1. This document sets out lessons learned from collaborations, alliances and mergers (CAM) in higher education, and guidance for higher education institutions (HEIs).
2. CAM activities have long been an important feature of the higher education (HE) landscape, but in spite of this, relatively little is generally known about the subject. We therefore conducted this study to help the HE sector learn from institutions’ past experience and improve the likelihood of success when collaborations, alliances and/or mergers are entered into. The guidance set out in this report is intended to be helpful and informative, and not directive or prescriptive.
3. We have covered a range of collaborations and mergers, drawing from case studies in England and overseas, interviews, existing literature and other published information. For this project we have used the following definitions:
- Collaboration: two or more partners working together in a particular area of business, which may involve combining existing operations, pooling areas of expertise or creating something entirely new. This project focuses on institutional arrangements rather than relationships between groups of academics. There are many different forms of such collaborations, such as joint research institutes or joint faculties, which might have their own distinct brand. Sometimes collaborative ventures are known as partnerships or cooperation agreements. In this report we discuss the general characteristics of these various forms, so that we can compare them with mergers.
- Alliance: a more systemic form of collaboration between two or more partners, covering a wider range (but not all) of their operations, where the partners retain their separate identities.
- Merger: two or more partners combining to create a single institution, which may retain the name and legal status of one of them or be an entirely new legal entity. In the ‘holding company’ model, one institution can have subsidiaries that retain separate names, brands and operations, to varying degrees. Federations can be seen as a more flexible version of full merger.
4. This project was guided by an expert steering group whose members had experience of CAM activity across the HE and private sectors. We have written this report for a variety of audiences: principally for senior managers and governors, because of the importance of leadership and governance in all CAM projects; and also for staff, students and other stakeholders of HEIs.
5. The pace of change in the HE sector is probably accelerating in many countries due to a number of complex and interacting factors, such as globalisation, internationalisation, the growing role of the private sector, increasing use of international rankings of institutions, and changing student needs and expectations. In England the new approach to the funding of teaching, and changes taking place to other major sources of funding, will also have a big impact on institutional behaviour, as will the renewed emphasis on placing students at the centre of the system. In various European countries and in Wales there have been major CAM developments, often actively promoted by governments to strengthen institutions and improve performance.
6. Institutions are being challenged as never before to reconsider their fundamental role, market position, structures, relationships, partnerships, policies and processes. They will need to continue questioning how they operate internally, engage externally with other institutions and organisations, and interact with the wider society. This raises the profile and potential relevance of collaborations, alliances and mergers as part of institutions’ response to the drivers for change. Nonetheless, institutions are autonomous and there is no question of a top-down approach in England.
Learning from past experience
7. Institutions can learn from what has worked well or less well elsewhere. Most research in the HE sector, both in the UK and in other countries, has focused on mergers rather than collaborations, alliances, consortia or joint ventures. Moreover, there is a lack of publicly available information in the form of evaluation reports and other analyses of outcomes that might show the impact of CAM activity, particularly over the longer term. There are no reliable estimates of success in CAM projects in the HE sector.
8. The much larger body of research in the private (commercial) sector consistently estimates that a high percentage of mergers fail outright or do not achieve the expected benefits in terms of increased shareholder value or efficiency gains. There are also high failure rates for alliances and joint ventures. Notwithstanding the many differences with HE, some of the general lessons from the private sector are worth noting.
9. We commissioned a literature review and conducted our own research into the sector’s experience, largely through nine case studies representing a range of CAM activity. Although there are many possible types of relationship, our aim was to derive general principles that would be helpful in most situations.
Major themes and lessons learned
10. The main findings are organised under three headings that address fundamental questions institutions are likely to ask:
- What form of relationship is most appropriate in this particular case?
- What evidence is necessary to inform decision-making?
- What process should be adopted to ensure the most effective outcome?
These questions are addressed in the following three sections:
Forms of relationship
11. A clear case based on the core purposes of HEIs – teaching, research and knowledge exchange – should be at the heart of all CAM projects. This implies a strong focus on students, the academic community and the wider society. Publicly funded institutions should consider the ‘public good’ as well as business needs. Economic issues should not be ignored. Economies of scale can be important in advancing academic aims, for example by achieving critical mass in research or ensuring the viability of courses. Successful CAM projects have a strong academic purpose that is underpinned by a sound economic rationale.
