Memorandum submitted by the Higher Education Funding
Council for England (EU1)
The e-University project
Introduction: HEFCE's approach to supporting e-learning
1. The e-University project is only a small part of HEFCE's
strategic approach to e-learning. We have invested substantially
in a world-class information and research network (SuperJanet).
We fund the Joint Information Systems Committee (JISC) to provide
the resources and research and consultancy support that underpin
the use of new technologies. We have also invested substantially
in quality enhancement, including support for the higher education
sector to innovate in approaches to learning and teaching, such
as use of communications and information technologies (C&IT).
The e-University project was part of this strategy. It focused
on exploring wholly
2. e-based methods of supporting the learning experience,
in particular to meet the needs of global learners in an increasingly
borderless education system.
3. The SuperJanet network supports all higher education (HE)
activity and has increasingly focused on the support needed for
learning and teaching. It has recently been extended to the further
education (FE) sector, which has provided opportunities to expand
C&IT use in that sector, and to increase collaboration between
HE and FE. JISC collects and disseminates digital resources, data
and information that can contribute to both research and learning
and teaching. As well as enriching campus-based learning and teaching,
these resources can be used to support e-learning, and workplace,
distance, blended and flexible learning. Working with practitioners
from the HE and FE sectors, JISC identifies the types of research,
consultancy and advice that can support innovation. It has recently
embarked on a major programme on the technological infrastructure
for e-learning-managed and virtual learning environments.
4. HEFCE's Teaching Quality Enhancement Fund (TQEF) has provided
an effective 'package' of support and encouragement for e-learning
and other new approaches to the learning experience at multiple
levels - for the individual through personal awards under the
National Teaching Fellowship Scheme; for subject communities through
the Learning and Teaching Support Network (LTSN); and for institutions
through funding for the development of learning and teaching strategies.
5. The LTSN has provided a focus for subject communities of
practice to explore new approaches to learning and teaching. These
include promoting the use of new technologies, providing online
and offline resources, and giving awards for distinguished practitioners
in
e-learning. We expect the LTSN - now incorporated into the new
Higher Education Academy - to play an even greater role in supporting
innovation in the future.
Set up of the e-University project
6. The e-University project was launched in 2000 by David
Blunkett, the then Secretary of State for Education. The project
was initially taken forward by HEFCE acting in partnership with
the UK HE sector and other funding bodies. We appointed a Steering
Group involving senior representatives of the HE sector to oversee
initial development. PricewaterhouseCoopers (PwC) were engaged
to devise the business model for the venture, and we commissioned
extensive marketing and technological analysis to inform and supplement
the PwC work.
7. Our original model was for a joint venture between a consortium
of higher education institutions (HEIs) (supplying the learning
programmes) and private sector partners (putting in the technology,
marketing and business drive). However, PwC took the view that
many HEIs would be involved in e-learning globally, and so it
would be cost-effective to have a central vehicle accessible by
all HEIs. They also thought that the vehicle should provide a
total solution, bar the learning programmes, for wholly Internet-based
e-learning. This was on the grounds that it would give economies
of scale, but also that the venture would be at the leading edge
in
demonstrating the possibilities of wholly e-based learning.
8. PwC's resulting model, which was approved by the sector
in consultation at the end of 2000, involved a Holding Company,
owned collectively by the UK HE sector, and an Operating Company,
formed through a joint venture between the Holding Company and
the private sector. The Holding Company would license the brand
to the Operating Company, and the Operating Company would conduct
all activities. The Holding Company would oversee the value for
money from the public investment and safeguard quality and standards.
9. As a second stage in the project, in autumn 2000 we began
the process of inviting the private sector to put forward their
joint venture propositions. Given that the Operating Company would
need to be commercial in character (to attract private sector
partners and to operate in the global market), we appointed a
small interim Management Team (Chief Executive, Commercial Director,
and Technology and Programmes Director) with the expertise to
conduct joint venture negotiations. This formed the embryo for
the Operating Company.
