Private Equity, investment and consolidation in Vocational Education

A couple of days ago now the AFR posted an article about private equity and the Australian for profit education market, including Vocational education, in which they suggested ‘The Australian education sector is set to be the subject of a wave of consolidation led by private-equity looking to tap into its high-margins and predictable cashflow. Global strategic-advice company, EY-Parthenon, is gearing up to target the $25 billion for-profit education industry.’  The trouble is that I can’t help but think I have heard this all before.

During the middle and running through to the what was clearly inevitable end of now infamous VET Fee Help era, private equity firms, based on amazing high EBITDA margins, the lure of cashflow backed by government contracts, and an almost complete and utter misunderstanding of the VET industry in Australia, rush into the market and snatched up, partnered with or poured money into some of the biggest players in the educational market at the time all of which failed to produce the results which were way overhyped by ambitious CEOs, Managing Directors and founders looking to provide cashflow for expansion in a market which everyone, except it appears, the so call professional private equity gurus knew was a bubble soon to burst.

Now less than two years since the bubble well and truly started to burst and the demise of the vast majority of private equity backed providers, we see yet again a private equity strategy company selling the idea of investment in the Australian education business.  Admittedly EY-Parthenon and their Varun Jain and not limiting themselves to the VET market this time with their eyes on a more broad vista including early education, schools, VET and Universities. The problem for me is in statements such as such as the one where Mr Jain suggests that the fact that funding comes largely from the public sector, student fees and philanthropy is not something that he is concerned about, shows a think a deep misunderstanding of the volatility of the publicly post secondary education market in this country.  Post secondary education and particularly vocational education in this country has always been very much at the whim of the political winds and lean of whoever is currently in government.  I mean money always flows towards TAFE which of course could have more to do with gravity or perhaps more correctly inertia than anything else.  Then of course the spray which escapes from the main trickle is what is left for the non-public sector and exactly how much of a spray that is depends on some many thing that are out of the control of the operators of non-public RTOs.

So some of you are probably thinking now, why is he banging on about this.  It is simply because I am a little worried by this talking up of private equity again.  Not because I think that all education should be publicly delivered, the educational market should be as diverse as possible to allow for innovation and choice.  Nor do I care about private equity firms losing millions of dollars when the businesses they have invested in (without proper consideration most of the time in my opinion) fail.  Although I do care deeply about the effect that this has on both students and our sector workforce.  The concept of industry consolidation doesn’t present an issue for me either, as I do think the entire sector, public, private and not for profit, could do with a shake up and consolidation.

What worries me is that we have seen this before and we have seen the effects of it.  We have seen investors with little or no understanding of the education market in Australia and even less understanding of how to run an educational business, take substantial stakes in providers and because of their lack of knowledge and understanding drive their investment vehicles into practices and operations where their ability to deliver quality training and meet compliance needs are stretched to breaking point and beyond.  Roll ups, complex corporate structures, a focus on warm bodies rather than quality, all the things that force governments to enact changes to funding programs and harms the public’s view of the industry as a whole.

If you are a private equity firm (like EY-Parthenon ) please for a start do some real research, talk to people who are actually involved in the industry not just the usual crop of pundits, lobbyists, ex politicians looking a board seat and the like, because I can tell you that they knew like the rest of us about the issues around Vet Fee Help and market in general when the last crop of equity firms rushed in, they just didn’t bother to say anything.  Secondly if you are going to invest, again put people on your boards and in senior management roles who understand the market in this country and really understand the issues around training and assessment in our regulatory environment.  If you don’t then you are throwing good money after bad and damaging the industry in way you could not possibly understand.

 

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Queensland VETiS and the New ATAR, a disaster waiting to happen?

So as some of you may know, I have over the years been quite critical of a range of things which occur in the VET in Schools (VETiS) space, not only in Queensland, but in most other states as well.  Things such as the the clear lack of adherence by school based RTOs to the Standards, the qualifications and depth of industry experience of trainers and assessors (particularly those who are teachers) and the types and levels of qualifications which are being delivered.

