Alex Massey: Universities need an education in new ways of working

Instead, most university income will be received in the form of tuition fees, meaning that universities will be funded according to how many students they enrol. The importance of this change should not be underestimated. Suddenly, universities in England will find themselves facing harsh commercial reality: if they can't attract enough customers, they won't get enough funding to survive. So far, most of the reaction to these reforms has focused on the political aspects, with the coverage dominated by footage of protesting students. But what measures will universities themselves take to adapt to changing circumstances?

Higher education is hugely importance to the country. Every year it adds 3.65bn to the Yorkshire and Humber economy. If the sector is to stay competitive, it is crucial universities find a way to manage their resources more efficiently, while meeting the raised expectations of students paying higher fees. This may sound unlikely. However, it is achievable if universities modernise their outdated working practices. In particular, they should look at sharing services among themselves, to save time and money and to focus on teaching and research.

Shared service arrangements, where two or more organisations work together to procure a service jointly, can range from large-scale national consortia to small local partnerships, and are often used in back-room operations such as IT systems, finance, and procurement. The logic of these arrangements is obvious: it is much cheaper for a group of neighbouring organisations to share a single IT data centre, for example, rather than for each to operate their own. The national Shared Services Advisory Group has estimated that the successful use of shared services can produce savings of between 20 per cent and 50 per cent for the organisations involved.

Unfortunately, it has taken far too long for universities to wake up to the opportunities created by sharing services, particularly when compared to both private and public sector organisations. In the private sector, the sharing of services is near-ubiquitous; as long ago as 2001, a survey found that 90 per cent of Fortune 500 companies had shared service arrangements in place. Successful shared service programmes in the public sector, including NHS Shared Business Services, are also on track to deliver significant cost savings. Yet the UK's universities lag well behind. A 2008 survey found that only 26 per cent of higher education institutions have any shared services at all, while only 3 per cent share back-office functions such as human resources or finance departments. Fewer than 50 per cent of university managers would even consider a shared service in any area of operations.

What is the reason for this reluctance? The answer partly lies in the unique culture of British universities – highly autonomous institutions that guard their independence jealously. University autonomy has been central to the sector's historical success, but it can lead to undue reluctance to engage with the private sector or with other universities. In a period of national belt-tightening, it is time for higher education institutions to get over their aversion to cooperation and focus on its benefits.

The Government could also help the situation by addressing the effect of VAT on shared services. Normally a university can reclaim VAT paid on their supplies, but when they buy a service from a third party this does not always apply. The result is that some shared services need to reduce costs by more than 20 per cent (the current rate of VAT) in order to save any money. By introducing a shared services exemption for higher education, similar to the one created for the NHS, the Government could encourage a real advance in the take-up of shared services.

The problem, as usual, is the expense – such an exemption would cost the Treasury tens of millions of pounds in lost tax revenue over the short term. In the long run, however, it would save money by instilling greater efficiency in the university system.

Despite these obstacles, however, there are examples which demonstrate that sharing services can work in higher education. The number of local and regional partnerships is slowly growing; in the Yorkshire area, a company jointly owned by eight local universities is working on a project to allow the sharing of data storage capacity, with potential savings of 4m over the first five years. Nationally, most people applying to university will be familiar with UCAS, the admissions service is used by almost every institution in the country. No-one would suggest that university admissions would work better if each institution operated its own system.

There is a lot of progress still to be made, but the university sector is slowly waking up to the potential for shared services to both save money and improve service quality. It is crucial that this process continues. English universities are among the most successful in the world. In the new, competitive higher education environment, they need to keep on modernising in order to stay that way.

Alex Massey is a research fellow in Policy Exchange's education unit. He has previously written reports on school autonomy and private sector involvement in higher education, and is currently working on a report looking at discipline and behaviour in schools.