Antecedents and outcomes of income diversification in higher education:A resource-based view

Research from multiple disciplines confirms that income diversification is a common strategic response to challenges in the external environment and is recognised as a measure of financial health. Whilst universities under financial pressure can hardly be considered a new phenomenon, regulatory changes and increased competition in England have brought this pressure into sharp relief. The realisation that the sector is keenly sensitive to external factors has led universities to seek to diversify their funding base and reduce their dependence on any one source of income. However, not all universities appear equally able to generate additional revenues. This research focuses on understanding the antecedent factors underpinning this variance so that university leaders are better equipped to develop strategies to improve their long-term financial sustainability, and policymakers are better informed to support them. Whilst the available literature suggests income diversification in higher education is of importance to theory and practice, there appears to be a lack of an explicit measurement of it, and a generalisable explanation of the necessary factors to achieving it. This study employs an explanatory sequential mixed method design to offer a more nomothetic explanation than currently exits to suggest why some universities are more successful than others in developing a diversified income portfolio. By using the qualitative findings to interpret the quantitative results, a richer explanation of any causal effect is developed. Adopting a resource-based view as the theoretical framework to drive the inquiry, this study tests 13 hypotheses derived from extant research that link attributes of a university’s resources and capabilities to its level of income diversification. In developing the dependent variable, a model for measurement and a national income diversification index is also produced. The hypotheses are tested using secondary and archival data from 2012/13 to 2016/17 for all publicly-funded, non-specialist universities in England. This is supported by 16 interviews conducted with vice-chancellors, pro-vice-chancellors, and directors of finance from universities in this focal population. The findings suggest a university’s focus on research provides the dominant explanation for a more balanced income portfolio and consequently, a higher income diversification index score. The scale of income that research can generate can be large enough to have a meaningful impact on creating more balance in the portfolio. Moreover, income from research can register against a number of income categories thus increasing its balancing effect. The research intensity of a university also builds reputation that has a ‘halo’ effect on all other areas of income generation. The findings also show that universities need to be organised to exploit their research. Incentivising staff to seek commercial opportunities and having staff dedicated to business engagement contribute to explaining the variance in levels of income diversification. The study concludes by highlighting its contributions to theory, knowledge, and practice, and making recommendations for university leaders and policymakers.