So let me be clear right from the outset where my opinion lies, anything higher than a certificate III (and if I am being completely honest even Cert III level often worries me) should not be being delivered within a schooling setting.   The concept of the delivery of Certificate IV, Diplomas and even advanced diplomas to students who have not finished their secondary education is in my opinion ridiculous and fraught with dangers.  In addition while I have nothing but the utmost respect for Teachers, just because you are a teacher does not mean that you know a dam thing about vocational education or the needs of industry in terms of training deliver and assessment, and sorry, but if you are a PE teacher who has been RPLed through a Certificate IV in Training and Assessment and  Certificate IV in Fitness so that you can deliver Certificate III qualifications to your students, unless you have a whole pile of industry experience (and I don’t mean teaching experience I mean actual experience working the industry you are training in), you ARE NOT qualified to train and assess your students and you are not complying with the Standards.

Now that I have been really clear about where I stand on this it will probably come as no surprise that I consider the Queensland curriculum and assessment authority’s (QCAA) stance on VET and the new ATAR system being introduced, as potentially incredibly damaging to the quality of training and assessment being provided to our school students, shortsighted and showing a complete lack of understanding of the VET system in this country, will have a devastating effect on the workforce participation potential and ability to undertake further training of a significant number of students, and is well frankly idiotic.

What you may well ask is happening to elicit this vitriolic response? It is actually quite simple, and revolves around the calculation of ATAR rank, and while on the surface it seems not to problematic, there is a mindset underlying it which has the potential to be incredibly damaging.  When calculating the new ATARs QTAC will calculate ATARs based on either:

  • a student’s best five General (currently Authority) subject results, as is currently the case for the OP system, or
  • a student’s best results in a combination of four General subject results, plus an applied learning subject result.

Now on the surface that seems reasonable, however as is often the case with these things the devil is in the detail and when you look further into what an applied learning subject result might be you find this;

The best result in a:

  • QCAA Applied (currently Authority-registered subject or Subject Area Syllabus subject) or
  • Certificate III or
  • Certificate IV or
  • Diploma or
  • Advanced diploma,

Did the person who came up with this concept, have even the slightest notion of what is, or should i say should be, involved in completing a Diploma of Advanced Diploma.  The QCCA is actively encouraging the delivery of programs of study which almost by definition will be rubbish, because there is simply no way in which (at least in most cases) the assessment requirements for studies at the level that they are talking about can be met within a school setting, and to think that this is possible shows an utter and shameful lack of understanding of VET and the AQF.  Further more they are encouraging the delivery of programs to students, which will make them ineligible for the vast majority of the post secondary VET funding options which are available for when they realise that their Diploma in Business is utterly worthless and will not help them to get a job. Why?  Because for the vast majority of actual funding programs, if you hold anything higher than a Certificate IV in anything you are automatically excluded. 

VETiS in Queensland is already a disaster and this will simply devalue further the qualifications which are being delivered through it more and deeply harm the outlook for students who have been sold the lie that the piece of paper they get from their school saying they are competent at a Diploma level (or really any level at the moment) will get them a job.

Vocational Education, Career Development and Employment

I went to a really interesting discussion hosted by ACPET last week centered on the theme, careers not courses.  As some of you may be aware this concept of career development, employment opportunity and workforce participation is a subject that I have viewed as quite important for a while now.  Too often we see post secondary graduates, whether from the VET sector or the University sector coming into the workforce either clearly not properly trained and assessed,  having not been taught particular units or subjects, or that the material they have been taught is out of date.  This therefore makes the student who was hoping that their qualification would net them a job when they were finished not actually capable of doing the role they are supposed to be trained for, yet not knowing that this is the case.  So they submit resumes and go to interviews (when they get past the resume stage) and almost never understand why they don’t get the role.  There are also a not insignificant number of people who get to the end of their study, get into the role they are trained for and find out rapidly that it is just not what they expected or what they want to do.

Of course when you start to think about this issue it becomes really obvious that there is no quick fix here.  It is caused by a number of different failures throughout the system.  The first failure point if that of the mismatch between qualifications, and the requirements of industry and employers, and this is certainly not an issue which can or will be fixed overnight.  It is also one which has a more significant effect in some industries, particularly within fast-moving industries, than in others, but given that training packages define the parameters of the training to be delivered and changing them has traditionally be a long slow process and one in which industry and employers have not stepped up as much as they could have it would seem that this issue may be difficult to address in the short-term.

