 2019 Higher Education Research Data Collection (HERDC) guidelines, without corresponding increases in RBG funding levels, will further diminish the effective return on the dollar, increasing the overhead costs that have to be funded from elsewhere. In this context, the current business model of cross-subsidisation of research from teaching appears unsustainable.
More broadly, universities are already facing a new policy paradigm characterised by transparent costing, re-capping of student places and strong signals from government for universities to move more of their research funding into industry. With this as my backdrop, here are three predictions for what the future of university-based research holds.
Universities will begin to think about their research portfolio in terms of profit and loss. More importantly, universities will be forced to think about the balance between supporting loss-leading ARC and NHMRC funding, on the one hand, versus cost neutral and even profitable industry and other funding, on the other hand. It will not be uncommon to see universities decide to move out of ARC and NHMRC grants, given the increased overheads that need to be recovered from other sources – the alternative is to generate ever more teaching revenue to cover the shortfall. Even for those universities that remain wedded to Category 1 funding, it will become common place for them to focus their efforts on “winning proposals” and discourage broad participation in funding applications. By cutting down on the effort expended in pursuing unsuccessful proposals (be that academics’ time or administrative support and systems), some overheads can be reduced up front.
Universities are already diversifying their research funding heavily into Category 3 income sources – in 2018 this totalled $351m and $185m from Australian and international for-profit companies, respectively. That compares with $641m and $671m from the ARC and NHMRC respectively. However, the research is still often transactional, by which I mean universities are getting paid by industry to assist with short term problem-solving engagements. This is just skimming the surface of the value that universities can add to industry. The real value is tapping into deep, basic research capabilities that very few companies sustain in-house. This is where companies can access the kind of breakthroughs that drive years of market dominance.
To do this will need both universities and industry to think less transactionally, and more in terms of partnerships. For Category 3 revenue to replace Category 1, it needs to be stable and predictable (the allocation of ARC and NHMRC funding by institution changes by only the smallest margins each year). This requires long term commitments of funding, premised on the possibility of large returns, and not one off transactions to solve immediate problems.
If the way that research is funded is changing, so will be the way research is supported. Now, the entire research management process is ”project-based”. Across the pre-award through post-award lifecycle, the research project is the unit of concern, and 3-5-year project planning is the norm. This often only involves the researchers themselves. Moving into long term industry partnerships will require a new set of support skills and services. A few things that will be different – first, there will be many more sources of “funding” than ARC and NHMRC, as a university develops significant relationships with industry partners; second, these funding sources could last for many more years than an ARC or NHMRC project grant, and will need to be planned and monitored from the top-down; there is no pre- and post-award, instead there is funding, resources, relationships, outputs and outcomes. The management of this is less about project management, and more about program and portfolio management. To do this well requires a new set of skills that we are only starting to glimpse – key account management, logic models, CRMs as core technologies, capability mapping … the list goes on.
What are inevitably coming are big shifts in the way that research is funded and the way that research is managed. What we need to defend against is shifting the nature of research that gets done. Universities need to remain the natural home of enquiry-led, basic research. They must seek partners who understand this and are willing to invest significantly over the long term because they know that the returns will be worthwhile.
 Based on the latest available full set of HERDC, RBG and NSRC data from 2016.
 My own analysis suggests that 2019 RBGs returned around 22 cents in the dollar to each university for Category 1 grants. However, if the full $1b of MRFF grants were included as Category 1 each grant would return only 13 cents in the dollar.
For over 15 years Dr Tim Cahill has worked with stakeholders across the public, private and non-profit sectors to maximise the benefits of publicly funded research investment. He is Australia’s leading management consultant working in the area of higher education research strategy, operations and policy. He is a national and international thought leader contributing to media on university policy, innovation, research engagement and impact, and research evaluation. He is Managing Director of Research Strategies Australia.