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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