There are a couple of things which I think can be done, at least more easily than reconnecting training packages and industry, and that is this idea of career development or advice and using that advice and its outcomes to inform training programs, units of competency and placements, so that it maximizes the opportunity for the student to both understand the role they are being trained for, and their ability to actually be hired and function in that role.  The question then becomes how do we achieve, how do we map qualifications, training, and student outcomes, with industry or employment need.

The first step is that people who are giving advice to potential students, particularly where those students are younger, actually need to understand both the training industry and landscape, and they need to understand the requirements of industry or the roles that they are advising people about.  The sad state of affairs is that for the most part this is not the case, at best they have one but not the other.  There are a few notable exceptions of course, but still at the moment they are exceptions nothing more.  Why? Well that is a relatively easy answer, the vast majority of people who are advising potential students are employed by job agencies, apprenticeship and traineeship providers, or educational providers (RTOs for example).  They are not in a real sense career advisers, their real role is something different, either placing people into training programs, or placing them in employment.  Their function and agendas may not be as student centric as we might like to think.  Of course as with everything I am generalising here and there are certainly, for want of a better word, advisers, who are student centric and seek to develop a relationship with the potential student which will provide that person with as good an outcomes as possible.

The other part of the equation here is the training providers.  Training providers need to understand the employment market into which their graduates will be entering.  They need to understand the skills and knowledge and the units of competency which best fit the industry or part of the industry into which the student wants to work in, and more importantly that knowledge needs to be current and accurate.  They need to understand the set of units, and the knowledge and skills which come out of those units, which will maximise the students potential to work in the area they want to.  The problem is of course that there are a lot of courses out there, particularly in the business and community services area, but in other areas as well, where the units taught and the content of those units is so generic that it virtually prepares the student for nothing at all except for a long list of rejected resumes.  One of the reasons why, in a previous role, the organisation i was with had its own RTO was to ensure that the units covered in the course, their content, how they were delivered, and what was expected during placements etc was controlled and produced graduates with the right set of skills to move directly into employment in the organisation.  We also did extensive pre-enrollment testing and discussions to ensure that the people entering the course were a good fit and were likely to complete.  Now I know that some of the apprenticeship agencies and job agencies (some of the better ones) are doing this.  Testing candidates to see how they cope with change and to look for what careers might suit them the most.  And this sort of activity is vitally important because, just because a year 12 student says he likes to play video games and wants to be a game designer, does not mean that it is the best choice for him, (the game design industry in Australia directly employs only about 900 people btw) and may actually harm his chances of getting meaningful employment or doing further training to change careers later, due to impacts upon funding.  It is really important to note here that I am not suggesting that we need to stream and railroad people out of careers that they actually wish to undertake, I am just suggesting that there a lot of people who are being trained who really don’t understand the nature of the industries or work that they are being trained for, and if they had been provided with a fuller explanation of the various careers which were available to them may have chosen a very different path.

The other thing which is important here and is which often overlooked is the fact that industry needs to come to the party as well, they need to be clear about what skills and knowledge they require of potential employees and work with providers to deliver on those skills and knowledge.

Unless we have these links between industry, providers and advisors, greater knowledge of options and the effects of various options on future choices, and truly independent advisors, it seems difficult things will improve.  What we need is an ecosystem, where the potential students are getting, timely, independent, accurate and individualised advice, which leads them to providers who create individualised learning plans for these students, based on what the student wants and what industry needs, with placements, internships and other pre-employment opportunities offers by employers to provide student with well-rounded experiences and the best possible opportunity to convert their qualification into a workforce outcome.

 

 

Higher level teaching degrees and VET

So as many of you are aware there has been some new research which has come out about degree qualifications and teaching in VET.  Now it is important to note that I have not at this point had an opportunity to look over the entire study and the conclusions that it draws, however given the information which is available there are at least some questions I think are worth airing.

Firstly however a comment, I always find it interesting when academics suggest that VET needs better teaching qualifications when most academics don’t have any formal teach qualifications at all, they are simply experts (they have a PhD or similar) in their field. So I always tend to think that if University ‘teachers’ are considered to be capable because they have experience in their field, why is their this suggestion that it should be different in VET. Some if not most of the VET people who get the best outcomes for their student are those with the deepest industry experience and currency.  So with that little comment out of the way.

