Examination of Witnesses (Questions 139-159)
21 JULY 2004
SIR ANTHONY
CLEAVER AND
MR JOHN
BEAUMONT
Q139 Chairman: While we are allowing
people to settle down, can I welcome Sir Anthony Cleaver and John
Beaumont and thank them for coming to the meeting of the Committee
to discuss the UK e-University. Sir Anthony Cleaver and I know
each other. He has been a formidable player in the way that he
campaigns to make British business more effective and efficient.
I remember his work on the Tomorrow's Company with the Royal Society
of Arts. It is nice to see you here, Sir Anthony. John Beaumont,
who again has had a distinguished career in Energis and elsewhere.
Again, John, welcome. Basically you know why you are here and
what we are trying to get to the bottom of, that is the brief
trajectory of the University and why it finished in the way it
did very recently. I know you, Sir Anthony, resigned at a particular
time. What is the present status of the UK e-University at the
moment? Are you still the Chief Executive?
Mr Beaumont: No, I stopped at
the end of the first week of July and it is being wound down.
There are a couple of people there today and it will be concluded
by the end of July. So the students that are on existing courses
will be looked after, hopefully, by the individual universities
for which they are taking the courses.
Sir Anthony Cleaver: I wonder,
Chairman, if I might make a brief opening statement.
Q140 Chairman: I was going to ask you
that; I just wanted to know what the status was, because in my
programme it says, "former Chair" and it says "John
Beaumont, Chief Executive", so I wanted to be clear what
the status was.
Mr Beaumont: Former Chief Executive.
Q141 Chairman: You are both former now.
Sir Anthony, would you like to make a brief opening statement?
Sir Anthony Cleaver: Yes, I thought
it might help the Committee if I gave a brief summary of the history,
very brief, and some of the key events. In November 2001 I was
approached about the position of Chairman of UKeU. I was subsequently
interviewed by the three HEFCE nominated directors of the interim
board, Sir Alan Wilson, John Bull and David Wallace. I was shown
the PwC business plan, and I said that while I thought the project
was very exciting and one that I would like to lead, I could not
commit to delivering a 10-year plan which amounted to little more
then a spreadsheet. The Vice Chancellors did not disagree and
I became Chairman in December 2001. On reviewing what was already
in place, I found relatively little of substance. By far the most
valuable element was the specification for the software platform.
However, no coding had been done, nor had the software provider
been chosen. In terms of content, three pilot courses had been
agreed with York, Sheffield Hallum and the Open University. Again,
little work had been done and the universities were hampered by
the absence of the software platform. On the marketing front,
little existed except some market estimates that appeared to be
almost entirely desk-based. The plan called for courses to start
in October 2002, which in my view was unrealistic, and my first
action, therefore, was to defer their start date to spring 2003.
My most important task was to put together a strong management
team. The key appointments were the Finance Director, a Company
Secretary with strong legal background and used to dealing with
complex contracts and the Chief Executive. The latter was particularly
crucial to our success and I was therefore delighted that we were
able to find John Beaumont, who had extensive experience of running
a large Internet-based operation and wide academic experience.
My other key objective was to appoint strong commercial non-executives.
This was achieved by the middle of 2002 with the appointment of
Keith Bedell-Pearce, ex-Director of the Prudential and Chairman
of the Student Loans Company, Richard Hooper, a veteran of the
Telecoms industry with BT and now Deputy Chairman of OFCOM, and
Rob Rowley, ex-Finance Director of Reuters and now Deputy Chairman
of Cable and Wireless. From the beginning it was clear that to
succeed we had to get three things right: the platform, the courses
and the marketing. John Beaumont immediately focused on the platform,
where we put out a tender and eventually signed a fixed price
agreement with Sun in July 2002. The platform went live in March
2003. The second key area was the courses. We wrote to all the
universities asking what courses they could develop for us. We
were offered nearly 70 courses by 29 universities. We then selected
the most promising in terms of the international market, choosing
15 courses to be available from October 2003 and a further 10
from February/March this year, which leads me to the most challenging
area: marketing. From what little marketing information we inherited
and our own initial analysis, including discussions with the British
Council, our first target markets were in the Far East. 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. While there was clearly a huge opportunity in all
three countries, it was also very clear that each country required
a different approach, different pricing and local partners. In
other words, the original plan, based on the single price world-wide
marketed directly by UKeU with no local support, would simply
not work. Consequently, we recruited a man with significant experience
of working in the Far East and set about building a team of local
agents in the target countries. In conclusion, I would like to
cover two issues: private sector funding and the provision of
information. The private sector funding issue was reviewed regularly
by management and the Board. Experience and our contacts told
us that we would need a track record before we could raise money.
In autumn 2003 we said that we did not envisage being successful
in this area until autumn 2006. At the same time, we did everything
we could to cut back our funding requirement so that the plan
we submitted at the time of the PA report showed a total requirement
of £57 million to break even compared with the £90 million
plus of the original plan. I felt, however, that it would be more
prudent to assume a total of £70 million. In terms of our
relationship with our public sector funders, it is important that
you are aware that the monthly management report and the full
Board minutes were sent directly to HEFCE and the Holdco every
month, ensuring that they were fully appraised of our progress,
and regular meetings were also held. In conclusion, I strongly
believe that UKeU had a sound future and, if allowed to continue,
would have delivered great benefits to the UK in the expanding
global market for higher education, and I very much welcome this
opportunity to answer your questions.
Q142 Chairman: Thank you, Sir Anthony.
To sum it up in a nutshell, you think this abrupt termination
was quite wrong and could have led to a very successful business.
That is what you concluded by saying. Why do you think HEFCE did
what they did then?
