Examination of Witnesses (Questions 480-499)
12 JANUARY 2005
MR LESLIE
STRETCH AND
MR DAVID
BEAGLE
Q480 Chairman: Good morning, could I
welcome Leslie Stretch and David Beagle to the proceedings of
our Committee. Leslie Stretch is Vice President of Sun Microsystems
UK, and David Beagle is Account Manager of the UK e-U Project,
Sun Microsystems Ltd. Thank you very much for coming before the
Committee. You will know the role of this Committee is the scrutiny
of the Department for Education and Skills and anything in that
vast empire is our business. We have been looking at the UK e-U
experience and there is no doubt as we have conducted our interviews
that we have found that Sun Microsystems are a major player in
this whole enterprise, so we want to go through the process forensically
just to see how your role materialised, as we see from your briefing,
from your response to the advertisement in the Financial Times
and so on. Mr Stretch, would you like to give us a two-minute
account of your involvement to get us started?
Mr Stretch: I have a short opening
statement about Sun Microsystems for people who do not know anything
about our company. Is it alright to go through that?
Q481 Chairman: As long as it is not too
long.
Mr Stretch: Sun Microsystems employ
3,000 people here in the United Kingdom and we have the largest
manufacturing footprint of our company anywhere in the world here
in the United Kingdom. We have been involved in the education
sector for 20 years. The UK e-University involvement came to a
contract head four years ago, effectively, when 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. We invested initially
£5.5 million in kind of services and products into the venture.
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 when I was involved closely
in monitoring the situation at e-University, became a relationship
that I would characterise as a supplier relationship where the
focus was to deliver the e-learning platform, and we have got
to where we are today. The financial treatment for us is highly
confidential because it is commercially quite sensitive, however,
we have provided a statement to the Committee on the financial
treatment and I am happy to take any questions on that. The headline
for me is that we sit here today with substantial losses from
the venture, and that includes our initial investment which we
wrote out four years ago, and in our last financial year we wrote
out some other substantial losses related to the termination of
the venture.
Q482 Chairman: Okay. In terms of your
involvement in the setting up of this, what was the first point
of contact and how did that develop? You started presumably negotiating
the contract and the basis on which you would work with the e-University
before the private company was established; is that right?
Mr Stretch: I will ask David Beagle
to answer that.
Mr Beagle: The original contacts
were with the selection committee and the selection committee
consisted of the interim directors of the University, so that
was Nick Winton, Professor John Slater, Dr Keith Palmer who was
on secondment as the Financial Director from Rothschild's. There
were people from PwC, there was one representative from HEFCE,
and there were also people from Ove Arup on that committee, and
that was who the original conversations were with.
Q483 Chairman: Which committee?
Mr Beagle: It was called the selection
committee.
Q484 Chairman: No, the last thing you
said?
Mr Beagle: From Ove Arup.
Q485 Chairman: What about the relationship
with the holding company? Did you have a relationship with the
Higher Education Funding Council? Did you meet anyone from the
Higher Education Funding Council?
Mr Beagle: The person who sat
on that committee we met every time the committee met. We were
told that it was not proper for us to talk about the University
to HEFCE directly without the committee's approval first. We did
have a meeting with Sir Brian Fender during the process and occasionally
had meetings with Alice Frost, who was directed to look after
that but those were infrequent. Pretty much all of the meetings
were with people from the selection committee.
Q486 Valerie Davey: Can we just clarify
who the member was from HEFCE on that selection committee?
Mr Beagle: Linda Josh.
Q487 Chairman: What we are trying to
get at is the legal entity. As we understand from the evidence
that we have taken that must mean either HEFCE or the holding
company because there was no private company at that time.
Mr Beagle: We were dealing with
the committee who were representing HEFCE but the day-to-day conversations
were with the committee or people from the committee. Most conversations
were with John Slater because we were talking mostly about e-learning
and how we could invest in the e-learning experience.
