Appendix 1
Government's response to the Third Report from the
Education and Skills Committee, Session 2004-05.
The Committee's conclusions and recommendations are
in bold text. The Government's response is in plain text.
1. We thank the Committee for their report on
the UK eUniversity. There were considerable hopes for this initiative
and we acknowledge that the outcome has been highly disappointing.
Whilst some of the factors that led to the failure of the venture
were specific to time and place we recognise that there are also
issues which have more generalised application. Both the Department
and the Higher Education Council for England (HEFCE) have separately
undertaken their own assessments of the lessons to be learned
(HEFCE's can be found at http://www.hefce.ac.uk/learning/tinits/euniv;
the Department's is currently in draft) and have begun the process
of implementing changes as a result. The Committee's report has
played a very valuable part in these processes.
2. We have not commented on the Committee's Recommendation
1 ("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"). This is not a matter
for Government but for the House authorities and the broadcasting
organisations.
3. This response deals with the Committee's remaining
recommendations under three broad headings:
a. issues around the general operation of the
venture (covering recommendations 2-11, 13, 14, 24-26);
b. accountability issues (primarily recommendations
12, 15-23);
i) relating to UKeU structure;
ii) relating to HEFCE;
iii) relating to DfES;
c. the way ahead on e-learning (recommendations
27-32).
A. Issues Around the General Operation of the
Venture (Recommendations 2-11, 13, 14, 24-26)
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)
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 the 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)
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)
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)
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)
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)
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)
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)
4. The Committee examined in some detail the
business performance of UK eUniversities Worldwide Ltd (UKeU).
It has provided a very cogent analysis of value to the Government,
HEFCE and all others considering future e-learning initiatives
in the HE sector.
5. As the report notes, the running of the
UKeU business was a matter for its Board and senior management
and not for the Government or for HEFCE. We would simply comment
that UKeU conducted its operations in a very fast-moving market
situation. Private sector enthusiasm for 'dotcoms' changed very
dramatically over the period from the announcement of the eUniversity
project in 2000 to the launch of the venture in 2003. Similarly,
eLearning has taken a different course than the venture anticipated,
with greater focus on eLearning blended with elements of campus-based
or distance learning, rather than wholly Internet-based learning.
Uses of the Internet in commercial ventures have perplexed many
experienced companies. We note that different views are emerging
in the continuing debate on critical eUniversity issues - which
is not unexpected given the complex market conditions (see, for
example, the breaking news article of 6 March 2005 from the Borderless
Education Observatory set up by Universities UK, The last chapter?
UK Select Committee publishes final report on UK eUniversity
http://www.obhe.ac.uk/news/March2005.html ).
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)
6. We note the Committee's observations on
UKeU's approach to marketing. The whole area of marketing was
a major focus in HEFCE's formal review of the venture. At the
outset of the venture HEFCE commissioned research to identify
potential markets ('A Study on Market Issues for the Proposed
e-University', Commonwealth Higher Education Management Service
(CHEMS), June 2000). Later PwC also commissioned further research
on markets to inform their business model. However, overall more
could certainly have been done.
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 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)
7. We welcome the Committee's view in the
report that the public sector should not shrink from high risk
projects. We concur with the Committee that the use of models
and proto-types is very valuable particularly in high risk areas
and note that a number of models were explored by HEFCE in setting
up the eUniversity project. In the case of the eUniversity, the
perceived imperative of early entry into the market limited the
length of time for prototyping.
B. Accountability Issues (Recommendations 12,
15-23)
(i) Relating to UKeU structure
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)
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)
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)
8. UKeU was intended to operate in the private
sector with commercial-type speed and flexibility to address a
new learning market. However, as it was to be jointly funded
by public and private investment in equal shares, there was an
accountability structure and framework intended to protect public
funds.
9. The Department provided a significant -
but finite - sum to HEFCE for the venture, with guidance on the
high level objectives to be pursued. HEFCE provided funds under
a legal Deed and conditions of grant to the Holding Company.
The conditions of grant required the Holding Company to invest
funds only against a robust business proposition and with private
matched funding. Terms also required the Holding Company to meet
best practice in governance as set out in The Combined Code (Principles
of Good Governance and Code of Best Practice) published by the
Financial Services Authority, May 2000, including specifically
requiring an audit committee. The Holding Company was required
to report at least annually, and also exceptionally as necessary,
on the value for money achieved from the grant and on the assurance
of quality in the venture. The Holding Company was also required
to place similar governance requirements on UKeU.