Sir Anthony Cleaver: I find it
very hard to understand, and it was a complete surprise to myself
and the non-executive directors when their Chairman and Chief
Executive walked into the meeting and said "Our Board has
taken a decision", and we said, "Could we discuss this?",
and they said, "No".
Q143 Chairman: It was non-negotiable?
Sir Anthony Cleaver: We said,
"Is this negotiable?" and they said, "No, it is
a Board decision and we are not prepared to discuss it."
Q144 Chairman: There is some view that
you were . . . We will be coming to look at the marketing strategy
in a little while, but in terms of the business plan, if you look
at the history as it has been provided to us, it seems uncertain.
You have already said you were not very happy with the original
PwC business plan. Why was that? Could you tease that out a little
bit more?
Sir Anthony Cleaver: Yes, because
it showed a very rapid increase from a standing start to—I
cannot remember the numbers because we discarded them at the beginning.
I have them if you would like them, but it was of the order of
say 10,000 students in the first year, and that was a year, I
could perhaps remind the Committee, in which, at the point of
time that John Beaumont arrived, we had not even got the software
out to tender let alone written. One had to produce the platform,
the universities had to produce the courses to run on that platform
and we then had to recruit students. So it was clearly an impossible
plan. What we decided we should do was to gain understanding of
the market as fast as we could and as we understood it so we constantly
revised the numbers, which is why month after month the monthly
management report which went to the Board said, "Based on
our current feeling, these are the numbers we will aim at",
and we constantly aimed high because we thought that was the right
thing to do.
Q145 Chairman: If there was not a satisfactory
business plan when you arrived, when did you get a satisfactory
business plan?
Sir Anthony Cleaver: We were constantly
refining our understanding both of the market and of what universities
could and would do and of the way in which we could develop the
business. So I would say that we were constantly revising the
business plan. In the autumn of 2003 when we were asked for the
business plan, what we actually provided was a copy of our model.
We had developed a model of the business into which we could put
the arrival of a new course, the prices that we were going to
charge and the number of students we thought we would get and
from that immediately developed the impact of the business; so
this was constantly evolving. I think it is important to understand
what we are talking about here is a Start-up, and a Start-up which
had to operate in many international countries, with multiple
partners in the UK, and which was given less than two years to
success. I know of no Start-up that could have achieved success
in that time.
Q146 Chairman: But, if I can ask John
Beaumont, you came in?
Mr Beaumont: Yes.
Q147 Chairman: You would have been aware
there was not a business plan that people had accepted as a business
plan. Would not one of your first actions have been to say, "We
must have a revised business plan that everyone knows about and
is aware of"?
Mr Beaumont: What we did was take
the original PwC business plan and in a sense update it for three
things: (1) the new time schedules of when courses and platforms
were going to come, (2) removing some modelling errors that we
found in it, and (3) do more detail, because the original plan
only did annual cash flow, and, given the peakiness of cash requirements
and the importance of knowing where the funding was coming, we
did monthly cash flows. So we updated that original plan by the
April/May 2002. What that showed was a change from the PwC plan
of year one students 3,500, the new numbers were 340; PwC second
year was 12,600, the second year of our remodelled plan was 5,638.
Clearly that was just a modelling arithmetic exercise, and in
discussions, particularly with Holdco, we said the only way we
will be able to get a real projection is when we start to take
the first set of students and get to see what the response is
to the courses, because in a sense you are creating a market for
wholly on-line services; and it was agreed with Holdco that the
first real business plan with some numbers that were based on
actual results would be November 2003, and then, with those numbers,
the 2003 for year one was 1,225 but in the second year going up
to 4,660. So initially we had to just do modelling and make assumptions
talking to different people, and then we started to use hard numbers
that we got from the initial courses in the latter part of 2003.
Q148 Chairman: Two more things on this
introductory. Holdco—who did you talk to in Holdco?
Mr Beaumont: There were quarterly
meetings of Holdco, chaired by Sir Bryan Fender, and I would give
a quarterly update as a report to that meeting and go along to
the meeting and answer any questions about the progress of the
business. Holdco was a group of 12 people; it met quarterly and
probably on average about six or seven people turned up.
Q149 Chairman: Chaired by Sir Bryan Fender?
Mr Beaumont: Chaired by Sir Brian
Fender.
Q150 Chairman: How often, or at all,
did you meet any ministerial contact in the Department for Education
and Skills?
Mr Beaumont: We met the Minister
for Higher Education probably every six months, so Mrs Hodge and
then Mr Johnson, and then giving them updates. If asked by DfES
for any updates, we would obvious reply very promptly.
Q151 Chairman: Where did you meet?
Mr Beaumont: In their office.
Q152 Chairman: In your office?
Mr Beaumont: In their office.
Q153 Chairman: In their office?
Mr Beaumont: Yes.
Q154 Chairman: Across here?
Mr Beaumont: Yes.
Q155 Chairman: At the original budget
the figures that we were given were that the original allocation
to HEFCE to do this was £63 million?
Sir Anthony Cleaver: £62
million.
Mr Beaumont: £62 million.
Q156 Chairman: £62 million. How
much of it was spent?
Sir Anthony Cleaver: At the time
that we left.
Q157 Chairman: Yes?
Sir Anthony Cleaver: It was, I
believe, £34.9 million.
Mr Beaumont: And of the £62,
ear-marked for UKeU was £55 million, there was £3 million
for the e-China project that we managed and £1 million for
an e-learning research centre that was across the universities
of Manchester and Southampton.
Q158 Chairman: That was extra?
Mr Beaumont: That was within the
£62 million.
Q159 Chairman: So what, Sir Anthony,
was the £70 million and £90 million you mentioned in
your introduction?
Sir Anthony Cleaver: I will try
and make it as clear as I possibly can. We believe that we had
£55 million committed.
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