Reimagining the sustainability of your operations as a result of COVID-19

By Keith Hawkes, Tim Den Braber and David Harper

Publish date:

With a high dependency on international student revenue, Australian universities have been hit particularly hard by COVID-19. This is by far the biggest crisis ever to hit international education.

As COVID-19 continues to disrupt our society, universities have been in crisis mode.

With a high dependency on international student revenue, Australian universities have been hit particularly hard by COVID-19.  This is by far the biggest crisis ever to hit international education.

International students from China represents one of the largest temporary migration flows, with federal education department data showing that there were more than 212,000 Chinese international students in Australia by the end of 2019.

With Chinese students still on their summer break when COVID-19 hit, it was estimated that around 65,800 international visa-holding students were left stranded and unable to commence their studies. This left universities scrambling to assess the financial impact of COVID-19 while ramping up their remote learning and support services to minimise the impact to their continuing student cohort.

To put the problem into perspective, international students contributed A$32 billion to the Australian economy and $11 billion of this comes from Chinese students. Recent analysis shows that universities are preparing for a $1.2bn loss of income.

With fewer students to teach, the easiest way for universities to mitigate their revenue hit is to reduce classes, cut teaching staff, and increase online teaching. In addition, we have seen a few institutions asking their staff to take a 20% pay cut. However, these measures alone will not fill the gap.

 

Planning for the ‘new’ normal

In some cases, COVID-19 has created a new normal for the higher education sector, revolutionising the online learning landscape, reshaping application processes, and refreshing crisis management strategies.

For institutions with large international cohorts like The University of Melbourne, UNSW, and The University of Sydney, the immediate and significant financial impact is obvious. However, for other institutions, with lower international revenues, the ongoing financial impact could stretch into 2021 and 2022, as the competition focus on cost recovery.

In addition to the above factors, critical dimensions of uncertainty facing institutions include:

  • volatile domestic economic landscapes
  • political interventions, which are ad hoc in nature
  • complexity and volatility in overseas economic, political and cultural landscapes
  • new technological and organisational innovations that may come from outside the system
  • the impact of cultural and policy changes on student demand

To prepare themselves for this new and evolving landscape, institutions may need to re-evaluate their internal costs and ongoing investment in existing system portfolios.

One such portfolio is the ERP portfolio. This portfolio of systems typically run processes such as financials, HR, student management, and supply chain and are often considered as being reliable, but difficult to use and increasingly costly to maintain and support.

Within Australian Higher Education Providers (HEPs), most of these systems tend to be legacy (i.e. 10 to 20 years old) and are arguably in need of replacement.  They have typically evolved over a long period, making the configured processes highly complex and deeply intertwined. Resulting in systems that are difficult to refactor and highly costly to support.

However, with teaching revenue at risk for the foreseeable future, most CIOs would be hard pushed to justify a major investment to replace a core ERP system. Experience has shown that typical ERP replacement costs range anywhere from A$15 million to A$120 million, depending on the system.

With the above in mind, several institutions have invested in automation as add-ons to their existing legacy finance and HRP systems, in an attempt to drive down the cost of human intervention related to repetitive process maintenance.

While this can be considered a good band-aid, it does not tackle the key underlying problem – the continuing and increasing cost of running, supporting and maintaining an outdated legacy system require niche skills, and simply does not deliver the flexibility and agility required in today’s market.

For example, Oracle has replaced PeopleSoft Campus with Student Cloud and has announced that it will no longer deliver enhancements – leaving HEPs running PeopleSoft with an outdated legacy system that requires large annual support fees, but with no promise of future sector-specific investment from the vendor.

With the above in mind, Capgemini has developed a new offering whereby we can service commodity-based functions like finance, supply chain, HR and the development of online learning material. We have a strong track record of delivering operational cost savings of 15% to 35%, by taking over this type of asset to deliver efficiencies.

Our approach revolves around insourcing your operation by augmenting your team with ours and enabling tried and tested platforms, best practice process, and delivery expertise to drive down cost and improve service outcomes. We call this insourcing our global experience to support your cost and service objectives.

Efficiency and reducing costs 

Efficiency and cost reduction in the finance function has been a major focus in recent years. CFOs across many industries are asking the questions: What does good look like now when it comes to the cost of finance? And how do I set cost goals?

As a reference benchmark, institutions can consider the cost of finance as a percentage of company revenue – with research showing that organisations operating at 0.7% of revenue are typically top performers, while low performing organisations typically operate at about 1.8% of revenue.

When considering finance, we recognise that to maximise the opportunity and to transform a finance operation we may require investment in a new finance solution.  We enable this through the savings generated from process changes and automation, enabling us to deliver a cloud-based platform enabling further savings and more importantly allowing flexible new ways of working.

This future-proofed platform can continue to be used as a pay-as-you-go service or provided back to the university at a future date.

Finally, as the partnership grows, you may ask us to deliver a step-change.  For example, we can further reduce the cost of commodity processes and enable your people to focus on adding greater value to the business.

The starting point to engage will be to review your operations to determine which processes can be improved using automation, artificial intelligence and machine learning.

We know from research and experience that efficiency gains of 30% to 40% can be achieved through automation.

Capgemini brings a wealth of experience, system-agnostic tools, proven practice process maps, and blueprints to enable this – making the transition fast, effective and impactful at the earliest opportunity.

In addition, we will realign staff operations to take advantage of these efficiency gains – in some cases staff may be reallocated to more business impactful activities such as analytics, planning and reporting.

Once complete we can reinvest the saving realised into service improvements, change management, training and further system enhancements.

We aim to cost out your financial operations, enabling investment in a continual improvement process that will future proof your operations and investment in finance. This may also include the implementation of a new, modern finance system to drive further opportunity for efficiencies through an improved user interface, intuitive workflow and extensible and flexible integration capabilities.

Finally, as the systems and processes are bedded down and are proven to deliver operational efficiencies in the ballpark of .5% of university revenue (i.e. top performer ratings), additional opportunities for improvement can be realised through our shared and proven global finance operation.

To learn more about Capgemini’s Digital Global Enterprise Model or how the 4-step process of our cost out model process below can generate and accelerate value and performance, please contact me via LinkedIn or email.

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