My first worry here is study size and knowing who it was that the survey was sent to.  570 and 360 respondents out of a supposedly 80,000 strong workforce seems a little low to me to be jumping to conclusions from.  I mean that is after all less than 1% of the total workforce.  My other initial concern is who it was sent to.  I don’t think I ever remember seeing anything about this survey anywhere or anyone at all mentioning that it was underway.  I could be wrong or my memory could be going, but if anyone out there got an invitation to respond to the survey let me know I would be really interested.  I am interested because, often these studies do not cover what could be called a definitive cross-section of the industry.  I am reminded of some research done around supporting students with disabilities which was presented a NCVER No Frills a number of years back, where it turned out that the researcher had only spoken to TAFE providers about how they dealt with disabled student and when asked why she had not contacted any non-public providers her utterly ill-informed answer was ‘private providers don’t deal with students with disabilities so there was no point in asking them’.  Now I am not saying something like that has occurred in this survey, but it would be really interesting to see if all of the parts of the sector had been able to give input and if it had covered all of the states.

Now I come to the real question I have about this paper, what is the evidence for a statement like  “Whether it was in VET pedagogy or something else, a degree or above really made a difference to things like a teacher’s professionalism, their contribution to the organisation and a deep understanding of the necessity of audit procedures.”  Is it just anecdotal or is there something more substantive.  Is it based on the response from teachers themselves saying they thought it made a difference or is there some other more shall we say robust data, or even feedback from their managers and employers about how their professionalism or contribution increased as a result of undertaking a higher degree.  I mean the cynic in me always says, if I had paid a significant sum of money for a degree and someone asked me if it was worthwhile, people are mostly going to say yes, even if it wasn’t just to appear to not appear to have made an error in judgement.

All that aside however, it is important to note that I am not against people in VET getting higher level degrees, nor am I against the concept of these degrees. I do however think that any change in policy to suggest that higher level qualifications become the standard or the entry point should be resisted wholeheartedly.  What VET needs is people who are highly experienced and appropriately qualified in their fields, who are passionate about passing that knowledge on to students and consistently ensure that they are current and well versed in industry practice.  Then we need to provide them with appropriate training qualifications to be able to effectively pass that information on and to assess the competence of students effectively.  That is what this sector needs not more people with degrees, who haven’t actually been in the industry for years because they have been to busy getting their degree.

Here’s an idea, before any more academics tell the VET sector what is good for it and that having university teaching degrees will raise the standard of teaching, how about we change university policy and force all academics who are teaching at university to have higher level teaching degrees and lets see how well that goes down.  I still remember that idiot academic last year complaining that he wasn’t being allowed to teach in the VET sector because he didn’t have a certificate IV TAE, even though he had a PhD in his field.  Just because you have  PhD in something doesn’t mean you can actually teach what you know to anyone.

Anyway that’s just my opinion.

Total VET students and courses 2016 – First look

Woohooo, it’s that time of the year again.  NCVER has just released the Total Vet students and courses Data for 2016.  Yes I know lot of you are now going ‘you’re weird’ and to be fair you are probably right, however, there is more often than not some lovely little gems of information tucked away in this report.  So lets have a look at what it says and see where that takes us.

First the highlights; 4279 providers delivered TVA training to about 4.2 million students in 2016, which represents an almost 5% rise in the number of enrolled students over the 2015 figures. There was also an around 1% rise in the overall participation rates in VET in the population aged 15-64, with  participation highest among 15 to 19 year olds at 46.2%.  This is on the back of an almost 3% decrease in the amount of commonwealth or state government funded training and while management and commerce remains the most popular field of education despite a 5.8% decline in program enrollments, the heath sector saw the largest one rise increasing by 30% in 2016.  The other interesting fact is that about 10% of all of the RTOs listed on Training.gov.au had no enrollment activity during 2016.