10. We also initiated the process of setting up the Holding
Company, which would act for the HE sector in the joint venture,
by inviting UK HEIs to become members and seeking nominees for
the Holding Company Board. All but four UK HEIs agreed to become
members of the Holding Company. In March 2001 the Rt Hon David
Blunkett MP, as Secretary of State for Education and Employment,
announced Sir Brian Fender as Chair of the Holding Company and
other members of the UK-wide Board, who had been appointed by
HEFCE and the sector's representative bodies - Universities UK
and the Standing Conference of Principals (SCOP). The Government
agreed to provide £62 million in the spending review that
year for the project, for a collaborative venture between HEIs
and the private sector.
11. Detailed negotiations with joint venture partners continued
over 2001. The original vision was to bring together a consortium
of joint venture partners to put in the main functions of the
business. However, in October all parties decided that an agreement
should be concluded with Sun Microsystems to lock-in the technology
solution for the business. Sun agreed to put in £4.8 million
in licences, know-how and consultancy toward creation of the technology
platform, but agreed to vest their shares in a charity (because
they did not wish to hold shares on their books).
12. The Operating Company was incorporated through agreements
between that charity, the Holding Company and Sun in October 2001
as UK eUniversities Worldwide (UkeU). The Holding Company nominated
three Directors to the Board on behalf of the HE sector. They
in turn led on the appointment of Sir Anthony Cleaver as Chairman
of the Board and other Non-Executive Directors with commercial
expertise. The Board then appointed the Executive team, and John
Beaumont joined as CEO in March 2002.
13. The original vision for the venture was that the private
sector would 'bid in' most of the main functions of the business
(technology, sales and marketing - even senior management). A
number of interesting marketing propositions were submitted by
the private sector, but none of the proposals seemed likely to
be compatible with the interests and concerns of the HE sector.
(For example, a major publishing house would only invest and partner
if it had a controlling share over the company and control over
the academic quality arrangements.)
14. It was a condition of our grant at the outset that the
business should seek 50-50 public-private contributions, both
to mitigate risk to the public purse but also to put commercial
drive and accountability into the venture. The Board and Management
of UKeU, which had considerable experience of raising private
finance, accepted grant on the basis that they could achieve the
public-private sector balance. They initially sought to achieve
this by acquiring a marketing partner (efforts to acquire such
a partner continued into spring 2002). However, once they could
not agree favourable terms with a partner, they advised that they
would achieve the balance through seeking investors once the venture
had some 'proof of concept', that is after the launch in September
2003.
15. Once the full Board of UKeU and the Senior Management
Team were in place they then drove forward the full set-up of
the business from spring 2002. At an early stage UKeU sought project
managers to complete the technology platform, and a consortium
led by Sun Microsystems won the contract after competitive tender.
Earlier in the project we had identified some institutions to
act as pilot programme providers, and the company worked with
these as exemplars to test and build the platform. The first programmes
were launched in March 2003. The full launch was in September
2003.
16. We also supported a number of public good programmes linked
to the venture. UKeU project -managed the eChina programme which
links selected UK HEIs with Chinese HEIs to develop e-learning
programmes, under the umbrella of our memorandum with the Chinese
Government. UKeU also project -managed a research centre which
involved joint activity with a number of HEIs to evaluate UKeU's
experience and further e-learning more generally. We allocated
some additional funded student numbers to HEIs to work with UKeU
on the development of learning programmes to address widening
participation and social inclusion.
Review of the venture
17. The original model for the e-University put HEFCE at arm's
length from the Operating Company. This was recommended in the
PwC report and endorsed in consultation because:
a. The venture needed to be formed through a strong partnership
between the HE sector and any private sector partners, and hence
funds were channelled through the Holding Company. The Holding
Company could represent the interests of the sector, and particularly
could oversee the academic standards and quality for the venture.
(The legal arrangements establishing the venture set out how the
UKeU brand should be managed, including arrangements to oversee
the quality and standards of programmes.)
b. The Operating Company would need to compete against private
sector providers (for example in the US) and attract private capital,
and hence would need to operate under commercial conditions. It
was felt more appropriate to the nature and role of HEFCE that
it should fund the venture indirectly through the Holding Company,
rather than alongside the private sector directly into the Operating
Company.
18. Nevertheless, HEFCE was concerned to ensure that proper
arrangements were in place to ensure the good use of public money.
We concluded a Deed with the Holding Company, as well as detailed
conditions of grant to regulate the use of public funds. Main
conditions of grant were that the companies would need to submit
a robust business proposition and achieve private matched funding.
