The emerging sector

Why do companies merge or collaborate? Many reasons could be given including providing a better product/service, reducing costs, increasing sales, becoming more efficient, pooling resources together, eliminating weaknesses and exploiting strengths, growing market share, and moving into new markets. Whatever the reasons – whether all of those or a mixture of some – the ultimate purpose is to produce a more efficient organisation that can attain success through better serving the needs of the customer base.

What about colleges? The reasons for mergers or collaborations between colleges are really variations on these themes, and the overarching purpose is also similar: to end up with an organization that is more efficient as a single entity than as separate organizations, which can better serve students and the local community.

With a number of college mergers and collaborations already taking place, or in the pipeline, a good number of colleges are already thinking through these issues. What’s more, with the ongoing Area Review process likely to recommend more mergers, these issues are bound to be at the forefront of the minds of many decision makers in the sector in the months ahead.

Some of these themes were mentioned by the FE Commissioner, Dr David Collins, in his letter to “all Chairs, Principles/CEOs of Corporations and FE Institutions” last year:

“Agreeing the core purpose of the collaboration from the outset drives the type of structures which providers may wish to consider. These might be one or more of cost reduction, improving quality, investing in new sub-sectors relating to LEP or other employer priorities, growth into 14-16, HE or International markets, or protecting local provision.”

Key here is that these issues must be thought through right from the pre-merger phase, and that they should not be considered in isolation. For instance, even if colleges are beginning to sound each other out about a merger ostensibly on the basis of cost-reduction, it is imperative that this is done with an eye towards “protecting local provision”. The reason for this is that a merger that cuts costs, but which does so at the expense of taking away crucial provision, is one that – whatever the balance sheet says – fails in the overarching objective of better serving students and the community.

Reducing costs for the sake of reducing costs can be extremely counter-productive. A better approach, I would suggest, is to first identify local employer needs, then to measure the curricula of both colleges against this, and then to take appropriate action based on the objective data.

Try a little thought experiment. Imagine a merger between College A and B, which together serve roughly a 30-mile catchment area. Both colleges have Plumbing and Graphic Design courses, with 50 people graduating each year from both courses at both colleges. A look at the labour market data for the catchment area shows that demand for plumbers is set to be around 90 per year for the next few years, whereas demand for graphic designers is set to be around 40 per year.

What would make good sense in a merger? Certainly, it would make no sense to reduce the numbers enrolled in plumbing, since the numbers graduating are roughly equal to demand. Whether there is a way of combining both departments into one large department based at one college is another question, but the end result must be to want roughly the same numbers going through the plumbing course each year.

But what of the Graphic Design courses? At present, both colleges together are oversupplying the market, which isn’t a great help to students or employers, and so it makes little sense to keep both courses running. One course will suffice. And so a merger that has cost reduction as a priority, would not just look to make reductions on the basis of costs alone, but rather by first looking at what the data says and then making cost-cutting decisions.

Of course this cuts the other way as well. Data on local employment trends is not just useful in terms of a cost-cutting exercise, but also in terms of knowing which “new sub-sectors” to invest into, as the FE Commissioner put it.

The issue of mergers is something we’ll be tackling in our forthcoming conference, Beyond Area Reviews: New Approaches to Growing Local Economies where, amongst the other speakers, we have Shah Ali, Executive Director of Bromley College, talking on the theme Mergers: A Smaller Sector With Bigger Ambitions. Shah will be sharing some of his experiences in the pre-merger and merger phases, as well as how he sees Bromley – and indeed the sector as a whole – developing in the post-merger environment.

We’d be delighted to have you come along to this free event, so that we can all learn from each other, and so that where there are mergers or collaborations taking place, we all might contribute to making them successful, to the benefit of students and communities throughout the country.

Andy Durman is the Managing Director of Economic Modelling Specialists International UK (EMSI UK), the labour market information firm