12. Issues about the size and scale of institutions are complex and inadequately researched in the existing literature; but size in and of itself is rarely a good argument for merger. The relative size of the partners can be a significant consideration. Some mergers may have a dominant partner, but these can still be satisfactory for both parties. Efforts to present a ‘merger of equals’ can lead to costly compromises, but sometimes this is necessary to achieve a longer-term objective.
13. Any new entity or venture should aim to achieve more than could be delivered by the individual parties separately. The proposal should reflect a clear strategic need, and the parties should agree a ‘strategic narrative’, based on a simple, forward-looking idea that can be easily understood and communicated. This will clarify the purpose, underpin the argument for change, provide direction and help make sense of the various actions being taken.
14. CAM projects can enable institutions to share risk with partners in achieving their objectives. This can involve sharing costs, acquiring expertise or capacity, achieving critical mass or accelerating development. These possible advantages need to be balanced against the inherent risk of the projects themselves.
15. There are many different types of relationship across the ‘CAM spectrum’: from associations and purchasing consortia at the ‘softer’ end (lower risk, easily unwound), through various forms of institutional collaboration and joint ventures, to full merger at the ‘harder’ end (higher risk, not easily unwound). In some cases, collaboration (possibly leading to a strategic alliance) can bring many of the benefits of merger without the same cost or level of disruption. On the other hand, merger can bring more commitment from the parties and might achieve deeper and more extensive change.
16. Merger in particular can be a ‘point of discontinuity’ with the past, allowing institutions to achieve a whole series of changes that would be more difficult to achieve piecemeal during ‘business as usual’. Mergers are likely to be more successful where, through a careful analysis of objectives and activities, most of the institutions’ major operations are compatible or complementary.
17. Geography and distance sometimes constrain the effectiveness of mergers, so selective collaboration might be a more viable alternative. Co-location is often necessary to deliver significant synergy or efficiency. It is important to consider the impact on students and staff of any rationalisation of multi-site operations.
18. Whether to retain an existing brand or develop a new one is an important issue. This reflects the growing significance of name recognition, linked to institutional identity and differentiation, to prospective students, employees, employers and other partners and funders.
Evidence to inform decision-making
19. The evidence to inform decision-making should reflect the nature of the proposal; institutions should avoid seeing the case for a particular proposal as being self-evident. A rigorous options review, prepared objectively and subject to consultation, should precede any agreement in principle, and it is important to engage with dissenting views. Where a proposal affects students, their interests and needs will be a major priority.
20. The various options should be tested for affordability and the possible sources of funding investigated. In future, public funding is less likely to be available than in the recent past. Institutions will need to take a particularly rigorous approach to costing and financing.
21. Merger costs are often underestimated, particularly in areas such as harmonising pay and benefits structures, ICT systems and administrative processes. These costs can be very substantial where the merger is between higher and further education institutions. In general there is a tendency to emphasise renewing the estate, which can easily be presented as a clear outcome from merger. Other costs, including opportunity costs, may be more difficult to estimate, but they should not be overlooked.
22. Institutions may see the potential for economies of scale, especially in ‘back office’ operations and over the longer term. Where it is essential to reduce cost, this should be done promptly and openly, in consultation with staff and other interested parties; and the effect on students should be assessed and managed carefully so as to safeguard their experience.
23. Given the tendency to underestimate costs and risks, particular attention needs to be paid to due diligence, and it should not be done so late in the process that its results cannot be properly taken into account and the proposal reconsidered or renegotiated if necessary.
24. Leadership from the outset is vital: all the initial questions concern mission and strategy, and leaders can help to drive the whole process, overcome obstacles and negotiate with stakeholders.
25. Institutions and their potential partners should develop a shared vision before acting, as clarity about objectives will energise the parties and avoid wasted effort.
26. Communication and dialogue with stakeholders, especially staff and students, are essential throughout the process. Support will be developed and resistance reduced if there is a concerted effort to explain the vision and address fears. Expectations need to be managed and kept realistic.
