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Our educational institutions aren’t just important for our skills of the future. They also play an important role in Australian innovation and research. This is a turning point for higher learning; one with an exciting future.
In our podcast, Stuart McDowall, National Head of Education, and Consulting Partner Kristy Fotiadis, discuss how universities and VET providers should be reviewing their strategies, local and international demand, and what they’re excited to see in the sector in the years to come.
Welcome to Boardroom.Media. My name is Velvet-Belle Templeman, and I'm here talking to Stuart McDowall, National Head of Education and Kristy Fotiadis a Consulting Partner with a focus on sustainability, growth strategy and organisational transformation. Australia is slowly starting to reopen and while we've been in soft lockdown, we've had a chance to think about what we need as the skills of the future and if our higher education institutions are prepared to meet that demand. Today we're going to talk about vocational education and training and universities. While the models are different, they both operate as the conduit to those all-important and emerging future skills. Thanks so much for joining us Stuart and Kristy.
Thanks Velvet-Belle, it’s good to be here.
Thank you for having us.
Now, Stuart, did you watch the Prime Minister address the National Press Club a couple of weeks ago? He had some pretty strong thoughts on the effectiveness and future of the VET sector.
I did watch the Prime Minister's address. I don't typically necessarily dial into the National Press Club. Look, I knew it would be about vocational training and higher education. I'm really interested in that sector. I do a lot of work there, so I did tune in. It's pretty clear that the government intend for, you know, a stronger role in terms of training and skills, than maybe has previously been the case. I think it's more or less been left to each state to direct training subsidies in a way that fits in with their priority. I mean, you look at any qualification say a Cert III in Concreting, you know, and you might see different states offering different levels of subsidy. So sometimes those differences are there for a reason, but, you know, I suspect that's not always the case, but something that the federal government is looking to progress is to set up an efficient price nationally for each training qualification.
So that price would then be used to decide how much each qualification would be subsidised by across the country. They set up something similar for hospitals a little while ago. So based on activity based costing all the accountants who are listening would be very familiar with activity based costing. It's an area we've done a lot of work in over the years. So the idea with that hospital pricing model is that you might have a procedure like a knee replacement, which has a set cost. And so that cost is then the basis of how much funding the hospital gets for doing that procedure almost regardless of how much it actually costs to do that procedure. So the onus then is on the hospital to manage their costs within that amount, so they know how much funding they're going to get. So you can see how something similar could be a useful tool for the training sector. So if you’re an RTO and you know that the efficient price to deliver a Cert IV in Aged Care Support, if you know what that efficient price is, then it's up to you to deliver the training for a cost, which comes in underneath that price. So you make some margin and you know you can invest in that.
And that's one of the key measures that the government used to try to influence activity in the training sector. So I've been involved in work on funding models, as well as around activity based costing. I have to say that setting up this sort of system, it's a fairly complex project. It won't happen overnight. I would like to see the government engaging widely through that process, particularly to see how a new funding model might cater to divergent needs like training in regional areas versus metro areas or training for vulnerable cohorts, people who otherwise might have trouble accessing training. That training might cost more, but that doesn't mean it's inefficient. It just means it takes more resources because of the situation. So I think we need a system that understands those differences and keeps an eye out on making outcomes better, not worse. So watch this space, but it is good to have an idea of where we might be heading.
Stuart, there was some interesting action items highlighted during that conference, such as the national skills commission and tying education programs to close to real time data on the labour market, like single touch payroll. What are your thoughts on this?
Stuart McDowall
Yes, the National Skills Commission is starting to take shape. A big part of their work will be about trying to forecast what Skills Australia needs now and obviously with a forward projection. So of course, that'll be really different across Australia. It's a big job. It's really important. So I think that's really great to see that coming together federally. It is something that's already done in different ways by each state. So at least there is a starting point there. If I was doing this, I would start by talking to each state to see if there are some easy wins there. If you can just bring that all together and leverage the good work that's already been done. To take that job down to a really granular level. I mean, a small training provider already knows what skills the local employees need, because they've got a relationship with those people.
