Select Committee on Education and Skills Third Report

3 Why the UKeU failed

35. Our findings are that UKeU failed largely because it took a supply-driven, rather than demand-led approach. There were three main areas where the consequences of such an approach led to failings. Firstly, UKeU pursued a narrow concept of e-learning (wholly internet based e-learning) and did not adapt this initial concept in light of existing research evidence that found that a more blended learning approach was needed (where internet based e-learning is undertaken alongside other, more traditional, learning methods). Secondly, there was a distinct lack of marketing and use of market research—in such new and emerging markets this was a key failure. Thirdly, the project was technology-driven rather than learner-centred focused, with too much emphasis being put on the development of the technological platform.

36. A supply-driven approach, combined with the very ambitious nature of the venture in an emerging market that did not sustain the high expectations of demand, and an inability to work in effective partnership with the private sector, led to the failure of UKeU to meet its targets, aims, and objectives.

Supply-driven rather than demand-led

The concept of e-learning

37. Dr Howells identified UKeU's two major failings as a lack of understanding of blended learning, and a lack of any serious marketing or market research. He said to the Committee

'…it was part of what is a new word that I have learned since I have come into this job, 'blended learning'. We have learned from The Open University that …you have to, as the jargon has it, engage with students and, if one lesson came out of this lot, it probably is that they should have been much more sensitive to those needs of students the world over.'[22]

38. In the original HEFCE business model,[23] the first objective listed in designing the UKeU was that it must be 'learner-centred'. UKeU pursued a narrowly focussed concept of e-learning and failed to pick up on evidence that a blended learning approach was needed. There was no research by UKeU about the type of learning demanded. They did not consider conducting research into the pedagogy of e-learning and the needs of the learner.[24]

39. The PA Consulting Business Review of the e-University explains how moving forward with this narrow concept of e-learning set UKeU on a specific course.

'The decision to focus on the sale and delivery of institutionally-branded on-line degree courses put the e-U in a very specific segment of the global e-learning marketplace (this was the particular decision of UKeU and was not taken from the original HEFCE/PwC business model). It is well recognised that this market is still in its emergent stage of development, and that views differ on the potential scale and patterns of demand for e-learning in its different manifestations. The evidence to back going into this specific market is sketchy, except in the USA which is not an eU target nor is it representative of other markets. Therefore the challenge the eU set for itself was to develop a feasible and well grounded sales plan, for both products and markets, in the absence of hard evidential data.'[25]

40. UKeU did not have anyone with e-learning expertise in a senior management position. John Beaumont, the Chief Executive, had experience of e-business but not e-learning. This is not to say that there were not people advising them to take notice of the situation. Sir Anthony Cleaver told the Committee that 'the marketing people' had identified the need for a blended learning approach right from the start.

'I think the area which took longest to try and address was the question of blended learning. I think it is true to say that, from the beginning, the marketing people said 'over time, we really are going to have to do more in terms of on-site support.''[26]

41. There is no doubt that the expertise existed—The Open University for example, has a great deal of expertise in distance learning methods. International expertise could also have been drawn on: the University of Phoenix for example, is a private university that operates increasingly online, but takes a blended approach to learning methods maintaining a certain amount of traditional teaching methods. It has over 100 campuses worldwide. There was information and good practice available, it just was not used.

42. UKeU was very ambitious in the type of e-learning it was pursuing; the full UK HE experience available online. Not only was this was incredibly ambitious, but it meant that it could not be modelled on existing e-learning programmes that did not offer such a full and rich experience. David Beagle of Sun Microsystems said:

'I think you need to see the difference between UK education and education around the world. Most university education around the world is more like 'here is the information; take it and go away and deal with it yourself' whereas the UK university experience is much more about training you how to think in certain ways. Delivering that sort of education over the web is far more difficult than the sort of education that places like Phoenix do, which is more a training sort of activity, and so that is why when we looked at the packages that could possibly be used they were more training packages and could not deliver what was required. In delivering the content they had had an easier run at it than the UK had. By the same token, if the UK experience could be delivered over the web it would be a profitable market, we believe.'[27]

43. We have found that UKeU inherited a narrowly focussed definition of e-learning and chose to pursue that approach without questioning it at any stage. It did not focus on research and development concerning the definition of e-learning, and it did not have a 'learner-centred' approach.

