Share and save alike

Malcolm Gillies on the benefits of collaboration in the wake of VAT reform

January 12, 2012

It is over two years since Lord Browne of Madingley kicked off his higher education review. Beneath the ebb and flow of many potential new policies, and then some actual ones, there have been a few clear trends.

Public funding was to be preserved more for research than for education, as the risk of “market failure” was more acute with research, particularly fundamental research. Excellence and access were to find different routes in the marketplace, as has emerged with the AAB+ and core-and-margin approaches to undergraduate admission. Value for money was to be more overtly demonstrated, initially to the students, but then, when loan sums were done more soberly, also to the overburdened taxpayer.

This has led many universities to revise course portfolios, which are already some 10 per cent down in England over one year. Before Christmas, over two dozen higher education institutions retreated into the undergraduate fee space below £7,500 per annum. Behind closed doors, there is much talk of administrative efficiencies, including shared services, consortial purchasing, outsourcing, insourcing - anything that can put more pence in students’ or taxpayers’ pounds into what it’s all about: education and research.

Now we know there won’t be a wholesale exodus of new undergraduates in 2012-13, the key issue of value for money comes ever more to the fore, not just for undergraduates but also for the postgraduate taught students, who do not share in the new loans system and were scandalously sidelined in Lord Browne’s review.

So, for the many universities that have opted for lower fee levels, how do you have quality and still be affordable? (By which I mean, affordable over the decades of repayment, as well as upfront.)

With the removal of VAT for shared services in the Finance Bill 2012, the affordability playing field tilts significantly. Suddenly a 20 per cent disincentive to collaboration within the education sector is removed; conversely, a 20 per cent disincentive remains for the outsourcing of services to private providers.

London is an excellent example of current sectoral collaboration, in, for instance, the London Universities Purchasing Consortium (which helps my university to save nearly £5 million each year) and, of course, the 19-member University of London itself. But that collaborative mindset is also seen in London Higher’s admission last year of private partners alongside its 40 “publicly funded” members - a key issue now also confronting Universities UK. Yes, you can collaborate and compete.

In recent years, numerous studies of shared services for higher education have identified a high degree of institutional caution, but also radically different levels of collaborative appetite, by service type. A keen appetite is often found in areas such as human resources and training, ICT, procurement, finance (especially payroll), facilities management and research management and support. A moderate appetite seems to exist for professional services (such as legal), student support and the student experience, library services and student accommodation.

Institutions are less regularly lured by collaborations in health and safety, marketing and estates. And, not unexpectedly, appetite has been lowest in those areas at the very heart of institutional differentiation: teaching and learning, and research.

But an irrecoverable VAT charge of 20 per cent was such a disincentive in the past that generally only services with keen-to-moderate appetite (read: high potential savings) could really be contemplated. And there you would want to see at least a 25 per cent efficiency gain to be worth the effort. Quite some ask; hence, there was traditionally much talk and much less action.

In the wake of that VAT change, the real opportunity for shared services appears to reside amid the interrelation of three factors:

• Making the most of the VAT removal to gain critical mass for selected services offered across institutional boundaries, and thereby returning the savings to the sector itself, rather than to the taxman or the private provider

• Conceiving of shared services much more broadly across the bands of appetite - not just the lowest-hanging fruit among the highest-appetite services

• Rethinking administrative processes in a profound, rather than incidental, way - through the simplification of services, optimising of processes, maximising the use of interconnected technologies, as well as achievement of economies of some scale. Experience seems to show that just working current processes harder might achieve a 10-15 per cent efficiency gain, at best. Selective re-engineering of key services might up that figure by another 10 per cent or so, but a thorough across-the-board re-engineering might achieve a further gain of up to 20 per cent.

At London Metropolitan University, with a dedication to affordable education since 1848 (when our course fee was one shilling), we have recently opted for rapid, across-the-board re-engineering of up to 70 administrative functions, some with up to 100 separate process steps. Why? Because we reckon that we, like many other universities, spend too many pence in every pound on cumbersome, legacy administrative services. Despite that expenditure and many valiant recent efforts, many of those services are not yet of the standard, reliability and connectedness that our staff want and our students have every reason to expect.

Working with external operators, London Met wants to go further: to realise a model of new-era shared services that other institutions may want to adopt or join; and thereby to become one of a growing number of institutions providing top educational value for an investment that is more affordable to the student and the taxpayer alike.

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