HEFCE also required that the Holding Company should operate under
the conditions of the Combined Code on Corporate Governance and
should put in place proper audit arrangements. The Holding Company
was required to report annually on the venture, particularly focusing
on value for money and quality and standards, and to provide exception
reports. The Holding Company was then required to put in place
'back to back' arrangements with UKeU to ensure that that company
met all these requirements. HEFCE was kept informed of developments
in the two companies during the set-up period, but its formal
monitoring role was at arm's length from UKeU via the Holding
Company.
19. We acknowledged and had flagged to major stakeholders
(including Ministers) that the project was high risk, as it involved
innovative technology, new product development and novel approaches
to developing and delivering the learning experience for the HE
sector (including commercial approaches). However, both the study
that preceded the project ('The Business of Borderless Education',
HEFCE, CVCP, SCOP 2000) and the PwC report stressed the strategic
importance of investing in global delivery of e-learning. They
argued for investment both on the grounds of encouraging the HE
sector to explore the massive potential of the Internet, and on
the grounds of global competition in e-learning delivery.
20. The main ways in which HEFCE managed risk was to limit
our investment in the project (to £55 million from the original
£62 million provided by Government), and by paying great
attention to the governance arrangements and set-up of the Boards
and senior management of the companies. In order for the companies
to be able to operate legally, we gave commitment to provide
funding up to £55 million. However, we note above that we
included conditions of grant that the companies had to satisfy
us regarding the robustness of their business proposition, and
to secure private matched funding. The earliest at which it was
reasonable to conduct a review of the venture to judge performance
against these conditions of grant was autumn 2003, when the venture
had some business results. HEFCE informed the two companies at
an early stage that a review would be needed at this point. We
were fully aware that to meet the requirements of administrative
law we needed to act fairly and reasonably, and to have an evidence-based
and robust approach to the review.
21. Our original intention had been to conduct a wide-ranging
review of the project to assess how far it was meeting its original
aims and objectives, commencing in November 2003 (when UKeU had
informed us that they would provide their business plan revised
in the light of launch results). However, we became concerned
about the indications of business performance over the summer
of 2003. In particular, student take-up in September was very
disappointing with 898 students against a 6,500 target. We were
also concerned that the company had provided no clear plans on
private financing by then, and indeed the poor launch performance
would be likely to delay private financing prospects further.
We therefore decided in summer 2003 to focus and strengthen the
review in the light of our concerns. We appointed PA Consulting
to conduct the review, in conjunction with our legal advisers,
Beachcroft Wansbroughs.
22. We informed the two companies of the scope and nature
of the review, which started in October 2003. PA Consulting's
work focused on UKeU's revised business plan submitted in November
2003 and on a series of interviews with the companies and other
stakeholders, including HEIs. The PA report was submitted to HEFCE
at the end of December 2003. It raised issues of considerable
concern. We sent the report to the two companies for comment immediately,
noting that it suggested that they were in breach of conditions
of grant. The two companies submitted responses to the review
report. We then asked PA Consulting to provide a detailed commentary
on all points of detail raised by UKeU, and to provide a statement
on whether they stood by the conclusions of their report.
23. PA Consulting produced both the detailed commentary and
confirmation of their conclusions. While they acknowledged that
the business plan might be delivered, and indeed might be exceeded,
their judgement was that the balance of probabilities was that
the plan would not be delivered. There were clearly a number of
high risks in the plan, and the company did not give a very persuasive
account of how its experience in the launch had helped it to reduce
risks for the future. PA had examined the sensitivities of the
plan and also concluded that the capital requirement to deliver
it could be up to £92 million (although it could also be
as low as £72 million). They also noted that the revised
business plan did not include any firm plans for gaining private
investment, but instead suggested in broad terms that a flotation
of the company might be achieved in around 2006.
24. The HEFCE Board considered the PA Consulting report, responses
by the two companies and the PA rejoinder at its meeting on 25
February 2004. The Board concluded that the venture was in breach
of the condition of grant that HEFCE would only fund against a
robust business proposition. They were also of the view that the
venture had breached the condition of grant on achieving private
matched funding, in that the period proposed to achieve matching
(by 2006) was probably unrealistic and, in any event, beyond the
original understanding between the parties.