Use of market research and marketing

44. Both the Minister for Higher Education, and the HEFCE identified marketing, and inadequate market research in particular, as the key cause of the failure of UKeU. This marketing failure was based on an assumption that there was a huge unmet demand that existed for wholly internet based e-learning. Too much trust was put on the PwC forecast of student numbers and the general atmosphere of enthusiasm surrounding the 'dot com boom' and, as a result, UKeU did not undertake any market research or give sufficient emphasis on marketing, despite spending £4.2 million on sales and marketing.[28] Dr Howells told the Committee that:

'When I look at it, where I am most mystified is to the lack of any serious marketing. It seemed that there was technological idea here which had no fundamental backing in terms of serious market research. There was an assumption that if you can provide the platform people would flock to it.'[29]

The low priority given to marketing

45. In his evidence to the Committee, Sir Anthony Cleaver, Chairman of UKeU said:

'From the beginning it was clear that to succeed we had to get three things right: the platform, the courses, and the marketing.'[30]

46. The order in which these three priorities were given is very telling. It is indicative of the low priority given to marketing by UKeU in comparison to the supply-driven concerns of the platform and the courses. A supply-driven approach only works when there is a guaranteed surplus of demand—this was wrongly assumed to be the case for wholly internet-based e-learning.

47. An example of the low priority given to marketing by senior management at UKeU is that they put a stop to the interim team's proposals to purchase a marketing company to meet the marketing needs of UKeU. John Beaumont and Sir Anthony Cleaver decided that it was unjustified to spend £12 million on marketing (note that over £14 million was spent on developing the technology platform, £11 million on developing courses, and just £4.2 million on sales and marketing—including overseas). Mr Beaumont told us:

'…there was the suggestion from HEFCE that we should spend £12 million buying a marketing company. We looked at it and said we could not see how that made any sense to spend £12 of the £55 million (on marketing).'[31]

The interim team, including HEFCE, were looking at an acquisition of Scottish Knowledge (a marketing company) for £12 million, and we put a stop to that within the first month or two of us being there.[32]

48. UKeU took the decision not to have a marketing person at senior management level. UKeU originally appointed two Marketing Directors both based in the UK offices—one responsible for 'corporate' and the other for 'retail' marketing. The Corporate Marketing Director left in the early stages and was not replaced. Neither Marketing Director was on the board of Directors at any time. In his evidence to the Committee, Sir Anthony Cleaver said that this was because nobody with sufficient calibre could be identified.[33]

Use of evidence

49. The original HEFCE business model[34] emphasised the importance of UKeU being 'responsive to change' and 'excellent in terms of fitness for purpose'. To achieve this, UKeU would have to be at the forefront of market research to understand such new and emerging markets. The lack of market research was astounding in terms of selecting markets, courses, and countries to target.

50. Sir Anthony Cleaver described UKeU's position in terms of the 'inherited' market research from PwC. There was no suggestion that they had utilised the information, embedded it in their strategy, or pursued the research needs further. CHEMS did the initial market analysis in 2000 to analyse the extent of the global market.[35] This initial research established that there was a general market, but between 2000 and 2003 much had changed. Market research information was needed even just to keep up with what was a rapidly changing market. Had the market been sufficiently understood, the original ambition of the project, might not have had the effect on the business strategy that it did.

51. Even allowing for the failure to undertake primary research about the market, further market knowledge was available that could have been utilised more effectively. The British Council are a vast source of knowledge that could have been tapped into, for example, but contact between UKeU and the British Council was not to utilise their vast knowledge of higher education markets. In evidence to the Committee John Beaumont said that:

'In a number of countries we worked directly with the British Council…we have been providing e-learning materials and how to do e-learning to the British Council there.'[36]

52. UKeU only saw the British Council as a possible consumer or deliverer of their products—not as a rich resource for information regarding markets and market analysis. It was thought that the British Council did not have anything to teach them regarding the technology of e-learning, or e-learning products, and the UKeU did not consider learning from the British Council about marketing. It is inexplicable to us that UKeU did not seek to forge a partnership with the British Council to help it to understand the markets that it was trying to enter and to develop strategies for selling its products in them.