Q488 Chairman: Look, we are not here
to castigate anyone here. Our job is to find out what happened.
What is your view, both Mr Stretch and Mr Beagle, of what has
gone wrong? Two stories have come to this Committee. On the one
hand, people say this was a great idea, and if only it had been
given more time it would have worked. Others say it was misconceived
from the very beginning. Like a lot of other people, like Columbia
University and Cornell and some big players in the United States,
they thought it was a goer, they thought it was a very interesting
niche to get into, and they got their fingers burnt. Of those
two stories to which one do you subscribe? What is your analysis
of what has gone wrong?
Mr Stretch: My view today is that
the intention behind this was good. My view today is that there
was no reference architecture for this business venture anywhere
on the planet at the time of start up and initiation, so between
all of the entities involved, including ourselves, nobody had
the track record of experience of bringing e-learning to the market
in this way by building the platform and so on. There was no off-the-shelf
solution either from a technical perspective or from a business
perspective. There was no other business we could look at and
say that is the business model, so it was all based on intuition.
Looking at it now, the global market is well-studied for this
service. The opportunity for this service in my view runs to billions
of dollars. My view then and is today that the UK has an opportunity
to take the lead. The UK has the best branded content to take
the lead in this market space and that is why we took an investment
view of this venture, but at the time I do believe that the argument
that says the parameters of time and money and possibly the measurements
were wrong is true, and it is true because nobody had any reference
to point to to say this is the way you set up a business venture
of this nature (because that is what it was); this is how you
manage the relationships with the higher education entities involved;
this is the way you acquire customers to the market. There was
no reference, there was no text book for anyone to look at. Looking
back now I would agree, if I refer to Sir Anthony Cleaver's comments,
broadly from a 30,000-foot level that the whole venture was not
given enough time and enough money to succeed, and indeed in the
original plan the budget allocated to get the venture up and running
was substantially more than the £57 million or £60 million
that was eventually laid out. We still believe in the opportunity
and indeed between ourselves and HEFCE we are in the process of
agreeing how we move forward because there is at least a working
system here, there is a working platform. That is my view.
Q489 Chairman: What is the reason that
people like the University of Phoenix and other players round
about the same time have conquered these and launched very successful
programmes? Why is it that they could do it and you guys could
not?
Mr Beagle: I think you need to
see the difference between UK education and education around the
world. Most university education around the world is more "here
is 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.
Mr Stretch: I have a slightly
different view on that, a slightly higher level view, and it is
that the UK e-University was drawing contact from a number of
different players. The governance bodies involved in the set-up
were different. When you have one university moving ahead there
is a different set of potential outcomes. There is also a different
offer. I think the e-University offer was much richer and potentially
much deeper. The brands involved were second to none. One university
setting up and doing it is fine but, as I understand it, on the
timing of a number of universities who went down their own road
and the level of success they have achieved, the story is not
complete there, so I think there is a different case.
Q490 Chairman: What do you say to the
critics who would suggest that it was Sun Microsystems' inability
to deliver this platform on time that was one of the major reasons
for failure and that if you had stuck to the deadlines, if you
had produced this platform on time, these problems would not have
arisen, the momentum would have been there, and the dynamics would
have been a great deal better. HEFCE's eventual feeling was that
things were not happening fast enough and they had to pull the
plug and it really was down to this problem, everyone talks about
this technology-driven solution that you did not deliver on time.
Is that a fair criticism?
Mr Stretch: No, I do not think
so. HEFCE have never levelled that criticism at us.
Q491 Chairman: They did when they came
to us.
Mr Stretch: They have not levelled
it at me directly so my view is that the design of the system,
the specification of the system, the requirements definition of
the system were not done by us; we were the supplier.
Q492 Chairman: You said you became the
supplier but you were really into the discussion right at the
beginning, the nuts and bolts of planning it, you were there really
early days, were you not? You were there before the chairman and
chief executive were appointed?