27. The senior management structure and governance arrangements in the new institution or venture need to be agreed at an early stage, perhaps as part of a memorandum of understanding. If these issues are not resolved, ambiguity may undermine trust, or senior managers and governors who have a strong commitment to existing structures could be an obstacle to change.
28. There needs to be adequate oversight of the project, often in the form of a joint working group and/or shadow board. Project management would normally be devolved to a separate task force or project team, which needs adequate resources to manage the whole process. At the same time it is vital to ensure the continuity of existing business operations.
29. Almost all institutions say their CAM projects required more time, effort and money than they originally expected. This observation accords with private sector experience, where the benefits are often overestimated and the costs and degree of difficulty underestimated. General optimism about what can be achieved can help to overcome obstacles along the way, but there may also be a lack of understanding of the demands of mergers and collaborations and their consequences.
30. The change process is dynamic, often messy and subject to the influence of unexpected events; institutions should therefore agree ‘break points’ to mitigate the risk of being swept along and missing warning signs. An implementation plan is an essential part of the process, and it should be kept under review and modified as necessary.
31. Investment and restructuring are often necessary to deliver real benefits, and the advantages and disadvantages of doing this sooner or later should be carefully weighed. Attention should be paid to the respective institutional cultures, which can affect the success or failure of attempts to achieve organisational change.
32. Government agencies can provide practical support, such as advice and objectivity, as well as funding. External funders should avoid onerous, inappropriate and inflexible monitoring arrangements.
33. In addressing the above issues it is essential to recognise the role of proper governance arrangements. Governing bodies need to be engaged from the outset, alongside senior management, in considering what form of relationship might be most suitable for their institutions, the evidence that needs to be gathered to make the right decision, and what processes should be put in place to manage the project effectively. While supporting senior managers, they will provide necessary challenge and safeguard the interests of their institutions. They have specific legal duties as trustees of charities.
Guidance for institutions
34. From the findings referred to in paragraphs 10-33 we have updated our guidance for institutions on a process to develop CAM projects (see Annex A). This is a general guide, not a set of formal requirements or an attempt at comprehensive best practice. It identifies key stages which will be relevant in most cases:
- options review
- testing the feasibility of the preferred option
- memorandum of understanding
- business case (especially for external funding)
- review and revision of the proposal
- implementation plan
- monitoring and evaluation.
35. During the study many institutions said it would have been helpful if detailed guidance had been available to them in technical areas, such as tax, pensions, equal opportunities, due diligence, change management and implementation planning. This could have saved time in reaching decisions and made it easier to deliver their projects effectively. We will continue to discuss with the sector and its representative bodies whether, when and how to commission such studies.
36. We encourage institutions to evaluate their CAM activity. We also suggest that they publish the results in a suitable format, to continue disseminating the lessons learned to the wider sector and provide a basis for further research. This could take place through HEFCE’s web-site or some other appropriate national body.
HEFCE’s policy on CAM activity
37. The project was designed to present objective findings to help institutions make better decisions. In responding to potential CAM projects in the sector in the future, we will be guided by a set of principles, set out at Annex D, focusing on:
- HEFCE’s primary role of safeguarding the collective interests of current and prospective students and the wider public, encouraging the development of a more diverse and dynamic sector and supporting student choice
- maintaining an intelligent, open and constructive working relationship with all types of institutions and other partners
- providing objective assessment where public funding or student interest is involved
- securing the strength and sustainability of institutions across the sector, while respecting institutional autonomy.
Updating the guidance
38. Change in the higher education sector may lead to the development of new forms of CAM activity, particularly where these involve commercial partners or private providers. Increasingly HEIs are entering into international ventures, often with overseas institutions. The relationship between HEIs and further education colleges is also evolving under the new teaching funding arrangements and student number controls.
39. Some of these activities will indicate important issues not covered by this report. The publication of project summaries and evaluations mentioned in paragraph 36 would help the sector to learn from its own experience, as would further research by academics. HEFCE will continue to survey developments in the sector and will formally review this guidance in three years’ time to ensure that it remains comprehensive and relevant.
40. In the meantime, we invite institutions to talk to us about their CAM projects, whether this is a formal requirement under the Financial Memorandum with HEFCE dynamic sector and supporting student choice (as in the case of mergers) or simply as part of a continuing constructive dialogue.