UKeU's approach to marketing

53. The UKeU's approach to marketing was to 'draw on their contacts.'[37] Their market research was anecdotal. There was no systematic evaluation of the markets. There were numerous examples of such an approach given in evidence to the Committee. Having identified the Far East as their first target market, Sir Anthony Cleaver went on to explain to the Committee that:

'Fortuitously, I was also Chairman of the Asia Pacific Advisers for Trade Partners UK and was able to draw on their contacts in that part of the world. In Beijing, Singapore, and Kuala Lumpur on my first visit we talked to the ministries of education and determined how best to proceed.'[38]

54. The question is whether it was appropriate or sufficient that the only market research conducted consisted of the Chairman, Sir Anthony Cleaver, making visits to the Far East, talking to Ministers and Heads of Universities, and then developing ideas based purely on these discussions.

'Korea is probably the best example. On my first visit to Korea I met the Minister of Education. He said 'well, of course we need English. We as a country are not strong in English and internationally that is financially detrimental to us,' and so on. So we were just on the brink, I believe, of being able to provide what was really needed and hence get the volume.[39]

'There were lots of other ideas I tried to develop in that time. For example, one of the concerns in Malaysia, China and these other places is that it is very expensive for them to send people to the UK for three years.. Why could we not…develop courses where we did two years online in their own country and then they come to the UK for the third year... it was something that I was beginning to talk to people about.'[40]

55. Evidence to this inquiry suggests that UKeU's understanding of their markets came from anecdotal evidence from individual discussions rather than from systematic analysis. There was no formal market research undertaken to assess either the level of demand or the nature of the demand and the type of e-learning required. There was no systematic evaluation of the markets, no thorough and robust market research, and no understanding of consumer demand. This was typical of UKeU's supply-driven rather than demand-led approach.

A technology-driven approach

56. Considerable focus and finance was given to the learning platform. £14.5 million—almost one third of all money received by UKeU—was spent on developing a new platform in partnership with Sun Microsystems Ltd. In describing UKeU's key priorities in order to succeed, Sir Anthony Cleaver spoke first of the technology platform and said that 'John Beaumont immediately focused on the platform'.[41] It was clearly their number one priority.

57. Sun Microsystems Ltd were signed as a strategic partner in October 2001, but the technology development proved more complex than anticipated. Difficulties in developing this new platform caused delays in the launch of UKeU's courses until September 2003 and problems still existed even then. Furthermore, only a small proportion (around 200) of the 900 students were using the UKeU platform—the majority of students chose to work with individual HEIs' own platforms.

58. It has been suggested that the existing web-based learning platforms could have been used or adapted for use at a fraction of the cost of the new platform. UKeU's decision to develop its own learning environment was not based on any market research or other research findings. The basis for this decision is uncertain, but it was UKeU's opinion that the Government's objectives could not be fully met without developing a new platform. This was linked to the highly ambitious nature of the project. Because of the scale of the project that was envisaged from the start, the idea of gradually developing the scope of an existing platform was not considered.

59. There are examples of successful platforms that have worked, however, and could have been utilised by UKeU if they had been slightly less ambitious about the scale of the operation. The UKeU were evidently aware of such examples. John Beaumont told this Committee:

'The two examples that are often highlighted in the US are the University of Phoenix and e-College. The University of Phoenix has probably got the largest number of students of a private university. It is increasingly online but across the States, Canada and Puerto Rico there are over 100 campuses so it is a blended approach. The other one which is probably nearer to wholly online higher education is something called e-College which is Nasdaq listed, set up in 1996. Last year their online courses grew by 40%; they have now got about 1.4 million students, of which a good third are wholly online, the rest are hybrid. Those are the two best examples.'[42]

60. When we asked why these successful platforms could not have been used rather than UKeU developing its own complex platform, John Beaumont replied that this had been examined before he and Sir Anthony joined UKeU. UKeU allowed the development of the technology platform to drive its strategy and the development of programmes. It had a skewed focus on the platform, based on an assumption that once this was right, the original projections of very high student numbers would be easy to realise. Unfortunately this assumption was not based on research evidence, but on an over-confident presumption about the scale of the demand for wholly internet based e-learning.

