Select Committee on Education and Skills Third Report

Conclusions and recommendations

1.  We recommend that the way in which decisions to televise select committee meetings are made is reviewed with a view to giving Committees a more active role in the process. (Paragraph 5)

Outcomes and expenditure

2.  The UKeU failed to meet its targets, aims, and objectives. The launch of the first UKeU courses was delayed until September 2003. When launched, they attracted just 900 students against a target of 5,600. Furthermore, despite it being a condition of grant, UKeU failed to attract significant private investment. (Paragraph 23)

Salary, bonuses and share packages

3.  At the very heart of the failure of UKeU was that systems and structures that may have been considered appropriate when set against the original plan became inappropriate for a venture that was almost entirely publicly funded. (Paragraph 32)

4.  We consider that for either the private sector or the public sector the bonuses paid to senior staff were wholly unacceptable and morally indefensible. The argument that they reflect private sector practice does not stand up to scrutiny. Any company which paid bonuses of this kind having underperformed in the way that UKeU did would face severe criticism from its shareholders. The non-executive directors who approved these bonuses through the Remuneration Committee cannot escape criticism. (Paragraph 33)

5.  We are also unable to accept the view of the Chairman and Chief Executive that they were involved in a risk business which made such bonuses appropriate. The company was involved in a new and relatively untried sector, but it carried no market risk. It was backed with £50 million of public money; the risk was to that public investment, not to the company. (Paragraph 34)

Why the UKeU failed

6.  Our findings are that UKeU failed largely because it took a supply-driven, rather than demand-led approach. (Paragraph 35)

7.  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. (Paragraph 36)

The concept of e-learning

8.  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. (Paragraph 43)

Use of market research and marketing

9.  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. (Paragraph 52)

10.  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. (Paragraph 55)

A technology-driven approach

11.  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. (Paragraph 60)

A failure of partnership

12.  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. (Paragraph 63)

13.  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. (Paragraph 65)

A highly ambitious project

14.  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. (Paragraph 67)

Accountability of UKeU senior management

15.  With no private investors, the sole reliance on public money, and with no direct accountability for the expenditure of that public money, UKeU had a very high degree of freedom. It could be argued that this was necessary in such a high-risk venture, but it should have been more accountable either through controls appropriate for a public sector organisation or through carrying some risk as a private company (Paragraph 79)

16.  An important lesson to be learnt is that senior management should have had either very clear accountability for the expenditure of public money, or risk from market pressures to succeed through private investment in the project. A high risk venture such as this does not necessitate a high risk approach to structure and accountability. Where there is a significant distance created between the accounting officer and the decisions taken by the senior management of the operating company, there needs to be either clear lines of accountability or some market risk. (Paragraph 82)

Accountability role of HoldCo

17.  Our inquiry has found that HoldCo became the primary accountability agent, but this was not the original intention. As a result, HoldCo only had the formal structures in place for it to perform a very limited monitoring role where this role needed to be much more significant. With no private investment, the structure needed to change to develop the role and capacity of the HoldCo to hold UKeU to account. (Paragraph 88)

Accountability of HEFCE

18.  In the absence of risk from market pressures, the accounting officer needs to be able to make accountability reach down to the operational level. The Government will have to consider the implications of this conflict in the role of shadow director and accounting officer for any future projects. (Paragraph 92)

19.  A key lesson to be learnt is that, in high risk ventures such as UKeU, a great deal more needs to be done to support the accounting officer to enable him to act effectively in his role. The accounting officer must have at least equal expertise available to him as is available to the company in order to hold such an unusual public-private venture to account. The accounting officer in the public sector must have the backing of experts with a high reputation to assess such public-private ventures against agreed benchmarks and criteria for success. (Paragraph 98)

20.  A group of advisors to HEFCE including members of PwC who produced the original business plan, and experts from The Open University and British Council, for example, could have been put together to keep UKeU in much closer account in terms of the decisions they made. This would have enabled much closer accountability from the start of the project. (Paragraph 99)

Accountability of the DfES

21.  We have heard no evidence to suggest that the DfES would have arranged structures differently if it had chosen to run the project directly. (Paragraph 102)

22.  The lessons for the Government on ensuring accountability are the same as those for HEFCE: in high risk ventures such as this, more needs to be done to support the accounting officer to enable him to act effectively in his role. The accounting officer must have equivalent expertise available to him in order to hold such a public-private venture to account. (Paragraph 104)

23.  The DfES must improve its working practices if it is to continue to work with the private sector (Paragraph 104)

Use of existing evidence

24.  The problem for UKeU was a combination of the ambitious nature of the original idea, and an over-confidence about the level of demand for e-learning which led to an approach which was insufficiently focussed on research and marketing and which was not learner-centred. To be successful, the project's main focus should have been on clearly identifying its market and knowing the demands of its customers. (Paragraph 108)

25.  The lesson to be learnt is that such high-risk ventures entering new and emerging markets must have a focus on front-line research. They need to have the flexibility to adapt to changing market trends, and directors / managers must be able to make strategic and operational decisions, but these decisions must be evidence-based and rooted in robust and reliable research information. (Paragraph 109)

The Government's approach to risk

26.  We do not want the Government to become increasingly risk-averse as a result of the UKeU experience. Instead it should learn from this experience and, in the future, take a more experimental approach to such high risk ventures. This would involve focussing more on testing various models and prototypes; taking an evidence-based approach; involving the private sector as partners in a more organic process; undertaking effective risk-assessment procedures; and setting open and transparent success criteria for such projects. (Paragraph 112)

A learner-centred approach to e-learning

27.  The Government, through HEFCE, must deliver on its commitment to outline its strategy, and action plan for its implementation, for embedding e-learning in HE in a full and sustainable way. (Paragraph 117)

Future research

28.  The Government, through HEFCE, should state as soon as possible how it intends to invest the residual £12 million funds remaining from the e-University project in order to meet its commitment 'to embed e-learning in a full and sustainable way' over the next 10 years. In doing so, it should keep in mind the importance of collaborative projects across the FE and HE sectors. (Paragraph 126)

The future of the platform

29.  £14.5 million of public funds was invested in the development of the UKeU technology platform. At present it is not clear how much of this investment can be recovered, or to what use the platform can be put. Whilst is too early to determine the future value of the platform, it is important that the returns should be maximised and that they should be invested back into e-learning. (Paragraph 131)

Market research

30.  We recommend that the Government, through HEFCE, ensures that thorough and robust market research is undertaken for use by the whole sector in order to maintain the UK interests in the global market for e-learning, keeping in mind the commercial sensitivity of such research, and the potential for collaborative projects between the FE and HE sectors. (Paragraph 134)

Support and guidance for HEIs

31.  We recommend that the Government, through HEFCE, clarifies how it intends to invest in and support collaborative ventures in e-learning both across the HE sector, and between the FE and HE sector, in a way that provides equal opportunity and advantage to all those who would wish to be involved in the global market for e-learning. (Paragraph 142)

32.  Whilst recognising the important role the Government has to play in providing support, information and guidance for e-learning to develop within HEIs, we conclude that the Government's role in providing an overarching national strategy for e-learning is vital to ensure consistency, coherence, and clarity of purpose in developments across the sector. The Government, through HEFCE, must clarify its national strategy for developing e-learning in the UK and how it intends to invest in and support e-learning across the HE sector in a way that provides coherent progress. (Paragraph 144)

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