Opinion
University mergers are in the news again.
This time it is the proposed merger of up to three universities in Western Australia that could create the biggest university in the country with more than a hundred thousand students. The proposed merger is symptomatic of a long policy obsession with university mergers in Australia. Notable examples of such mergers include those that came as part of the Dawkins reforms in the late 1980s as well as the recent university merger in South Australia leading to the creation of Adelaide University.
Earlier mergers are one reason why Australian universities are very large on average compared to those in other countries with similar higher education systems. On average, Australian universities now enrol more than 35,000 students each– which is approximately 2.5 times the size of the average Canadian university, for example.
One frequent reason cited for past university mergers has been that they can achieve ‘economies of scale’ that make university operations more efficient. Put another way, the claim here is that when universities increase their size, they can do more with less because of scaling effects and potential synergies across the organisation. Depending on the version, the purported economies of scale might relate to teaching, research, or administration and the associated overheads.
When citing the benefits of a merger, realising an economy of scale for administrative functions is often what people have in mind. Here, administration can include many administrative functions, such as HR and finance. A range of studies show a broadly converging picture of how administrative economies of scale manifest in universities.
In a comprehensive study published in 2022 in the journal Studies in Higher Education, Tran and Dollery investigated whether there are economies of scale in Australian universities. The study’s focus is on administrative intensity, which the authors define as the ratio of universities’ administration-related costs to their overall annual expenditure. Inter alia, the authors tested how university size – for example, in terms of student numbers – correlates with administrative intensity.
They show that up until a certain point of university size, there were increasing administrative benefits of growing size. However, beyond a key threshold size, their analysis revealed a higher administrative intensity, thus ultimately implying less efficiency. According to their modelling and after controlling for different ‘types’ of universities, this happened once a university became larger than approximately 15,000 students. Their analyses further illustrate that administrative inefficiencies at universities risk becoming particularly pronounced if a university becomes very large in size.
Another study by Andrews and Boyne (2014) investigated scale economies in the UK university system – a system that shares many similarities with the Australian in terms of system architecture and funding settings. Their focus was on universities’ central administrative intensity – understood here as the ratio of resources expended on a university’s central administration to those expended in academic faculties and departments. Similar to the findings reported by Tran and Dollery, this study found that universities’ central administrative intensity initially decreases along with increases in universities’ size, but this reverses after a certain point, when university central administration starts to consume an increasingly large share of total resources.
Complementing this picture, our own current and ongoing research has found little evidence for economies of scale when it comes to the size of universities’ senior management workforce – which seems to scale linearly along with measures such as student numbers. So far, there is little evidence of senior management becoming leaner as a university grows in size.
Taken together, this evidence indicates that most Australian universities are already operating in territory where further administrative economies of scale are unlikely. On the contrary, given how large many Australian universities are, there is much to suggest they already suffer from ‘diseconomies of scale’ and associated administrative inefficiencies.
For future university mergers, such as the proposed one in WA, achieving administrative economies of scale thus does not itself provide a strong rationale.
On the contrary, the available evidence suggests that beyond a certain point, any university merger comes with the real risk of entrenching considerable administrative diseconomies. This is without even considering the potentially enormous costs associated with integrating the various administrative systems and processes of several universities.
A/Profs Peter Woelert & Gwilym Croucher both work at The University of Melbourne