A failure of partnership

61. In the original business plan, the proposal was to form partnerships with private sector companies. Sun Microsystems UK Ltd joined as a strategic partner in October 2001 and entered a strategic alliance with UKeU. However, Sun decided not to hold shares in UKeU and removed itself from the UKeU Board and, as a result, from any influence over operating decisions. As the project developed, the relationship became one of a supplier and customer with Sun delivering the technology platform. In evidence to the committee, Mr Stretch described Sun's position:

'we got involved in an intention to partner strategically with UK e-University to provide an e-learning solution to the UK market place and to the global market. That was our initial involvement and the whole intention there was a strategic partnership for us to also build the e-learning platform and the technology that supported the solution and then to partner with e-University in taking that solution around the world and for us to benefit from that, so we took an investment view of this relationship. However, as the venture spun out, our relationship became very much a supplier/customer relationship and the day-to-day focus, particularly in the last two years…became a relationship that I would characterise as a supplier relationship where the focus was to deliver the e-learning platform...'[43]

62. In the early stages of set-up, the interim management team was negotiating with Pearson to come in as a strategic partner. In evidence to the Committee, Sir Brian Fender explained that:

'Pearson was attractive for a variety of reasons, but it was pretty apparent early on that we would not be able to come to an agreement. Even if they wised to invest money at a significant level it would be pretty impossible to produce an agreement which was satisfactory to universities because they would want far more control than was willing to be conceded.'[44]

63. UKeU's attempt to form genuine partnerships with the private sector, though unsuccessful, was commendable and could have helped UKeU to stay competitive and market-orientated. Instead, UKeU became another example of how difficult the public sector finds it to form successful partnerships with the private sector. The failure to find private sector partners or investors should, however, have caused the holding company, HEFCE and the DfES to have concerns sooner rather than later about the viability of the project.

64. We are also unclear about how committed the HE sector was to UKeU. We gained no sense during the inquiry that the individual HE institutions themselves were helping to drive the project forward. We put it to John Beaumont that at the outset of the project everyone had wanted to be on board. He told us:

"I am not sure that is the case. They were asked to put a pound in and I think all but four did, and I am not sure that shows real commitment of an institution. What we did find, as Sir Anthony has said, was in many institutions there were a lot of very enthusiastic academics, but to get e-learning of quality and scale you need the whole institution to support it; it cannot be just a side-line taking 20 to 30 students per intake".[45]

65. He disagreed with the suggestion that interest in higher education for UKeU had waned as time wore on, saying that those who were interested became more supportive.[46] Despite this, it appears to us that the wave of enthusiasm which caused all but a handful of higher education institutions to sign up to the UKeU project receded very rapidly, leaving it without private sector investment or active higher education sector engagement.

A highly ambitious project

66. The idea for the e-University project was originally developed at the height of the dotcom era when it was thought that anything could be achieved through the internet (see paragraphs 5 to 8). The market for online learning was projected to grow rapidly in the future and, with ventures that had already started in the US, the UK Government was keen to set up the e-University project to ensure the UK would be a major player in this market.

67. We have found that, although there were ambitious aims for the project before UKeU was established, it added to the pressure by taking very ambitious business decisions. Not only did UKeU decide to start with the global market first, but they also took on the whole product chain—right from the start.

68. As the PA Consulting Business Review of UKeU stated:

'Like any new enterprise, the first task for UKeU has been to determine the business model, or value proposition, through which it will seek to generate value and earn income in its chosen markets. Most e-businesses seek to build their competitive position in some but not all elements of the customer value chain. The business model and strategy developed by UKeU for the eU is notable in that it seeks to offer a fully-integrated end-to-end value proposition which reproduces the full customer experience offered by a conventional university. The services offered by UKeU extend from market intelligence through the sourcing of products (from selected universities) to channel management (through country-based business managers and HE partners) to on-line delivery (via its proprietary platform) with associated customer support services, and finally to cash collections from end customers.