So what do all of these highlights mean, before we dig a little bit deeper into the data.  I have to say that realistically it seems to paint a fairly good picture for the VET sector in Australia.  We are seeing solid levels of participation across the Australian population and far more importantly I think we are seeing almost 50% of the 15 to 19 age group involved in some kind of VET activity in 2016.  The decline in funded programs is however a concern, and a concern that must be addressed by both state and federal governments.  For too long now the VET sector has been under funded with the amount of public money coming into the sector reducing in real terms and falling further and further behind K-12 and university funding.

So what other pieces of information can we glean from the report.  Well Queensland had the highest overall number of providers at 1270, with VIC close behind with 1100 and NSW third with just over 1000 providers.  As you would expect the three eastern states dwarf the other states, with each of them having more providers than all of the other states combined.  This trend is also echoed in the total student numbers a well.  NSW leading here with 1.1 million students with both VIC and QLD coming in not far behind, each with over 900,000 students.  When we look at the student numbers a couple of really interesting points pop out.  Firstly female students increased by 10.5% to 2.0 million, with the proportion of female students increasing from 44.1% to 46.5%.  In addition indigenous students increased by 20.1%, accounting for 4.0% of the total estimated VET student population and students with a disability increased by 1.8% or 4.3% of total estimated students.  All other things being equal, this has to be a great result for the sector, with those populations which have traditionally struggled comparatively in terms of workforce participation and education, becoming more engage with vocational education.

When we consider the data around program enrollments, that is what people studied and how, we see a trend or a movement which I think is going to continue into the future.  Across the board in 2016, compared with 2015 national training package program enrollments decreased by 4.1%, while skill sets increased by 111.6%.  This is something that a significant number of commentators including myself have been suggesting, has been occurring and will to continue to occur over time.  I would suggest that in our fast changing workplaces, both workers and employers are looking build and improve specific skills to meet market demands quickly and effectively, thus preferring skill sets and single unit training over full qualifications.

The largest percentage of enrollments was, as we would expect at the Certificate III level with 26% of all enrollments, with diploma level and certificate II qualifications coming in next, both with in excess of 16% of enrollments.  These are the core business areas for the VET sector so the fact that they account for in excess of 60% of enrollments is no surprise.  We saw the health sector record the largest growth of all fields of education increasing by 30.3%, however troublingly we saw by contrast, Natural and physical sciences experienced the largest decline in program enrollments, decreasing by 15.0%.  While our ageing population and the ever growing need for health and allied health professional is clearly driving the growth in that sector, I suspect that a severe misalignment between the training packages and the needs of the science sectors may be the underlying reason behind the decrease in enrollments there.

So that’s it for a first look, I think there are real positives that the VET sector can take from the data in this report, but there are also some things to consider quite seriously, such as the continued decrease in funding and the lack of student enrolling in science related courses.  It will be interesting to see if anything else pops up out of the data as it it looked at more closely and read in conjunction with other data.

Anyway, that’s just my opinion.

 

Apprenticeships – Time for a Change

This has been something which has been on my mind for a few months now and I have had a number of conversations with people inside and outside the Apprenticeship system or more precisely the apprenticeship management system.  The main arm of the management of apprenticeships and traineeships at the moment is the Australian Apprenticeship Support network or the ASSNs which is an evolution of the previous systems that were in place to help everyone involved, employer, student, provider and the government to get the best outcomes out of the system.  Before I go on, it is important to note that I am not talking about apprenticeships and traineeships themselves or how they are structured, delivered or anything like that. What I want to talk about today is the future of the ASSN and whether or not it is a model which is viable to take us forward into the 2020’s or if it really is something which has had its day. This should also not be taken as an attack on the organisations which form the ASSN or the work that they do.  It is certain that they, for the most part do a fantastic job.  The issue is whether or not the approximately $190 million which the government providers these organisations to provide this service is the simplest, most effective and most efficient method and whether not there may be better ways of delivering this service.

Why I say this is because in this digital world, it seems a little difficult for me to understand the need to have people driving around, talking to employers and providers, recruiting, mentoring and all of the other things they seem to do, when the underlying process should be very simple.  Now there has been a move to streamline the system with the AASN now utilising a lot of electronic forms and data, rather than the clearly time consuming and costly paper system which used to exist and this in itself points to the crux of the idea and the problem.