But when I've spoken with training providers in the past, it really comes down to understanding your customers and understanding their business. Are they growing, what skills, what attributes are they looking for, for their new recruits? Trying to do that though, you know, at a macro level, across the country, that's really challenging. It'll be interesting to see how far the Skills Commission go with trying to use Single Touch Payroll data, which the Prime Minister flagged, as an option. I think that data is interesting and useful, but it won't necessarily tell you a complete story. I think to get a good handle on what's happening in industry and what skills they're likely to need, you do need to be able to deep dive a little bit more to really understand what's happening there. So for instance, if you choose a sector, if you wanted to take a close look at the mining sector, you might see that they still need boilermakers. And even though ideally, they’d employ them somewhere close to the mine, you know, maybe Newcastle or Mackay, you know, we might be seeing more fly in, fly out arrangements because those skills aren’t already there in the marketplace.
So in that sort of scenario, you won't see as much engagement of the local workforce as you might like, you might see more costs for business because you don't have really access to those skills. So taking a deeper look every now and then at different areas that might be more valuable in terms of policy decision making than just trying to use the real time data that's available. But however they get there, I think it does make sense to get a really good economic model so you can start to predict what sorts of skills you're likely to need. And then of course, the real magic is what positions you make based on that to address the gaps.
And I might echo Stuart's comment there to say, it's really the opportunity to identify the gaps, which a single provider can’t see today. So as Stuart said, a single provider might be able to see the local needs of their community in the region. But when you take a step back and you look at providers in their totality, what are the gaps that we're not meeting? And I think that's the real opportunity that the national skills commission can bring.
And Kristy it’s a different beast, but how are the universities identifying demand and areas for focus, could there be some learnings to share?
Absolutely, and actually from my perspective, it really begins by better understanding the demand for their current offerings. You know, which courses are attracting students today, and a good view that the universities, as well as the tertiary providers can be thinking about is, and it's my simple sense, course profitability. So by creating the view of matching student demand with course cost, it provides them the ability to see those courses that are profitable. Those that just break even, and those that need additional subsidies to continue to support them and this really provides the basis for future decision making. We recently did this course profitability analysis, for a provider. And interestingly, one of the big insights that they found was actually, it was a smaller number of courses that were attracting the majority of students. And I think what that then lends itself to ease around providers, having the choice of what, what else should we be providing in addition to those offerings that we have today, but also with offerings that don't make sense to take forward.
And it links into that point around strategic focus and differentiation. So what is it that we want to be known for now what's our, our flagship or our draw card and how do we actually start to create demand to some degree as well as overlaying it with the skills predictions that we'll need moving forward. So if we think about the role of the National Skills Commission, now that's starting to identify those additional skills and trends that we as a country, need. But I think at a local level, the provider still has that responsibility to say, what are the needs of our target market and our region, and what else should we be providing today? Now the Skills Commission will take a number of years to come to fruition and I think that's a period of at least one to three years there where providers still need to be addressing the gap in demand and considering what are those additional offerings that we need to be taking to market?
The thing that I would add to that Kristy, is the universities can also overlay that strategic focus with their strengths in terms of research. Obviously, research is one of those things that's really special about Australian unis. And we often see that the areas of research strength are also the areas of teaching strength in terms of the subject matter. I think you also need to overlay that research capability over the top.
Now, correct me if I'm wrong, but over time it seems that the target market for VET and universities has become increasingly divergent, that for the Australian market and universities targeting international students. Assuming I've got this right, how might COVID-19 shake that dynamic up?
Yes. In recent years, we've seen some unis really focused on international students, as well as their core market, which is obviously domestic students. Some of the unis, particularly some of the bigger ones have had upwards of 40, 45 per cent of their students were internationals. So, you know, obviously during COVID-19, we've seen a lot of those international students had to return home during semester one. And interestingly, something like 70 to 80 per cent of those students were happy to stay enrolled during semester one and they were able to continue studying remotely from home. And we know that for those students to stay engaged and to stay enrolled, we have to be able to host them back on shore because for most of them that on campus, face to face learning experience, that's a big part of why they wanted to come to Australia to study in the first place. So the sector's been really busy putting in place a lot of arrangements to try to be able to transport students back to Australia, to be able to teach them on campus in a safe way.