25. Finally, the Board did not consider that a robust case
for additional public funding could be made (given that the original
way to manage risk in the venture was to limit exposure to £55
million). They thought that the market for 'pure' e-learning might
take off in the longer term and that this was an exciting prospect,
but that the opportunity cost of deflecting further funds to the
e-University venture in the present HE sector funding climate
was too high to be justifiable. They felt that investment in the
business model for the e-University (a totally integrated proposition
for delivery of e-learning) was also probably unduly risky now
for the public purse - given funding pressures on teaching, the
present state of capital and commercial markets, and present HE
needs in relation to e-learning. In the circumstances, the Board
concluded that funding the revised business plan was not justified.
Steps taken following the review
26. We informed the Operating Company Board on 26 February
2004 of the HEFCE Board's decision. We added that we were prepared
to consider funding a plan for winding down and restructuring
the venture to maintain public good programmes and to capture
any value for the HE sector. We also identified a consultant from
Robson Rhodes that we had engaged to work on restructuring proposals.
27. The Board of UKeU decided to step down in the light of
the HEFCE's Board decision. The Holding Company appointed a new
UkeU Board of distinguished HE figures to oversee the wind-down.
HEFCE has continued to fund the company with a view to achieving
the wind-down in order to:
· minimise damage to HEIs
and students involved in the venture
· minimise damage to the brand
image of UK higher education overseas, and to minimise damage
to overseas partnerships represented in the venture
· guard against damage to
HEIs' interest in and enthusiasm for e-learning, particularly
in the light of the Government's requirement for HEFCE to embed
e-learning in HE in the next 10 years, and in the light of our
forthcoming e-learning strategy
· protect and maintain the
public good aspects of the venture
· preserve any other value
in the venture for the HE sector that might be recoverable.
28. UKeU has made the following progress on the wind-down:
a. The sales and marketing and learning programmes functions
of UKeU have been closed, and HEIs and overseas partners have
been informed. The company has arranged for the transfer of overseas
partnership and/or accreditation arrangements to HEIs wherever
possible.
b. The e-learning research centre will now be taken forward
by the two HEIs originally involved (the Universities of Manchester
and Southampton) working in partnership with the Higher Education
Academy. The centre will evaluate lessons learned and disseminate
experience from the e-University project for the HE sector more
generally.
c. The eChina Programme continues, with the programme management
arrangements moved to Cambridge University. The programme and
individual HEIs involved in it will be unaffected by the change.
d. The technology platform is undergoing final modules testing
and is expected to complete testing in mid-August.
e. Staffing in UkeU has been reduced to 25 staff (from about
70), who are needed either for platform testing or the wind-down.
29. Further information on the wind-down of the e-University
covering commercial in confidence matters - including future arrangements
for the technology platform, programmes and students - is provided
in a separate letter to the Chairman of the Committee.
Next steps on e-learning
30. The Government charged HEFCE in its recent Higher Education
White Paper to embed e-learning in the HE sector over the next
10 years. We published a draft e-learning strategy for consultation
in August 2003, in parallel with the Government's e-learning strategy.
Responses to our consultation indicate that the HE sector has
made progress in e-learning, but more needs to be done to fully
embed it. In particular, although the possibilities of wholly
e-based learning are important and need to be explored and researched,
the HE sector is concerned to fully embed 'blended learning' -
that is to exploit the possibilities of communications and information
technologies appropriately and effectively in all forms of learning,
including on campus.
31. We are now working with the Department for Education and
Skills, and particularly with our implementation partners JISC
and the Higher Education Academy, to finalise the strategy and
devise an action plan for its implementation. Evaluation of the
lessons learnt from the e-University project will form part of
the research component of our strategy. We plan to issue the strategy
in the autumn. We envisage that our main objectives will be to
support:
· institutions in their chosen
e-learning missions - global, national, regional and local - and
their chosen partnerships
· HEIs' strategic leadership
and management of e-learning
· innovation in approaches
to the use of new technologies in the learning experience
· understanding of the use
of new technologies to contribute to social inclusion, progression
and collaboration across all sectors of learning
· the HE sector in securing
the appropriate technological infrastructure for e-learning.
21 June 2004
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