Mr Stretch: Not designing the
specification of the system.
Q493 Chairman: Your contract had been
settled before there was a chairman and chief executive of UK
e-University. That is true, is it not?
Mr Stretch: A contract had been
settled but that subsequently changed.
Q494 Chairman: Take us through that.
We have got dates here where you should have delivered the platform
but you did not, so why did you not deliver the platform on those
dates?
Mr Stretch: The contract subsequently
changed from initially a time and materials contract to a fixed
price contract when Sir Anthony Cleaver and John Beaumont came
on board, so that was a key change for everybody. There was a
live system and when it was delivered here and was in use through
the user experience, as is common on projects of this nature,
there were change requests, the market was telling the e-University
that certain elements and features had to be changed to suit the
needs of users and so those came into effect and the contract
grew in value from £9.5 million or so to around £11.1
million. As a result we were paid only £7.1 million so I
do not quite agree with your analysis of the situation.
Q495 Chairman: It is not my analysis,
Mr Stretch, it is what we have been given as evidence, the failure
to deliver the platform slowed the whole process up and you are
saying that you did deliver on time.
Mr Stretch: We had a working system,
we had users using the system, there was no limit to the number
of additional customers that could have been taken on to the system,
it was there.
Q496 Chairman: And so the system is absolutely,
totally complete as at the present moment? It is a platform that
could be used by somebody else if there was an opportunity? The
whole thing is there, it is done, dusted, complete? It is like
buying a beautiful new car, it has got all its wheels and engine,
everything, it is all done?
Mr Stretch: I will let David Beagle
answer the technicalities.
Q497 Chairman: Mr Beagle, is this platform
100% finished?
Mr Beagle: I think a better simile
would be, say, the building of a hotel, where individual contracts
are placed for the shell of the building, fitting out the rooms
and so on, and we delivered all of those contracts and we have
acceptance certificates that say the University accepted those
elements and the platform that was delivered just before the e-University
was closed was a working platform. Saying it is 100% compete—In
all of these things people using it say, "I would prefer
it if instead of it being up there on the screen it was down here,"
and those sorts of things you do after the launch, so apart from
those types of activities, yes, it was complete.
Mr Stretch: I think it is probably
fair to say that the content of the system goes beyond the original
design specification because of the change phases that we got
into, so it is not quite like the car analogy; there are iterations
of change coming in from different angles, from the user angle,
market angle and so on.
Q498 Chairman: You are one of the most
prestigious companies in this field, are you not? You are well-known
to us. You do wonderful work in prison education IT that we know
of. You are market leaders so you know the nature of these contracts
and they are always going to change. You have been there, you
have done that with other government departments and other countries
so you are familiar with the concept that the contract will change.
You seem to be suggesting that they changed the rules so that
you could not really perform as you would like to have done.
Mr Stretch: No, I am not suggesting
that at all. The whole scenario has not played out. Our contract
was terminated, the funding was withdrawn, the funding ran out.
The changes were fine and they were all agreed. It was good practice
to have users come along and look for changes to functionality
to keep up with the needs of the market. That is fine, but the
venture was terminated abruptly and I go back to my opening comments,
about whether this had the time and money to play out. Who knows
how much time and money it would need. I go back to my opening
comments about the reference architecture and where we can point
to similar experiences because if you look outside of this field
and you look at other on-line dot-com ventures the spectrum of
variables of time, money and measurement is huge. There is no
one predictable pattern. I still believe looking back at this
now that there were two successful business people drafted in
at the chairman and chief executive level to run this. They had
strong track records and were more than capable of succeeding
with this, but I do not know of any venture that had this type
of set-up in terms of the investment profile, the limit to it,
and the measurement of time dynamics of the venture.
Q499 Mr Gibb: SUN stands for "Stanford
University Networks"; is that right?
Mr Stretch: That is correct.
| 