'This is an especially challenging strategy for UKeU to have adopted, since it demands a wide range of very different business capabilities and operating cultures within one organisation. It also entails a high fixed cost infrastructure which must (a) be fully developed before any revenues start to flow, and (b) must then be maintained and serviced before those revenues show a profit. These features of the eU value proposition lie at the heart of the financial difficulties facing UKeU. The chosen strategy has entailed a very long and expensive start-up phase for the business, not yet completed, which then demands a very rapid ramping up of revenues in order to achieve break-even within an acceptable period.'[47]

69. UKeU chose an 'especially challenging' strategy that demanded a wide range of very different business capabilities and operating cultures within one organisation. In trying to do it all, UKeU set itself an impossibly ambitious business model. It should instead have focused on just some of the elements of the 'customer value chain'.

70. UKeU also set itself ambitious objectives as a result of the markets it targeted in the early stages (see paragraph 23). There is no reason why UKeU could not have started in guaranteed markets—or indeed in the home market. In his evidence to the Committee, Sir Anthony Cleaver said:

'We did not know at the beginning what quick winners would be.'[48]

71. Based on detailed work on target markets by CHEMS and PwC, the original PwC business model assumed that the initial low-risk markets targeted by the e-University would be:

a)  selected UK postgraduate and continuing professional development courses;

b)  servicing the needs of 'corporate' universities;

c)  selected overseas markets.

72. The grounds on which UKeU decided to move away from the advice of the original PwC business plan are not clear, other than an ambition to enter the perceived global market for wholly internet-based e-learning. The Minister for Higher Education told us:

'I think probably it would have been very wise to have had a crack at postgraduate work first. There very often you might have another job, you might be doing other things, and you would want to be primarily based on your PC or your laptop. I think we could have tested that one first before going for this great mass of undergraduates that we assumed would be flocking to this platform.[49]

'… (there was) a great deal of ignorance about what…might have been a success.…had perhaps the focus been a little narrower at first and less ambitious…it could well have been a success.'[50]

73. In focussing so explicitly on the global market, UKeU was not just migrating from the original business plan, but also failing to undertake one of the explicit aims and objectives for the project as identified by the Minister in the HEFCE Grant Letter of 2001. The 2001 Grant Letter highlighted two particular aims and objectives for which the project was originally set up, including 'ensuring that the social inclusion agenda remains a priority, primarily through the development of undergraduate courses to reach those in this country who find it difficult to access the more traditional campus-based university' (see Annex 1). In choosing to focus so exclusively on the global market, UKeU clearly failed to meet this Government objective.

22   Q 373  Back

23   HEFCE publication, 2000 (00/43).  Back

24   This is despite the social inclusion agenda that was specifically raised in the Minister's Grant Letter to HEFCE outlining the aims and objectives of the project, which clearly required further pedagogic research (see Annex 1). Back

25   Business Review of the UKeU conducted from September to December 2003 by PA Consulting, commissioned by HEFCE. Not published.  Back

26   Q 217  Back

27   Q 489 Back

28   See Table at paragraph 28. Back

29   Q 373 Back

30   Q 141 Back

31   Q 304 Back

32   Q 305 Back

33   Q 234 Back

34   HEFCE publication 2000, (00/43). Back

35   Published as chapter 3 of The e-University Compendium, volume 1, 'Cases, Issues and Themes in Higher Education Distance e-learning', The Higher Education Academy, 2004.  Back

36   Q 253  Back

37   Q 141 Back

38   Q 141 Back

39   Q 171 Back

40   Q 345  Back

41   Q 141  Back

42   Q 324  Back

43   Q 481 Back

44   Q 607 Back

45   Q 198 Back

46   Q 199 Back

47   Business Review of the UKeU conducted from September to December 2003 by PA Consulting, commissioned by HEFCE. Not published.  Back

48   Q 171 Back

49   Q 465 Back

50   Q 394 Back

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