University mergers can work but aren’t a sure-fire way to save money

With many universities facing serious financial problems, institutional mergers have recently been mooted as a potential solution – including by the new Office for Students chair Sir David Behan.

As someone who, as financial director and management consultant, has been involved with the planning and implementation of many mergers in a variety of organisations – including further education colleges, NHS trusts and, yes, universities – I know that mergers do not always deliver the savings, financial stability or organisational change that many might imagine.

In the right circumstances, and with the right approach, mergers can improve the finances of the merged institution, but this is not guaranteed.

One key point of difference from mergers in industry is that these commercial unifications often involve two successful companies forming a larger company, which will have even higher levels of success. In my experience, mergers in the public sector often involve one partner that is in significant financial difficulty. Provided both parties bring different strengths and expertise to the merger, this can be overcome. But a real difficulty is where both partners have financial weaknesses and see the merger as the solution to their problems. Put simply, when you take two financially weak organisations and merge them, you will end up with one financially weak organisation.

University mergers can, nevertheless, succeed – but they need a laser-like intensity on two things: cost savings, and synergies and income.

On the first, some of these may seem obvious, such as the need for just a single vice-chancellor or finance director rather than two. However, it is sometimes the case that these roles are replaced by “support” roles (an additional deputy vice-chancellor or finance director) because of senior leaders’ reluctance to make the hard decisions. Hence, this sometimes results in only marginal cost savings.

The merger should also aim to generate synergies to allow the merged organisation to undertake new activities that they could not carry out as individual organisations. In turn, these new activities would aim to generate additional income for the new university – teaching, research, commercial or consultancy.

But there are also many challenges to achieving a successful merger – foremost of which is agreeing a revised future strategy. That can be fairly easy when the two merger partners have broadly similar strategies, but it could also be the case that the two strategies are very different.

Take, for instance, what services the merged university intends to provide. How many resources will it focus on teaching, research or other activities? Some existing activities may also be discontinued. And where will the majority of university or administrative activities take place? On one campus, or all of the university’s sites?

Most mergers envisage significant reductions in staffing costs, usually in the form of voluntary redundancy. But this can be expensive and might not give the savings required, while key personnel can often be lost. Similarly, the sale of surplus buildings can generate millions of pounds to invest in facilities, but in some situations, this will just not be the case. And there are other costs to consider, such as merging incompatible learning and information systems of the different entities.

It is important to be realistic about what savings will be made. It is sometimes the case that merger mania can break out among the senior management, and both the benefits and cost savings are vastly overestimated to justify the merger. Not surprisingly, some years down the track it may be noticed that few of the supposed benefits or savings have materialised.

I have observed a number of mergers; some have been successful, and others have failed. In the latter case, it was often because no clear objectives were set as to what the merger should aim to achieve beyond short-term savings.

As with most alliances, choosing the right partner is crucial for success. I have seen mergers where, with hindsight, it’s clear that the chosen partner was not the best option. Sometimes governing bodies spend more time discussing the institution’s likely name, who should be vice-chancellor or where the head office is located than they do addressing substantive issues.

One concern that should not ignored is hostility from staff reluctant to join forces with an institution further down the academic pyramid. Among many university staff, there is a terrible snobbery about what might be termed academic status; and an attempt to merge two universities with significant difference in status (eg, a Russell Group institution and a post-92) can lead to fierce resistance from academic staff. I have seen situations where there was strong resistance to a merger from staff in the more prestigious institution even though it was their university that was in the more parlous financial position.

Achieving cultural alignment takes time, effort and energy as it is important for staff to recognise and be proud of a new merged identity. In some cases, you end up with one organisation with several identities aligned to the old organisations.

A merger is not a perfect solution for universities. The benefits of such mergers are not guaranteed in all cases. It cannot be stated too strongly that planning and delivering the potential benefits of the merger and controlling the costs are difficult, stressful and time-consuming tasks that require considerable management time and effort. The organisations cannot shut down while the merger takes place but must continue to deliver good services and control costs.

Sometimes, senior managers get so hooked up on the merger (as well as jostling for the top jobs) that they take their “eyes off the ball” and some sort of operational crisis takes place in the organisation.

Mergers can be right for dealing with university financial problems, but they are far from a panacea. Successful mergers require vision, leadership, realism, courage, good analytical skills, energy, a thick skin and sufficient resources to make the merger successful.

Malcolm Prowle is professor of performance management at Nottingham Business School and Gloucestershire Business School.