The business of vocational education – revenue streams and models

So today I really wanted to talk about some more specific items rather than theoretical positions.  What is often called where the rubber hits the road, and the obvious place to start is around the idea of revenue streams and business models.

Before I go any further I want to reiterate something I have said many times before.  There is always a lot of discussion around the topic of the cost of education, which is often framed by the statement ‘ education should be free.’  Now while I would hold it as a fairly self evident truth that education is a social good and that the ability of people to access quality educational outcomes should not by necessity be contingent on their own personal ability to pay for those outcomes, what is sometimes lost or can perhaps mislead people when this statement is used is the undeniable fact that there is always a cost associated with the delivery of these outcomes.  Someone, either the government, an organisation, an employer or an individual has to pay for the costs associated with the delivery of educational outcomes.  So with that said let’s move on.

Revenue streams

Realistically when we look at revenue streams within the delivery of vocational education (and I would argue education in general) there are only two types.  I will look at both of these types and the issues and advantages they have and then move onto the kinds of models which we have seen grow from these streams.

Government supported.

Those with a keen eye will notice I have used the term government supported rather than government funded in the title of this section.  The reason for this is simple.  In terms of what I am talking about here I want to include not just direct funding, say through entitlement programs or apprenticeships, but also also things like VET FEE Help, which is often considered fee for service, and targeted or one off government funded programs which have training as a component.  The reason for this is simple there is a common denominator across all government supported training, this denominator is the simple fact that how this funding is allocated, its level and even it very existence is utterly at the whim of government.   We need look no further than this year to see the issues which reliance on government supported revenue streams can have.  Changes to models in most of the states have irrevocably altered the landscape, with particularly in Victoria a significant number of providers either struggling or leaving the market because their funding contracts were not renewed.  We are in fact seeing the ramifications of removal of funding (albeit for different reasons) from a provider currently playing out with Dawkins/Vocation debacle.  The freezing of VFH payments at 2015 levels also had a similar effect where even quality providers have struggled to maintain their businesses as a result of the changes.  So given these issues what are the advantages to delivering government support training?  Often the big sell shall we say, is enrollments. people, and by people I mean potential students seem more likely or willing to enroll in these sorts of programs.  There is a consumer attraction operating for providers who are able to offer government subsidised positions in training courses.

Fee for service.

For the sake of this discussion I am going to take fee for service training to be any training for which there is not some component of government support.  This would therefore be where an individual, organisation or employer directly contracts or pays a provider for the delivery of an educational outcome.  It is an interesting side note I think that in the world of organisational learning and development fee for service training is the norm rather than government supported training.  There is a view, quite strongly held by some that fee for service training is the more secure and safe basis on which to build a training business. Now while I do not by necessity disagree with this as it is clear that there are definite advantages to fee for service training there are also still significant risks.  While the advantages are things such as generally higher levels of revenue, less time spent on reporting and other administrative activities and in general more flexibility in terms of the range of qualifications which can be delivered, it needs to be remembered that as with supported training, while it is less susceptible to the vagaries of government it is susceptible to the vagaries of business, particularly where providers deal with only thin segments of the market or where the market is highly competitive.  I know of a number of companies who were exposed heavily to particular market segments, one to the mining sector and one to government who had 60-90% of their business disappear overnight as a result of the GFC.  In one case the business has survived but is now a much smaller entity than it once was and in the other they have folded altogether.

Business Models

So with these revenue streams in mind we can then look at the various business models that have arisen as a result of them which will then eventually allow us to consider which of these models or others might be the most ethical and sustainable.

Rapid growth model (The VET FEE Help Model)

This type of business model exploded over the last few years since the introduction of VET FEE Help driven by government support, the ability to charge significantly higher prices due to that support, commencement payments and significant enrollment numbers driven by brokerage.  This perfect storm created an environment where an expansionist business model could thrive in a way that it had not been previously able to.  Organisations enrolled large numbers of students, which generated significant commencement payments from the government supported program (VFH) took that money, a significant portion of which technically should have been used to support the students learning experience and ensure that educational outcomes were met, and ploughed it into the expansion of the business, primarily in order to increase the size of the business to be able to then enroll more students, to access more payments and further expand.

Now while there is nothing intrinsically wrong with this model or approach, it is contingent on the actual delivery of the education outcomes which are part and parcel of the government support. I think most people still feel the anger and the ramifications which followed on from when it was discovered that in some cases these rapid growth model businesses were producing completions rates in the low single digits

Funded delivery model

This is a model which has been adopted in a number of areas, one area where it has and is used a lot is in the community services sector and in particular by not for profit organisations.  This is a model which seeks to develop a scope of delivery which maximises the access the provider has to programs which attract direct government funding. (rather than support) The costs associated with a student entering the course are kept as low as possible, which then allows, hopefully, volume of enrollments across the range of courses to offset the costs associated with delivery.  Given that this model is popular within the NFP sector the drive for profitability is generally less and there is also usually lower overheads produced by thinner staffing models and often training being part of a larger business.  Under for profit models however, as with the Rapid growth model, there is a need to continue to generate enrollments across the suite of programs offered in order to maintain both sustainability and profitability.  It is in general difficult for providers delivering under these models to expand without external or organisation investment, or through debt raising.