10. The Holding Company attracted a Board
of senior figures from the HE sector (appointed in the main by
the representative bodies for HE - Universities UK and the Standing
Conference of Principals - and not by HEFCE, as the Committee's
report states. Only a minority were appointed by HEFCE, in discussion
with the other UK HE funding bodies). A Board of senior HE and
commercial figures also directed UKeU, supported by an experienced
senior management team.
11. Given the conditions under which the venture
was intended to operate, at the time DfES and HEFCE were reasonably
confident that the structures in place and the personnel engaged
should have provided adequate protection for public funds. We
cannot say whether that confidence would have been justified if
the venture had operated as planned. Certainly, if such a situation
occurred again, we would reconsider whether HEFCE should have
been given a rather more formal role in setting the strategic
direction of the business.
12. However, those conditions changed in spring
2002 when it finally became clear that matching private investment
would not be forthcoming for some time. With hindsight we can
now see that the UKeU structures should then have been reviewed
more thoroughly. Some changes were made, at HEFCE's instigation,
to the conditions of grant, including a variation to UkeU's Articles
of Association to alter the 50:50 balance of powers between the
public and private sector by giving a right of veto to the public
sector directors. But a more thorough review at this point would
have been appropriate, to allow more detailed scrutiny of the
intentions of the new UKeU board and senior management on business
strategy and company set up. Such a review might also have raised
questions about the issues of remuneration and the bonus scheme
which the Committee has criticised in its report (Recommendations
3-5). Whilst we might have expected either UKeU or the Holding
Company to have raised structures as an issue in spring 2002,
in the absence of action on their part either HEFCE or the Department,
through their monitoring of the project, should have intervened.
All therefore share some measure of blame here.
(II) HEFCE ACCOUNTABILITY ISSUES
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)
13. We agree it is vital for high quality
advice to be available to an accounting officer. It is necessary
to be able to understand what a delivery agent is doing and to
be able to mount effective and appropriate challenges where necessary,
while avoiding duplication of effort. In the case of UKeU, we
do not think that lack of specialist expertise was a crucial factor.
HEFCE appointed and took advice from a steering group, which
contained a range of expertise, during the set up of the project.
Appropriate experts also supported HEFCE in the autumn 2003 review
of the venture, and the subsequent wind-down of UKeU, and we understand
from HEFCE that these worked very effectively. Hence when expertise
was sought, it was readily available. We accept (paragraph 12
above) that there were missed opportunities for earlier reviews
during the course of the project; had those reviews taken place,
further expert support would have been provided to the HEFCE Accounting
Officer.
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)
14. We understand these concerns. The complex
accountability structure of the venture was intended to make clear
that neither HEFCE nor Government would control the business.
That caused tensions as it gradually became obvious that HEFCE
funding was in fact the only significant source of income for
the company, and that decisions by HEFCE's accounting officer
would be critical to its future. Questions about avoiding shadow
directorship roles then inevitably arose.
15. In many ways the UKeU venture was a one-off
in terms of seeking to establish a self-standing commercial company
with public good elements. We do not therefore expect this issue
to arise again to the same extent. If it did, we would put in
different structures to circumvent as far as possible such dilemmas.
We are aware that Treasury is considering this kind of issue
in respect of public private partnerships and we will discuss
with them how the development of their thinking can take into
account the circumstances of this case.
16. We understand from HEFCE that scrutiny
of the eUniversity project, as well as increased experience with
other funded bodies, has helped it develop its risk management
and related bodies procedures over the course of the project.
The Council now has in place an accountability framework that
enables it to give secure and consistent treatment to related
bodies (i.e. bodies other than higher education institutions (HEIs)
which HEFCE fund to secure services to the HE sector), comparable
to that for HEIs. It is firmly committed to evidence-based approaches
to the development of policies and projects, which is evidenced
by the considerable corpus of material that it is releasing through
the Higher Education Academy from the eUniversity project development
(at http://www.heacademy.ac.uk/e-University.htm).
(III) DFES ACCOUNTABILITY ISSUES
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)
17. The Department felt that it was not the
body best placed to manage the eUniversity project and therefore
delegated this to HEFCE. We believe that this view was the right
one; indeed, in the future the Department will increasingly eschew
hands on delivery of new and existing ventures as it adopts the
strategic leadership role described in Chapter Nine of the Five
Year Strategy for Children and Learners (published in July
2004 as Cm 6272). However the Department fully recognises the
importance of taking steps, and developing its staff, to ensure
that delivery partners operate effectively.
