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As the landscape of education changes & most schools become self-managing academies, the future funding of education is set to be increasingly challenging.
With the announcement, prior to Christmas, of the potential required cuts to the school’s budget of £3bn by 2020 is it time for a fresh look at how schools operate financially?
With most long established institutions, the ability to change and examine new ways of operating is a challenge. With the landscape of education changing whereby most schools will be academies and therefore self-managing, compounds this challenge.
As today’s report states, approximately 60% of secondary schools will be or are currently operating in deficit, there is a radical change needed to manage the operating expenses of any school. Worryingly the call seems to be from the sector is that this will result in staff cuts. Whilst it is inevitable that some staff cuts will take place due to the size of the required cuts there could be other areas of opportunity that can be realised.
Having worked with a variety of schools and institutions we are often faced with a reluctance of “changing from what we have always done”. The reliance on existing recognised buying clubs and council run procurement activity has not produced the required savings or efficiencies that schools require to meet the future demands of expenditure cuts.
Whilst dealing with some schools that are open to change, we have been able to use our experience from other sectors in how we have optimised operating costs. Whilst commercial businesses recognise the need for outside expertise, the school’s environment seems reluctant to accept this.
Suppliers are keen to work in the education environment but are often prohibited due to the use of framework agreements or OJEU. Therefore, the availability of alternative sources of supply and a challenge to existing costs may be limited again making the challenge of cutting costs difficult.
Commercial businesses have long faced the challenge of ensuring costs are comparable to income and it could be argued (as I have on previous blogs) that schools must now operate in a similar manner. This and, I believe, any future government need to balance the fiscal budget and therefore this challenge will not diminish but will increase. Schools need to look at new ways of operating and explore services that are outside of the existing ones that have been used. As a wise man once said;
“If you always do what you’ve always done, you will always get what you’ve always got” in the case of schools this could be a £3bn budget gap.
Acquiring or merging businesses has a multitude of benefits and is often a mark of success and growth.
However, some of the opportunities that arise from this process are often not capitalised on due to the intensity of the process and the need to merge cultures, people and processes.
During this time the benefits from the larger entity need to be identified to ensure that any financial growth is realised. Quite often the increased sales revenues are not returned directly to the profit line due to inefficiencies in ordering, pricing or process. Existing suppliers need to be brought into any transition where additional efficiencies can be realised together and a better margin achieved for all parties.
This process can also be an opportune moment to review existing suppliers and most importantly their service levels. Whilst contracts may be prohibited from being terminated, leverage can be used to achieve a better level of service or indeed price. Supplier are often keen to work with a growing business as it cements relationships but also business continuity for their own supply chain.
By understanding the suppliers cost base and the efficiencies they can make through logistics, administration, marketing and sales support can be utilised to drive a reduction in cost to the end business. These savings can be multiplied along the supply chain to all suppliers and discounts can be moved to a new level.
Pressure to deliver a return on any investment is never keener than at this time of any businesses life and examination of the cost lines should be undertaken at this time. It is the norm that financing has been used to make any acquisition or merger take place. Unforeseen costs such as redundancy, implementation of new processes and a normal downturn in production can all be by products of any merger / acquisition.
Balancing all these financial demands can reduce staff motivation and a downturn in business can occur whilst at the same time needing a instant return on any investment is required.
Bringing in expertise would deliver benefits and assist in achieving a quick return allowing a business to focus on increasing sales revenue and cultural integration.
As we have seen forecasting the future has come to be an art rather than a science, … and an art without too much accuracy.
You only need look at the performance of recent polls for the past elections and of course the numerous differing predictions of the economy’s performance following Brexit.
Only last week I reflected on the predictions of the bank of England predicting challenging issues for the economy and now we have PWC predicting that Brexit will have little effect on the economy and it may produce a positive long term future.
What do we know for sure?
Well we can be sure that businesses will adapt to trading conditions and the strong will survive and the weak (maybe maybe not) but that’s not unusual in any trading environment.
In any case I think that businesses should be examining the pillars of any business. That’s not to say these are the finite ones but it’s a good start
People – have you got the right people in the right place. Do you need to recruit or can you outsource and bring in short term expertise to give the business an injection or kick start?
Sales – How do you improve the sales from your existing customer base, how do you get more customers
Costs – how much does it cost to run the business, what are your minimum costs for just producing selling one item, when did you last actively engage with your suppliers
Competition – how are they doing, can you learn lessons from them, how do they do what they do
Most would argue that this should happen throughout the business cycle ad I dare say it does to a greater or lesser extent but is it always done by the same people internally and surprisingly no change is made.
Using someone who doesn’t have a vested interest in not upsetting the boss / board / shareholders / colleagues is probably a better bet and so would recommend thinking about who would do the review first – should they be internal or external
Historically the financial decision that affects most businesses is how to ensure that expenditure does not exceed income. This point has previously been mute in the educational environment where a school’s income has been determined by the number of pupils it would accept in their yearly enrolment. Places were allocated by the LEA and there was little or no competition between schools in the state system.
Now that institutions have the opportunity to determine the number of pupils they accept, will academies who are not as popular be facing reductions in income that will force them to make difficult decisions?
One only need look at how the university landscape has changed over the last decade to see how their focus has now become ever more targeted toward recruitment, both domestically and overseas, to ensure income levels remain at the required level.
When the focus is then turned toward the management of this income there is a real threat that faces the survival of some academies and in some cases the level of teaching focus that pupils may be exposed to.
Why is this an issue? Previously the expenditure levels driven by usage and cost were heavily influenced by the local council or council approved buying groups who would provide and procure goods and services on their behalf.
As to how well these were purchased is for another debate but with future academies able to determine their own procurement strategy, how well placed are the decision makers within the academies to make these financial decisions, especially when OJEU framework rules need to be adhered to?
As Headmasters now become CEOs and Accounting Officers for these academies (effectively companies) it is clear that many academies lack the right skills or knowledge to best determine the large buying decisions that they make, and fulfil their duty to provide best value for any level of expenditure incurred.
A reliance by such decision makers on using incumbent buying groups or local council procurement instead of undertaking a full review of alternative sources of advice, has led to many examples whereby purchasing decisions have turned out to be costlier to an academy than necessary.
The markets that academies can access for their procurement requirements should not be limited to “education industry” experts. Rather best practice should dictate consideration around using alternative supply channels and not just settling for “more of the same”.
One area where knowledge of procurement procedures is especially varied is with regards the rules around when purchasing should be undertaken through European OJEU. Recently a tender request for a single new printer was issued asking for it to be submitted within OJEU regulations. Lack of knowledge or getting the wrong advice can cost time and money – neither of which academies have an abundant supply of.
As academies are required to operate more like businesses, their accountability has to be more like a business with a clear, transparent use of skills and knowledge available. Businesses are used to using outsourced expertise to provide a service with a higher level of knowledge and awareness of the markets, but at a fraction of the cost. Should not academies do likewise in order to ensure financial propriety and ultimately financial survival?
Whatever decisions are made the ultimate winner or loser in this situation is the pupil who can either benefit from the additional resources available for learning or conversely lose out from a reduction in these resources.