Can Colleges really cut it commercially? – after all, we are not making watches!
Posted on 05/05/16 | Posted in FE Articles
My dear stepfather was a jobbing builder who understood the need to differentiate levels of accuracy and performance. Where a ‘rough job’ ensued he would remind me this was all he required on that particular element as ‘‘we were not making watches!’ In essence, he was very commercially focussed!
So much has been written over the last decade about the need for colleges to be (or become) successful commercial entities. This dominates current thinking around the Area Based Review Programme and will undoubtedly emerge as the key driver for future organisational change. But let’s stop and think for a moment! Ten years ago most colleges were publishing Annual Accounts with huge Operating Surpluses (I mean £ Millions), further fuelled by FRS17 Pension Gains (yes, I said Gains!). On reflection, were we better then at running businesses then than we are now, with many (not all) colleges now posting chunky Operational Losses (enlarged by FRS17 Losses!).
The answer is surely not!’ Now we have new structures, greater business focus from roles such as CEO’s and COO’s; bigger Finance functions, better systems and more MIS than you can shake the proverbial stick at. Surely, we can run our multi-million pound colleges better today than a decade ago?
The subject of commerciality is quite complex. My Little Oxford Dictionary defines a college as ‘a place providing Higher Education or specialised training.’ OK – not a bad definition, if not quite in correct progressive sequence. But, fundamentally – no mention of business, commerce and money! Commercial is defined as ‘making or intending to make profit’ and Business is defined as ‘a commercial activity or a commercial organisation’. Surely, neither definition talks to a college; so we are fundamentally challenged on this. However, worry no more, as the half way house of ‘businesslike’ saves the day, defined as ‘efficient and practical.’
So; the best colleges will surely operate places providing Higher Education and training in a businesslike manner going forward? I think I need to support this argument some more, and whilst I could use any business as a comparator I will lean towards a commercial, profitable manufacturing organisation for help.
In my view, colleges are not businesses because (and this is fundamental) they do not control (in material volumes of activity) either pricing or supply and demand. Pricing of its core services is ‘reverse engineered’ as it is set as a largely non-variable unit of funding, and supply (which needs to be matched to demand – or vice versa (it doesn’t matter)) is capped by the real customer, being the funding bodies. Here is the other dilemma; the customer (the student) may not actually be the paying customer, but is actually the consumer! Where pricing can be tinkered with, such as small menus of commercial courses or HE tuition fees then this is normally priced with reference to local competition and thus is not product led, but rather competitor led. Furthermore, pricing (being funding) is dictated top-down and not calculated ‘bottom up’ so the task becomes one of how to get costs to fit rather than to find a price point that truly represents the costs, that will stick in the marketplace!
So, if a successful commercial business controls some of the key things that colleges do not, including pricing and production volumes (FE is designed to precisely spend the funding, with no allowance for over production through stock holdings) and the ability to stimulate demand that exceeds expectations what comparable tools are there in the FE toolbox that can help colleges run in a ‘businesslike’ manner?
- Effective CRM is key. Getting the right messages across to core customers (16-18) and more selective and potentially short-term customers (employers) through effective sales and marketing resulting in recruitment and enrolment is so important. In spite of funding cuts too many colleges are still missing core 16-18 and Apprentice targets suggesting that CRM, competitive and collaborative recruitment strategies and the Learner Journey is not quite right. Is this an area that your college can improve?
- Quality is really important to reputation and to some stakeholders (but not all). Businesses never compromise on quality and implement systems that guarantee consistency and habitual performance. When ‘travel to learn’ patterns, costs and constraints are factored some customers may not worry too much whether the college is a Grade 2 or 1 (or even 3), but Quality needs to feature heavily in all aspects of service provision, where arguably the price and standard of cafe food, the cleanliness of the toilets or the availability of free gym space may be more important to a 17 yr student than the method of lesson confirmation selected by the lecturer. Controversial? Probably, but true. Make sure that your college quality regime (how many colleges operate ISO (or similar regimes) outside of the classroom?) extends to cover the whole Learner Journey and is representative of the whole learner experience.
- MIS is fundamental as it underscores both academic performance and financial achievement – but the adage of ‘intelligence over data’ must rule. Measure what is important, and what you can influence. We all know how to calculate a Success Rate, but do we understand our customer wastage pre 42 days for example or can we quantify how satisfied students are with their learner experience? Successful businesses know an awful lot about their customers, do you?