But COVID-19 has really shaken that up and it's interesting to see the things that are happening in the sector to try to bring students back. There has been some news reports about charter flights, maybe being arranged to be able to bring students back to Australia in a way that is consistent with the health guidelines that we have. I think if we miss another semester of face to face teaching, I do think that would be a real problem. Regardless though, of what can happen there, we do expect a dip in demand. So we are expecting fewer international students and this will affect some unis more than others. Even once the pandemic is over, I think we'll see that there's a reduction in demand. I think there'll be fewer students or families who are interested in studying overseas. Maybe that demand will take a while to come back and maybe the capacity to pay for overseas study will be reduced for some families as well.
So we will be seeing some unis who need to make some changes to balance the books. We're already seeing projects that unis have underway to try to be more efficient by improving systems or, or restructuring back office functions. So you can get smarter about some processes that will make a difference. Another thing to consider is that, as I've mentioned, unis are pretty heavily invested in research. A scaling down of unis, you know, even if that's because of fewer students to teach, that also will mean that there's less research done. I think that's a bit of a problem looming for Australia. This might not be well understood outside the sector, but if you have a slowdown in research throughput that impact Australia's innovation and it impacts Australia's productivity across the economy, and you might see that impact for a couple of years.
You might have some medical research that's not done, some engineering breakthroughs, or maybe even new varieties of fruit and vegetable, which are delayed because we've invested less in research. So I do see that as an issue, which I think deserves a little, a little more attention. In terms of vocational training, their exposure to international students is generally less. Across the sector I think we see something like 10 or 11% of students in vocational training are international students. So that's not as significant as it is the uni. Although, you know, depending on how much focus an individual provider has on the international market, they might see their business model disrupted and possibly they need to scale down as well.
I think for vocational providers the current environment post-COVID provides a real opportunity to reskill Australians. And I think there's the opportunity to remember that vocational providers aren't in competition with each other. So around Australia, we have different models. So Queensland and New South Wales have a single TAFE model. Victoria has a model whereby it has both Metro and regional TAFEs. And so the opportunity for them is to consider that the competition isn't amongst themselves, but the competition is to look at the supply side and look at who else is providing similar offerings in their region. And then to say, well, what are the opportunities in the market to rescale Australia with the skills that we'll need moving forward?
So how are universities addressing border closures? I understand many international students are still in Australia, but surely the pipeline of students won't be as robust even if the borders re-open in 20.
Absolutely for all of those reasons that Stuart stated earlier we should expect, and could rightly expect, that there might be a dip in demand. This is a really challenging time for universities, you know, from a broader political context, bilateral relations between Australia and China are really being challenged. And if we think about what international students represent it’s about $40 billion in export revenue, and I think it's Australia second largest export. So, you know, if we think about what universities represent today in the Australian market, they are just as much about educating Australians as they are an export. And so over the past two or three weeks, we've seen nearly every major university come out with either pay decreases or job cuts. Now we're seeing the unions playing a really active role in supporting workers, representing them. If I take a step back then at a global level, I think the value proposition is really challenged for universities, particularly because there's no on campus experience at the moment.
You know, when we're watching movies and we look at, you know, the American universities such as Harvard and Yale, we see the big element of sporting, the big cultural and social fabric that a university provides. And, you know, if I think about what this means for the Harvard and the Yales moving forward, they have such strong brands that it probably won't impact them. But if we bring it back down to a more sort of local level for the mid-tier universities and even the larger universities in Australia, how do we continue to provide that cultural experience, which was so crucial, particularly for international students that do come to Australia and we would like them to continue to come to Australia. How do we do that in this world, which is slightly different to what it was before and that differentiation is really crucial.
Otherwise it kind of becomes a race for efficiency or price taking at the bottom and so when we talk about differentiation, it's about student experience, but it's also about what do we want to be known for what's our drawcard. Some examples in the current market are USQ, you know, they really have a strategic focus in agricultural engineering. If I think about vocational education in Victoria and William Angliss is really known for, for cooking and hospitality, you know, there are others which are nursing focused. So I think that differentiation points should absolutely be something that all providers should be thinking about. It doesn't mean it's the only thing they provide, but it actually provides a point of focus for students to choose them.