18. Since the Committee's hearings in 2002
on the failure of the Department's Individual Learning Accounts
programme, the Department has continued building on the lessons
learnt to develop financial, risk management and programme and
project management skills across the Department, using professional
specialist expertise where it is needed. Over the two year period
April 2003 to March 2005 around 1,050 members of staff and 230
staff in its NDPBs have been trained in project and programme
management (PPM) techniques. In addition approximately 390 individuals
have obtained an accredited PPM qualification in the period.
19. More recently the Department has developed
and is currently implementing a Departmental Risk Improvement
Plan to further enhance and foster a management culture which
supports well thought-through risk taking and innovation. This
plan focuses on the areas where we need to raise our risk management
capability including the effective management (not just identification
and assessment) of risk; improving the management of risk with
delivery partners; and improving the clarity of risk management
strategy and policies. The plan is backed up by a robust evaluation
strategy which will allow us to monitor and review progress and
its effectiveness, and provide us with evidence upon which to
base decisions about future improvement actions.
20. The Department's own assessment of the
lessons to be learned from the e-university venture will inform
continuing thinking on how best to position itself to ensure effective
delivery of new and existing ventures by partners.
C. The way ahead on e-learning (recommendations
27-32)
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)
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)
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 FE and HE sectors. (Paragraph 134)
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)
21. There are two key documents especially
relevant to the Committee's recommendations around embedding e-learning
in HE in a full and sustainable way. They have been developed
with reference to each other.
22. The first is our overall DfES e-strategy,
Harnessing Technology: Transforming Learning and Children's
Services, published on 15 March (http://www.dfes.gov.uk/publications/e-strategy).
This is a cross-cutting strategy which sets out, for the first
time, priorities for children's services and all sectors of education.
It escalates the Government's commitment to use the enabling
power of technology for the benefit of children and learners,
securing social justice, equality of opportunity and economic
success.
23. The e-strategy identifies the need for
action at two levels. System-level actions will coordinate cross-sector
work, and develop a common solution on behalf of all sectors where
appropriate. Such actions are designed to promote collaboration
across sectors to enable universities, colleges and schools to
work more closely together to meet the needs of individual students.
Sector-based actions will seek economies of scale through a collective
framework in which partners and agencies in a particular sector
(broken down into: schools; 14-19 and post-16; higher education;
children's services) share good practice and ensure the right
solution for that sector. All these actions have been allocated
to identified partners, with deliverable goals and milestones,
as outlined in the strategy document. The e-strategy will be taken
forward in partnership with JISC and Becta, who will be responsible
for coordinating delivery across all key partners in all sectors
of education, skills and children's services.
24. The higher education section of the strategy
makes explicit reference to the second key document, HEFCE's e-learning
strategy, published on 8 March. The HEFCE strategy includes details
of future investment in eLearning utilising the residual funds
from the eUniversity project of some £12 million. The HEFCE
strategy will be taken forward in partnership between HEFCE, the
HE Academy and JISC, and hence will link through JISC and HE Academy
with work in the FE sector.
25. The strategy builds upon the eUniversity
programme to support the development of individual HEI eLearning
missions and partnerships and also includes commitment to address
the need for research into eLearning. In particular, there is
an action designed to fill the support gap left by the UKeU, expressed
also as a milestone in the Department's e-strategy in the following
terms:
"Provide common collaborative development
support for institutions offering remote e-learning opportunities
- to be available eventually to all institutions, beginning with
a joint HEA/JISC e-Learning Advisory Service set up within the
national e-learning advice centre for 2006".
26. The value of the eUniversity to HE has
also been preserved and maintained through transfer of individual
eLearning programmes from UKeU to the individual HEIs concerned:
the eChina programme has been moved to Cambridge University; the
eLearning research Centre (eLRC) is now based in the Higher Education
Academy and the universities of Manchester and Southampton. We
believe the eLRC and the Academy will play a very useful part
in examining and disseminating experience from the eUniversity
and assisting with the implementation of the HE eLearning strategy.
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 it 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)
27. UkeU's Intellectual Property Rights (IPRs)
in the platform have been secured jointly by HEFCE and Sun Microsystems.
This acquisition will enable the UK HE sector to use these IPRs
through a sub-licensing arrangement, and also for the public purse
to secure appropriate return on commercial exploitation through
Sun.
Department for Education and Skills
20 July 2005
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