Strategic Risks & Opportunities for 21st Century Risk Registers

Reputation risk is on the rise – are you managing yours effectively? Emerging Risk Report: Issue 80
April 29, 2019
Broker Spotlight: Barry Bernasconi
May 20, 2019

Strategic Risks & Opportunities for 21st Century Risk Registers

Cityscape of Paris, France from Basilique du Sacré-Coeur in Montmartre. Urban skyline.

Harry Rosenthal, General Manager, Risk Management Services, Unimutual 

The higher education and research sector faces a set list of long-term strategic risks, including student growth, reputation, research profile, international rankings, and financial security. These risks are thought to be well understood, and are usually identified, analysed, assessed, and then planned for accordingly.

However, how often do you consider new disruptive technologies and businesses while maintaining your strategic risk register? These are your future strategic risks. It is common for these issues to slowly manifest and then only be addressed once the new risk is already affecting your industry. For example, Uber was established in 2009, but it went unnoticed by the taxi industry until the first major protest in 2015. By that time the industry was irreversibly affected.

For the higher education and research sector, spotting the storm clouds on the horizon is not a simple matter. But it is crucially important that as risk professionals we look at the long-range potential of emerging risks and start to understand and manage them early.

The following addresses three “long-range radar” risks facing the sector, offered only as examples of the types of emerging strategic risks that we encourage Members to be thinking about and discussing with their committees.

Risk No. 1 – Will they come?

Student numbers are both a key performance indicator for educational institutions, and a part of their strategic risk assessment process. The future risk here is changing attitudes towards higher education.

Students seeking careers as licensed or registered professionals (such as dentists, engineers, or solicitors) will likely always require degrees, but what about students heading into other careers? Students are asking, more and more frequently, “Why should I go to university?”. Traditionally, higher education has been a pathway into better paying jobs: currently data shows this to still be true, but – with changes in technologies, new types of employment, and cultural attitudes towards further study – will it always be the case?

Currently, we are seeing unprecedented competition for graduate jobs both domestically and globally. If a degree no longer secures you a strong chance of finding well-paying, full-time employment, then where is the value in sacrificing three or more years to study instead of immediately looking for work? Furthermore, the uniqueness of having a degree diminishes as greater percentages of the population attain one. A degree is becoming a prerequisite for many jobs that didn’t previously require one – and arguably still don’t need one. Reports also indicate a growing sentiment among employers that graduates are not armed with all the skills needed to be effective in their workplaces.

All of these changes affect the viewpoints of high school students who are, or will be, deciding whether to go on to higher education.

Recognising this emerging risk is an important opportunity for higher education institutions. Being able to think outside of traditional academic modes may bring in a new cohort willing to engage with the sector in a very different way – one that does not set them back years in a competitive labour market or leave them with significant debt, and ensures that the product they receive is relevant to prospective employers. It’s not about keeping up, but about getting ahead of the changes that will emerge in this industry.

Risk No. 2 – Where is your funding coming from?

With more competition for funding, institutions are seeking out new and alternative funding sources, which in turn leads to increased reputational risk. Reputation risk has long been acknowledged as a crucial entry on risk registers, and all decisions that institutions make should take into account any aspect that may tarnish their reputation. A higher education or research institution’s reputation is what secures its students, funding, and influence, so this is a significant consideration.

Universities, for example, have a long tradition of expanding both their pedagogy and finances through the creation of foundations, often funded by donors. We have recently seen the risks associated with philanthropy as it is now the subject of public debate. For example, controversy was recently sparked when the new Chief Executive of the Ramsay Foundation took a strong stand regarding assessing potential donations to ensure they don’t compromise an institution’s autonomy. Such an assessment should weigh up practical implications for an institution’s reputation, and how it will be viewed in connection with this sponsor.

Another example of philanthropy’s impact on reputation is being played out in the US at the moment. The Confucius Institute, which operates at universities in 146 countries including Australia, is a program sponsored by the Chinese government and there are now concerns that it may include propaganda. The US Senate is closely examining the relationship between American higher education institutions and the Confucius Institute, and recent reports by its internal audit group (US Government Accountably Office or GAO) found that it was funded “with strings attached that can compromise academic freedom”. This has the potential for controversies regarding academic freedom and reparation risk.

Whilst it is important for institutions to constantly adapt and embrace new opportunities, it is equally crucial that reputational risk is examined before accepting any philanthropy or partnerships to avoid this kind of critique or public mistrust.

Risk No. 3 – Asymmetrical competition

The third emerging risk on this list is asymmetrical competition. This refers to competition that does not come from within the tradition realm of higher education.

Higher education institutions operate within a highly competitive landscape against rival institutions, local domestic colleges, foreign institutions, and online colleges. Not only is competition found within well-recognised activities – such as government research grants and for top student enrolments – but also in areas such as foreign students, domestic students, corporate sponsorship/support, intern placements and even online students.

But we are now witnessing a new class of higher education competitor emerge. Once regarded by the sector as resources and partners, these organisations now appear to be on the verge of becoming competitors. Examples include Google, Amazon, and Facebook, who have all offered early digital credentials and quasi-degrees. However, LinkedIn is the most advanced competitor offering these new services.

Recently, LinkedIn surveyed the salaries of a million of its US members 10 years after graduation. It compared that information with the member’s university to create a list of degrees from specific institutions that had resulted in higher salaries. It can now use this information to highlight more lucrative degrees and careers, and match these with its own educational offerings.

The other advantage LinkedIn has, is the ability to directly communicate with employers to find out the skills and qualifications they’re looking for in employees. This allows it to further target its educational content towards employment results. Contrast that with the current higher education model, where new courses take years in gestation before being offered at typical universities.

Over the past few years most institutions have adapted to the more competitive higher education environment by hiring new staff and reaching out to consultants from private sector industries such as banking. This external input has resulted in changes to the university landscape and the implementation of competitive strategies. These changes are evident in the extensive structural re-organisations taking place across the sector, the development of overseas campuses, the rapid expansion of domestic campuses, and an increasing use of and reliance on digital teaching methods.

This is an area that will definitely continue to grow – and higher education institutions will need to continue to adapt and evolve in order to stay at the top. It is an opportunity for the sector to consider the still nascent education models of entities like LinkedIn and create new programs. These programs can be proven to make sacrificing three or four years of your life, and ending up with significant debt, a pathway to success and professional advancement. Perhaps that model does not yet exist, but the university that is able to capture these qualities will win in today’s competitive educational environment.

Tomorrow’s industry

In summary, there are significant risks on the horizon that may shake the foundations of our current model of tertiary education. Higher education has already shaken those foundations itself through the introduction of online and blended teaching programs, which have both widened the reach of their institutions across the globe, but also increased the level of competition and moved the sector into uncharted waters. For example, the jury remains out regarding the overall utility of MOOCs.

There will always be a place for traditional university delivery models, with lectures, tutorials, texts, practicums, and – eventually – the awarding of valued degrees. This model has stood the test of time quite well. But in the current 4th Industrial Revolution, where artificial intelligence, robotics, and other developing technologies will determine the requirements of the labour market and skills needed by employers, our sector may be facing a new type of competition for which it is not as well prepared.

In some small way, our risk registers should begin to reflect these changes in the external environment – and what they may mean for success metrics. It is time to hint that tomorrow may not completely resemble today, and certainly not yesterday. These emerging risks are not yet barking at the doorstep, but they are loping in our direction. As risk professionals, it is our role to highlight long-range risks and show their importance to strategic outcomes – even if few of today’s executives will still be employed at their institution when these risks manifest. This is taking a longer-term view, and is a key part of the risk professional’s role.