The other thing I would add just around border closures, which is kind of interesting about universities is that a lot of unis have partnership arrangements or third party arrangements with offshore universities, or actually campuses based in other countries. You know, there's a couple of Australian unis that operate out of Singapore and, you know, similar, a lot in Southeast Asia. I think it's called transnational education. So that's a really interesting model that I know some universities are looking at and thinking about, well, if travel is something that's going to be a bit difficult over the coming years, if there's less demand for international students to come to Australia or if our border policies mean that that's impractical, is this another way that those universities can still provide education to international students without those students actually having to come to Australia? So it's a different proposition. It doesn't reflect that on campus experience that we're talking about. But it is a way that universities can still offer what they have to offer in terms of content, in terms of learning and teaching, you know, and still be active in an overseas market.
Kristy, do your clients in this space, see this as a turning point for higher education?
Absolutely. It's a turning point and I might liken it to a Kodak moment. To some degree it's both an opportunity and a threat. It's an opportunity to think differently and I think what we did before is not the same thinking that will serve us well into the future. So I think that's the first thing that boards need to be thinking about. Firstly, it's about the investment in online learning and student experience, and this is more crucial than ever. And I know some providers are bringing more of this in house than they previously have done in the past to reduce their reliance on external providers. At least two major universities that I'm aware of are significantly investing in transforming their student experience and having systems to support that. The secondary is around aligning their operating model to support the new way of working and opportunities to collaborate.
And so what that means is actually thinking about, well, how can we create synergies in our enabling functions and back office? And this might be through things such as shared services, and there are groups that exist across Australia today for the university sector, but I'd also suggest bringing that out a little further to vocational education and even private providers. What opportunities are there to share some of our back-office costs at a course design level, you know, what is the opportunity to share course design and content. And it comes back to that earlier theme that we're not in competition with each other. And, you know, let's just take nursing as a great example, whether it's in vocational education, or whether it's in higher education, we have so many organisations providing nursing and each has their own instructional designer and designing their own course content.
And so I think there's a real opportunity to say there well, how can we better share this? The third area is around the demand side of the equation again and what are the offerings that we should be putting in the market short courses as a pathway to re skill, but also how can we work more closely with industry to differentiate ourselves and provide a better proposition around career opportunities? And a great example of that, I saw it in the press late last year, it was Telstra and they've partnered with five Australian universities to jointly develop skills and capabilities that they will require for the future of work. And they were really focused around areas such as network and software engineering, cybersecurity, and data analytics. Now new areas, areas where organisations across Australia will be needing these crucial skills, particularly in a more online world post-COVID. And so I thought that was a great opportunity to demonstrate how we could define more relevant offerings that are grounded in what corporates actually need.
And longer term, and I'll direct this question to both of you, what are you most excited about for the future of higher education in Australia?
From an online perspective COVID has accelerated the change that was going to happen faster than we would have expected and so that whole online perspective student experience is really exciting. I think it raises some bold questions around how do we remain relevant in a more online world and I think the actions that organisations take now will ultimately determine their sustainability moving forward.
For me, we're all expecting a recession. Of course, something interesting to me in that is that we've got some data that suggests that during a recession, when the job market is tight in the past, we've seen an increase in the amount of interest in formal training and higher education. But the theory is that people are more willing to invest in a qualification, both in terms of their time and what it costs them when it means that they're more likely to get a decent job, you know, when that sets them apart. So maybe we'll see more people going to uni or more people going to get a trade. And at the same time, I also agree with Kristy, I think we'll see more unis investing in their strategic focus areas in trying to set themselves apart, and to be different from the other unis. And so, as a result of all of this, I think we're going to see a higher education sector that is more dynamic and stronger, and I'm pretty excited to see that happen.
Stuart and Kristy, thank you for your time.
Thank you, Velvet-Belle.
Thank you.