Fee for service niche model

A significant number of providers in the fee for service market apply a niche market model to their delivery in order to limit costs and to enable a targeted spend in terms of marketing and positioning.  This model often sits at both the top and bottom end of the market in terms of qualification level with providers tending to either deliver high level qualifications or their own accredited courses where while numbers are small, associated fees can be quite large due to low competition.  Or at the other end they tend to deliver low level (often short course programs like white card, RSA or First Aid) where while competition may be significant, volume is very large and recurring, so that even a small margin on low cost programs multiplies out to significant revenue.

Everything to everyone model (The public provision model)

This is a model where the provider has a massively large scope, spanning foundational and certificate I programs through to very high level programs, across multiple training packages, with the vision shall we say of being able to cater for the needs of any student regardless of their choices in terms of study.  While the other models I have spoken about above generally apply to the non-public side of the education market this model is or has been the model in which the public provider has operated also since the beginning.  It is important however, as I said early on in these pieces that regardless of models we should expect our public providers to operate as businesses, at least with regards to providing the best possible ROI on investment and value for money in terms of costs of delivery, given that by in large most public providers would cease to be able to operate without the support they receive from their respect government owners.  Problematically given that they are owned by various governments essentially they are seen as having to provide services across markets and areas where there is little or no chance of breaking even let alone creating even a small profit margin.  There is significant tension between the ability of these providers to naintain cost effective delivery and ROI and the demands placed upon them by their governments.  Of course the argument is that the purpose of a public provider is to ensure that services are available in markets where without significant government support such provision of services could not occur.  Additionally it is also argued that often there are other social assistance requirements which public providers have, which increase the tension between their delivery of programs and the costs associated with the delivery of those programs, particularly, though not limited to administration costs, which if we look at various reports and budget submissions may be as high as 60 cents in every dollar of funding in some cases.

It is important to note that I have here only covered, in broad strokes some of the models which exist in the sector, primarily to see how streams of revenue impact upon the kinds of models of delivery which exist and how those models in turn utilise the revenue streams on which they are most focused.


The Business of Vocational Education – Purpose

What is the purpose of Vocational Education?  For me this is a really important question because I think  our answer to this question will have some wide-reaching implications for how we might view the sector, and how we might be able to conceive of a business model which would be ethically and financially sustainable and meet the needs of the many and varied stakeholders within the sector.  If we look at a simple definition from the Australian government, Vocational Education and Training (VET) is designed to deliver workplace-specific skills and knowledge, and covers a wide range of careers and industries, including trade and office work, retail, hospitality and technology. While this is a solid definition, I tend to think that it does not go far enough, simply because it fails to mention the link between VET and employment or workforce participation.  Other definitions talk about it as preparing participants for work or for advancement, by providing with the skills and knowledge mentioned in the original definition and this is I think an important link in the VET chain.

It is an important link because if we consider VET as related to workforce participation (whatever that might mean in the long run) then that changes the dynamic and the purpose, at least to my mind.  If the outcome or the aim for someone undertaking a VET course is a greater level of workforce participation, rather than just to undertake study for the purpose of study, then what an ethical business model is going to look like is certainly going to change as well.  I say this because ones ability to participate in the workforce is not solely dependent on having a piece of paper which indicates that you should possess certain skills or knowledge.  I have over the years fired heaps of people who had pieces of paper that said they knew and could do certain things, but after a short period of time it became abundantly clear that they could not.  It is actually having the skills and knowledge which the paper you have says you have and being able to put them into practice which at least to some extent determines how long you will be able to participate in the workforce.  If we put the idea of producing competent graduates who can participate in the workforce at the center of our business model, then a lot of other structure around what that model might look like seems at least to me to be self-evident.

It is easy to see the first things to go in approaches such as this.  Models that preface provider growth on the strength of continuing streams of enrolments, or where the central concern is the issuance of certificates to generate payments are going to have a difficult time justifying themselves;  whereas models which consider the student experience and competence outcome as their central focus are going to be those that make the grade.  This should however be taken to suggest that a provider cannot be both student focused and profitable, the two are not mutually exclusive at all, nor should it preclude us from suggesting that the delivery of vocational education should not managed in as cost-effective way as possible.  It is simply a recognition that what we should always be seeking as an outcome is competent graduates, graduates who have the potential to participate in the workforce, even if for whatever reason they do not.

