New Government but same old story

Cuts will be the leitmotif of the next three years for FE. Quick off the mark, on 4 June, the new Chancellor (who happens to also be the last Chancellor of the Exchequer), announced cuts of £450 million to the budget of the Department for Business, Innovation and Science (BiS). Given the bewildering number of special cases and ring fences in operation, this means more cuts of a particularly brutal nature for FE and also HE. Of course cuts are nothing new, but how to deal with the nothing new at a time when perhaps 100 colleges are already in some form of financial difficulties is going to test the ingenuity of the sector like never before.

And so it is perhaps no surprise that BiS have published a relatively modest piece of research entitled Current Models of Collaboration – Post 14 Further Education. It was sent out to College Chairs along with FE Commissioner David Collins’ latest epistle. What he says in the letter makes interesting reading. Apart from urging Boards to discuss the aforementioned paper the letter suggests colleges think about integration. This is particularly true for those institutions who believe they have reached the end of internal cost cutting such as reducing staff pay as a proportion of budget; stuffing more students into each class and stripping out support staff.

Based on analysis of 18 providers the report makes some interesting points. The authors find that there have been successful mergers, federations and joint ventures/partnerships some of which have existed for some time. They assert there is no one right structural model for colleges. They also caution against larger colleges simply merging with weaker colleges in the current environment given the lack of cash available for post-merger restructuring and debt restructuring, along with a policy of Ofsted trotting in early to pronounce on the success or otherwise of the merger. Interestingly they argue for Boards of Governors to bring in new leaders with financial and commercial acumen. You can read that as meaning from the private sector. There then comes a message that the devil is in the detail of getting the implementation plan right with a warning against leaders being distracted by external interests. Finally the report argues there is evidence of good practice in the sector.

But is this true? What is the evidence from the private sector of the success of mergers and acquisitions? Well here the waters get a little murkier. In a Boston Consulting Group study of around 26,000 transactions completed between 1988 and 2010 the acquiring company tended to lose value, though there was variation to this rule between sectors. In other studies it is clear that much depends on the compatibility between different management cultures. One study by KPMG found that though 82% of managers and Boards of companies surveyed believed the deal they had done had been successful the opposite was in fact true. As this survey states, “We found that only 17% of deals had added value to the combined company, 30% produced no discernible difference, and as many as 53% actually destroyed value. In other words, 83% of mergers were unsuccessful.”

So in one sense the authors of the BiS report are absolutely correct to state that the key test for successful integration and collaboration is making sure the implementation plan for collaboration/merger is properly destruction tested against a set of intangible variables. These should include compatibility of culture; leadership approach; values, and an understanding of what the refined preferences of the citizen consumers the new organisation seeks to serve actually are. In another there is a danger that due diligence will not be properly delivered across the sector in the rush to make ends meet.

Fundamentally however the FE College of the future needs more of the same things as the FE College of today. Strong values-based leaders; a sense of mission to serve its communities better; the ability and capacity to innovate and the staff skilled and motivated enough to want to do it. All of this needs a given level of funding and if it isn’t coming from the state then it will need to be sought from individuals and organisations. This is the impetus behind the line in the BiS report that states, “As reductions in public funding bite harder, it is sensible to assume that the need for senior leaders with financial and commercial acumen increases.”

Yet one can reasonably assume that these senior leaders will require senior pay packages at a time when staff pay has been squeezed and shrivelled. I fear that such approaches will drive a wedge between existing values based cultures and new so-called commercial cultures. Add in a strong dose of the individual performance related pay the Government loves and the recipe for merger disaster isn’t so much a fear as a foregone conclusion.

Nick Isles is deputy principal and chief executive of Milton Keynes College