It seems to me that we may have an over complicated system providing a solution to a problem which is quite straightforward.  There are in essence only three parties which are involved in the apprentice or traineeship, that is the student, the employer and the provider (RTO).  Surely in this age of digital disruption some sort of self service model for employers, where they simply registered to become a employer for an apprentice or trainee and picked the RTO they wanted to use from a drop down box of government contracted providers, with a portal for students to then apply for the available roles is something which is not beyond the realm of imagining let alone creating.  There seems to be little or no reason why contracts and agreements, payments etc could not be handled through the same system.  All that would then be required would be a group of people to ensure, that the various requirements of the whole process were being met and that it was producing the outcomes which were required.

Now I understand that I may have grossly oversimplified the entire apprenticeship process, however that was to some extent my purpose here.  Why would I do that?  To point out that I think the days of the AASN are numbered.  I think that within the next 2-5 years we will see a significant shift in the way in which these services are delivered to stakeholders on behalf of the government. We will see more self service style options and more centralised management of the the system, why?  Because it is cheaper and has the potential to be more efficient.

If I was an AASN organisation I would be thinking about where my next income stream was coming from.

Anyway that’s just my opinion.

NCVER’s Government funded Student data; What does it tell us?

So for those of you who aren’t aware, NCVER released its government funded student data for 2016 recently and I think it has some interesting findings contained in it.  Firstly though what is the overall picture which the data presents us with. The big thing which should jump out of this data for anyone looking at this data is that 7.8% of the Australian population aged 15 to 64 years participated in the government-funded VET system in Australia in 2016.  That is about 1.3 million students, a 3.3% increase from the previous year.  This shows the enormous part that funded training plays in the VET landscape in Australia and the importance that it plays in allowing  people to undertake post secondary education.  Without this funding a significant amount of that 7.8% of the population would not have otherwise been able to access the training they needed to improve their workforce participation options.

Interestingly while there was an increase in students there was also a decrease in subject enrollments, primarily due to the fact that there was a significant (nearly 300%) increase in the number of people undertaking funded skill sets as opposed to full qualifications.  This points out a growing industry trend and one which must be acknowledge and properly dealt with by all of the various funding bodies involved in the sector, that of increasing demand for focused skill sets to meet the needs of an industry or a particular employer.  This is a trend which is on the rise rapidly not just in VET but across organisational learning and development and post secondary education in general.  Organisations and students are looking for short, focused courses containing a small number of units to fill skills and knowledge shortfalls and to be more competitive in rapidly changing markets.

Interestingly 52.2% of funded students, were enrolled in their study at TAFE or other government providers, with only 40.8% enrolled at what would generally be defined as private providers.  The balance of enrollments were through community education and other providers.  This represents an increase for TAFE in terms of students of 14.8%, with both private and community providers both dipping by around 7+%.  I find this interesting (and yes I know these are last years numbers and things can change) because there has been significant media coverage of the downturn in student numbers enrolled in TAFE’s.  What this seems to suggest, at least to me, is that if TAFE is clearly improving its position in the funded training market, then it must be losing substantially in the more competitive fee for service markets, including income contingent loans which as we all know are not Funded Training.  To be fair, the non-TAFE sector has for a long time (even before VFH) traditionally done better in the fee for service space for various reasons.  I will be interesting to see what the total VET activity data says this year, when we can get a picture of all enrollments to compare against the funded enrollment data.

Every demographic with the exclusion of 15-19 year old’s increased in terms of student numbers as did Females, indigenous people and people with disabilities, which is win as often these groups are the ones most in need of financial assistance in terms of their ability to undertake training.  The community services training package was the largest contributor to student numbers at 18.5%, which given the numbers of staff which will be needed in this sector in the coming years is probably a good thing.  The most popular fields of education though were engineering and education however information technology and natural and physical sciences had very significant drop offs at 14.6% and 16.4% respectively.

Overall the real impact of this report is that it shows that enormous value that funded training contributes to this country.

Anyway that’s just my opinion.

P.S.  As some of you know I will be moving on from my current role at the end of this week, to take on a more traditional, less VET centric organisation Learning and development role.  I will be still quite strongly connected to the sector, just in a different way than I currently am.  It is also probably the case that (and I can’t promise this) that I will take a break from posting for a couple of weeks as I get up and running in the new role.

 

Paul

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