These concepts of competent graduates, workforce participation and cost effectiveness become even more important when publicly funded rather than personally funded vocational education is considered. It could be suggested that where someone is funding their own education, providing we meet the outcome of competency, the need for a workforce participation outcome seems not to be as strong.  It does need to be suggested here though that where the ‘personal’ funding’ is something like an income contingent loan scheme (such as VET FEE Help) I tend towards the suggestion that workforce participation and cost effectiveness or ROI come back into play, and all three need to be present.

So it seems to me that the purpose of being in this industry should be to provide high quality learning which leads to competent graduates with improved workforce participation potential in an efficient and cost-effective manner.  Now if we believe this it seems to give us very solid base from which we can develop an ethically and financially sustainable business model.

Anyway that’s just my opinion.



The business of vocational education – introductory thoughts

This is the start of an occasional series of posts I am going to be writing on the delivery and management of vocational education.

For a very long time, since I first dipped my toes in the world to training, way back in the late 80’s, doing internal sales and compliance training for a financial services company (if you think there are issues in the financial sector now you should have seen it then, it was like the wild west, which is in the long run why I got out), I have held the belief that training and education is a business or at the very least should be treated as a business.  Whether this is from the perspective of organisational L&D or from that of public or private education in schools, universities or the VET sector, we do the delivery of education and the outcomes it brings a serious disservice if we don’t think of it as business.

Now I know that there will be people out there who will jump at this statement and say things like education is a social or public good, it is this kind of business thinking that has got us to where we are today.  To those people I say you are right and you are wrong.  Learning and education are a social and public good, there is not a question about that, however there is nothing incompatible with holding that position and thinking that we can improve the way in which deliver that social and public good, by applying business models and principles to it.

When I first started in this industry and whenever in have been involved in projects or roles around organisational learning in particular, the concept of return on investment (ROI) has always been thrown around.  Now this and other post around this subject will not be about how to apply ROI to training (there are plenty of books, institutes and consultants out there who will do this) because how this is done isn’t what interests me, what interests me about ROI is what lies underneath it.

Essentially all the concept of ROI is saying to us is that if we invest a sum on money in the education of people, be those people staff of our organisation, school students or members of the public, there should be some kind of return for the money that is invested.  Now that return may vary from something very tangible, like an increase in sales revenue to something more intangible like a populous what are better able to critically think about issues and information. However it seems that we should expect that there is some return, the money that we spend on all forms of education should not simply disappear into a black hole and not return something back to whoever is spending it.

This to me also points to the idea that the delivery of education and educational services are going to work better if we think about them more like a business.  I am often reminded of a conversation I had more than a decade ago with a then school principle who is now in charge of one of the states largest public schools.  We were talking about the stress on teachers,  how schools were run, administration and a range of other topics and he said to me I had always been amazed by the number of people in the education world who didn’t treat what they did as a job or recognise that essentially what they were part of at a school was a business.  Even when I was first starting teaching I treated it like any other job I had had, I spent 8 hours at school.  I didn’t leave just after the kids left, I stayed there until five and I tried not to take work home and I have done that all the way through my career, he said.  Now does this mean that he didn’t think of his various roles in education as vocations, or careers, but rather like working in retail or at a supermarket, of course not.  He was and still is a deeply committed educational professional who has over the years created great outcomes for his students and other staff.

I have often suggested that things like non-attendance time and term based delivery for example, are detrimental to the ability of those providers who deliver under antiquated conditions such as these to meet the ever more demanding needs of their students who now more and more want their educational institutions to be available to them at times that suit them.  With more and more competition across the entire educational market survival business models which meet consumer need  are the only ones which are going to survive.

Clearly though it is the case that some of the business models which have been adopted, particularly in the private sector have been badly flawed and have led to damage to the sector, students, and to the businesses themselves.  Again the underlying reasons why these models have not worked are as with the previous example mostly to do with not meeting the student needs and demands as well as failing to provide a reasonable, or in some cases any returns an investments.

There is also a significant argument to be made that one of the reasons why various models have failed or not been as successful as they could have been is that perhaps their focus has been not as centred on what should be integral parts of any VET sector business as they should have been. Additionally this seems to also have led at least in some cases to questionable and in some cases possibly unethical behaviour.

What needs to be the central part of the focus of the delivery of vocational education and part of any ethical, useful business model for the sector is the outcome for students. It should be noted that by student experience I don’t just mean a piece of paper I mean a worthwhile educational experience which leads to a worthwhile outcome.  What a worthwhile outcome might be is something which I will explore later in this series, primarily because there may be valuable and worthwhile outcomes for students which do not directly connect to employment or workforce participation which also create a return on investment.

It seems likely that if these ideas of educational outcomes for students and return on investment for money spend on training, regardless of whether this money comes from government funding, individuals pay for their own training of other sources, are the central core components of a delivery and management model, we should be able to develop ethical business models which meet the needs of students and other stakeholders while still being profitable and cost effective.  It is this idea of what ethical, cost effective, well managed business models look like which will be the subject of the continuing posts in this series.



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