Universities’ funding sources affect how they engage with non-academic stakeholders: evidence from the UK

Abhijit Sengupta and Federica Rossi

Universities have moved a long way from being “ivory towers” of knowledge and are engaged in a variety of impact driven activities alongside external non-academic stakeholders. Collectively referred to in the literature as knowledge exchange (KE) – such activities include interactions with industry, public bodies and charities, local and regional outreach programs, executive education, and academic entrepreneurship. Over time, KE has become increasingly important to universities, both strategically and financially. Yet, the implications of universities’ increasing reliance on income from KE have not been investigated extensively. In our study, we focus on how changes in the composition of universities’ funding sources – and particularly an increasing reliance on income from KE – affect how universities engage with non-academic stakeholders: what KE activities they engage in, and who (which KE stakeholders) they engage with.

Our argument builds on the dynamic capabilities framework (Teece et al., 2007): we argue that changes in the relative shares of KE and research incomes induce a realignment in a university’s resources for KE engagement, leading to changes in the university’s overall profile of KE engagement. Universities whose share of KE income becomes relatively more important, are likely to look towards leveraging their existing resources and learning from their successful KE experience, thus leading to specialization in a narrower range of KE channels and stakeholder types. Instead, universities whose share of research income becomes relatively more important are likely to look towards reconfiguring and creatively integrating their newly created intangibles, thus leading to diversification in KE channels and in types of stakeholders they engage with.

We also argue that universities which are more resource-constrained (have overall levels of tangible and intangible resources) are more reactive to changes in their financial portfolio since they have a lower degree of slack in their strategic responses.

Our study relies on data from the higher education sector in the UK, which has seen significant shifts in the funding model of its universities (Pietsch, 2020). For our analysis, we combine data from the Higher Education – Business and Community Interaction survey on UK based universities’ KE incomes and activities, with additional university level income data from the Higher Education Statistical Agency, to build an annual panel of 110 universities over the academic years 2008-09 to 2015-16. We run several models where the two primary dependent variables are indices of diversification in KE channels and type of KE stakeholders, and the two primary independent variables are the shares of KE income and research income in total income; we also check for the moderating effect of tangible and intangible resources, and we add several additional time varying controls to account for heterogeneity among universities. The models are two-way fixed effects (TWFE) Tobit with robust standard errors.

By running these models with several robustness checks (using a variety of time varying controls accounting for inter-organizational heterogeneity; estimating our model with different time lags; testing our model with different specification of the diversification indices) we find that our main hypotheses are supported, namely:

  • All else held constant, a university with a relatively greater share of income from KE activities is associated with lower diversity in KE channels used, and lower diversity in the type of KE stakeholders it engages with.
  • All else held constant, a university with a relatively greater share of income from research is associated with greater diversity in KE channels used and greater diversity in the type of KE stakeholders it engages with.

Concerning the moderating effects of tangible and intangible resources, we only find partial support for our hypotheses, namely:

  • Greater access to intangibles in the form of a broader research base negatively moderates the effect of a university’s KE/research income shares on the diversification of its KE channels (but it does not affect the diversification of KE stakeholder types).
  • Greater access to tangible resources negatively moderates the effect of a university’s research income shares on the diversification of its KE stakeholder types (but it does not affect the diversification of KE channels).

The key finding is that there are opposite reactions to whether KE income or research income gets relatively more important financially. We argue that this is because each type of income share increase triggers different aspects of dynamic capabilities: KE income triggers leveraging and learning processes, and research income triggers reconfiguration and reintegration processes. Our findings also reveal that relatively smaller more resource-constrained universities are the ones where this dynamic linkage between their financial portfolios and KE profiles are stronger while asset rich universities exhibit more inertia. Thus, universities with larger resource bases are less sensitive as far as their KE portfolio is concerned, to changes in their financial profile.

These findings should be interpreted in the context of the changes in the external environment that universities have been subjected to, not just within the UK, but across many geographies. Of particular interest are policies that aim to increase universities’ reliance on private funding by reducing public expenditure, thus encouraging universities to do more with less public funds. However, our findings suggest that such policies could have a systemic impact, which may not necessarily align with the policymakers’ original intent. We have found that increased reliance on private KE funding increases specialisation within KE channels and stakeholder types, contingent on the resource levels of the university. Leaving aside the well-resourced ones, other universities will tend to leverage their existing resources and learn from experience to carry out more of the same. The counter-balancing forces from increased research income will have the opposite effect. A priori it is difficult to conjecture whether the sector will move towards further homogenisation or diversity in terms of the KE channels/stakeholder types used across all universities, given that each may have their preference of the pathway given their own dynamic capabilities. However, it is important to emphasise that there are longer term systemic impacts that policy makers need to be aware of when certain private funding sources are incentivized over others.

While there are certainly aspects of the questions which go beyond the scope of this paper, the results contribute significantly to the growing understanding of the modern dynamic university and how its KE profile reshapes itself in response to changing higher education landscape.

To read the full study:

Sengupta, A. and F. Rossi (2023) The relationship between universities’ funding portfolios and their knowledge exchange profiles: A dynamic capabilities view, Technovation, 121.

1 Comment

  1. These are interesting findings and the conclusions ring true against ‘lived experience’ but also having read many of the KEC action plans from the (mainly) English HE sector. The funding environment for KE has changed quite considerably since AY2015/16, however, and I wonder how that might affect your conclusions? There have been Industrial Strategy uplifts for some of the most research intensive universities, as well as overall HEIF uplifts too. And then there is the impact of the KEF and KEC on prioritisation and the place of KE in institutional strategies – how can that be taken into account in your models? There’s definitely more to explore here and – I would say – to bring to KE practitioners to test findings.

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