HE mergers – making it happen

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22 mei 2012 | University mergers are en vogue in Europe. Their promise of cost savings and research excellence appeals to policymakers and HE leaders. But what is needed to make alliances and mergers successful? A British report points out best practices.

Mergers are becoming increasingly popular in higher education.Last year, three renowned institutes in Sweden announced they would fuse theirorganizations into one entity entailing 70.000 students and almost€1 billion in research funds. In the Netherlands, a similar trend can beobserved.

What makes scaling up so attractive to policymakers anduniversity leaders alike? A cosmetic reason might be that largerinstitutes produce more research and fare better in rankings.Beyond that, a certain scale is vital to achievingbreakthroughs.

Lessons from commercial sector

The British Higher Education Funding Council (HEFCE) had acloser look at this issue and drew up a report with best practices for collaborations,alliances and mergers (CAM). The authors note that “most researchin the HE sector, both in the UK and in other countries, hasfocused on mergers rather than collaborations, alliances, consortiaor joint ventures.”

Inspiration here can also come from the commercial sector.”Notwithstanding the many differences with higher education, someof the general lessons from the private sector are worth noting.[There,] a high percentage of mergers fail outright or do notachieve the expected benefits in terms of increased shareholdervalue or efficiency gains.”

Form, evidence and process

To guarantee that university CAM activities do not share asimilar fate, a number of questions have to be answered:

1. What form of relationship is most appropriate in thisparticular case?
2. What evidence is necessary to inform decision-making?
3. What process should be adopted to ensure the most e?ectiveoutcome?

Regarding theform of relationship, “teaching, research andknowledge exchange” needed to be placed at the heart of anypotential CAM. “Successful CAM projects have a strong academicpurpose that is underpinned by a sound economic rationale.”

The HEFCE report also warns of completing mergers simply for thesake of scale. “Issues about the size and scale of institutions arecomplex and inadequately researched in the existing literature; butsize in and of itself is rarely a good argument for merger.”

Look for complementarity

All forms of CAM entail the potential benefit that they “enableinstitutions to share risk with partners in achieving theirobjectives”. This may refer to sharing costs or capacity. Mergers,in particular, could furthermore be accompanied by other reforms.”Mergers can be a ‘point of discontinuity’ with the past, allowinginstitutions to achieve a whole series of changes that would bemore difficult to achieve piecemeal during ‘business as usual’.

In any case, complementarity is crucial for mergers. “Mergersare likely to be more successful where, through a careful analysisof objectives and activities, most of the institutions’ majoroperations are compatible or complementary.”

“Geography and distance sometimes constrain the effectiveness ofmergers, so selective collaboration might be a more viablealternative. Co-location is often necessary to deliver significantsynergy or efficiency. It is important to consider the impact onstudents and staff of any rationalisation of multi-siteoperations.”

Do not underestimate costs

Regardingevidence, the report states that a completecost-benefit analysis is vital to success. “A rigorous optionsreview, prepared objectively and subject to consultation, shouldprecede any agreement in principle, and it is important to engagewith dissenting views. Where a proposal a?ects students, theirinterests and needs will be a major priority.”

HEFCE also points out that costs could easily explode. “Merger costs are often underestimated, particularly in areassuch as harmonising pay and beneits structures, ICT systems andadministrative processes. These costs can be very substantial wherethe merger is between higher and further educationinstitutions.”

Therefore, due diligence is key – especially to minimizerenegotiation risk. “Given the tendency to underestimate costs andrisks, particular attention needs to be paid to due diligence, andit should not be done so late in the process that its resultscannot be properly taken into account and the proposal reconsideredor renegotiated if necessary.”

Avoid ambiguity

Regarding thechoice ofprocesswhich will yield an optimaloutcome, the authors say that “leadership from the outset is vital:all the initial questions concern mission and strategy, and leaderscan help to drive the whole process, overcome obstacles andnegotiate with stakeholders. Institutions and their potentialpartners should develop a shared vision before acting, as clarityabout objectives will energise the parties and avoid wastede?ort”

“The senior management structure and governance arrangements inthe new institution or venture need to be agreed at an early stage,perhaps as part of a memorandum of understanding. If these issuesare not resolved, ambiguity may undermine trust, or senior managersand governors who have a strong commitment to existing structurescould be an obstacle to change.”

“The change process is dynamic, often messy and subject to theinfluence of unexpected events; institutions should therefore agree’break points’ to mitigate the risk of being swept along andmissing warning signs. An implementation plan is an essential partof the process, and it should be kept under review and modified asnecessary.”