- Distribution and Timing of Service Delivery are within a college’s control. Colleges decide where they operate, and when. The Area Based Reviews are intended to sweep up some of these issues, particularly those half-empty smaller college satellite sites. That said, the best businesses seek to sweat their assets – there is a huge, and currently unmeasured cost of capital in FE and in all honesty too few college sites would cover this cost between the common normal opening hours of 0830-1800hrs Monday to Friday with reduced attendance on Wednesday and Friday afternoons. Estate utilisation, rationalisation and efficiency, creative timetabling, alternative uses and community engagement all often have scope for improvement! Commercial businesses do not delay or defer decision making where under-utilisation occurs and capital assets are not working effectively for the business. They also understand where their ‘product loss leaders are, and why’. Do you?
- Product Development is a key aspect of a successful business. New offerings take time to develop and should be properly tested before final release, save embarrassment or poor performance in the field! Research and Development and Marketing costs are no longer the first to be cut in tight financial times. Indeed, arguably they should be protected at any cost. Do you have sufficient new courses and programmes under development (at all levels), are these being designed by your best people and properly tested before release? If not, why not, as we know that courses only have a certain life-cycle, relevance and saleability!
- Meaningful KPI’s and Reliable Financial Information will always be key. Know your numbers and ensure that sufficient attention to detail is given to managing working capital. ‘Cash is King, Turnover is Vanity and Surplus is Sanity!’ Enough said!
- Roles, Responsibilities and Accountabilities throws up an interesting dilemma. Commercial businesses have owners and / or shareholders, not just stakeholders. Business leaders have a financial imperative (and often a stake) in improving financial performance; college leaders do not and indeed, along with Governors are merely custodians of the organisation they oversee. Yes they are well-paid, and yes without doubt they are professional and truly do care. But, they can choose to move on with easy portability, or be moved on! Furthermore, there is a ‘cap’ on financial performance. On average, colleges are chasing 1% Operating Surplus currently, and will be delighted with a breakeven. In the halcyon days of old 3%-5% was the norm; anymore and it really did need some justification with the various stakeholders (including those staff seeking a better pay uplift) and learner groups who demand that money be spent in-year to support their respective ‘one shot’ education deal. Neither 1% or 3% cuts it I am afraid in a commercial boardroom – confirming my assertion that colleges are not businesses – but good governance must dictate (in the public interest) that they are always run in a businesslike manner!
- Lastly, People! In business people generate profit. We measure people in multiples of revenue and margin. In a college, people facilitate great learning to take place; they change the lives of students for the better, open doors, raise aspiration, inspire and prepare people for an onward journey that should yield a ROI to UK PLC over many years. We need to make sure that we get this balance right. Learning is a people thing and whilst we need to measure some inputs – let’s choose them carefully to make sure that we keep sight of the outputs. Drive your teachers like fee-earners and you run the risk of some unintended behavioural consequences. A clear vision, mission, and task, supported by proper investment in training and development and above all trust (because you appointed them) in them to deliver will generally suffice!
- Hi-quality core educational output is entirely dependent on the quality of leadership above it, and the quality of the lecturers and support staff delivering it. Protocol’s core business is the search and selection of the very best leaders, combined with the implementation of staffing models, permanent, flexible and a mix of the two at an affordable price. This is your single biggest area where you can make some financial gains if you make the right staffing choices. Give me a call to discuss?
So, by way of summary I disagree that a college can either be defined as wholly commercial or fully meet the criteria of being a business, and I believe I have presented a fair argument to support this view. I also highlight that the underlying level of pricing and volume cuts experienced by FE in the last 5 years would undoubtedly challenge the very best commercial organisations. Notwithstanding, we are where we are and colleges remain ‘oil tankers’ in terms of resource consumption on such a national scale (£5 Billion) that there are non-negotiable tax-payer demands that they be run them in a businesslike manner. Let’s not however forget what the product is – it’s the passage of knowledge through learning, and each learner’s experience may differ from the next. After all, we are not ‘making watches!’
Ian Sackree is the COO at Protocol and has significant experience of delivering efficiencies in colleges and in leading Protocol’s wide range of cost-effective recruitment services, including its new and innovative Permanent Recruitment, Search and Selection Service tailored for academic and management posts.