FEfocus Editorial - John Lewis model could be a bad fit

3rd December 2010 at 00:00

It is not clear when exactly the John Lewis Partnership, with its admittedly fine department stores and reassuringly expensive supermarkets, became the exemplar of all that was good in both business and social responsibility.

Presumably it was some time after 1999, when falling profits prompted some members to call for demutualisation and flotation on the stock exchange, and the prospect of a pound;100,000 payout for each worker looked tempting. If that idea had gained more traction, we would probably never have heard of co-ops being proposed for the public sector.

But John Lewis's more recent success in customer satisfaction and its profitability even during the recession has made it irresistible to travellers on the Third Way, whether they are followers of Blair or Cameron, who would like somehow to split the difference between public provision and private or voluntary organisations.

So we have the suggestion that colleges could be run along the same lines (page 1). It certainly has some appeal: if staff are asked to make sacrifices in the name of efficiency, as they often are - perhaps working longer hours or more flexible shifts - then surely they should get some reward? If staff own the college and profit from its success, then the interests of managers and workers align, potentially reducing disputes.

But it is far from clear that a model like this would work for colleges. Not only that, it is far from clear that it works in business, outside of isolated examples. Few business owners have been willing to bequeath their companies to their employees, so our opportunities to observe the experiment have been few.

Consider this, though: John Lewis last year was able to pay its employees, or "partners", a bonus of 15 per cent of their gross salary, on profits that were 5 per cent of turnover, with half retained for the use of the business.

If a college with a turnover of about pound;20 million and about 350 staff could achieve a similar surplus through efficiencies, it would only be able to pay out pound;1,500 per person, which would be less than half the rate of the John Lewis payout for even the lowest-paid lecturers. Being a multi-billion-pound business makes all the difference, it seems.

More to the point, where do these efficiencies come from in colleges which typically spend 70 per cent of their income on the salaries of the staff? Chipping away at salaries to cover the costs of an annual bonus seems like a singularly pointless exercise, yet it is the biggest opportunity to save money.

And while a retail business can drive sales through the efforts of its employees, colleges are at the moment dependent on dwindling public funds, and the idea that they can generate significant amounts of commercial income is still largely untested. Paying bonuses to staff against a background of falling revenue and the expectation that the educational output will be maintained begins to sound like a fantasy.

Much the same objection applies to the idea that private companies might take over colleges: where will their profit come from? So it remains to be seen whether any of them really will bite off the arm of the chief executive of the Skills Funding Agency, as he suggested, and whether they do it out of enthusiasm for taking on a college's business, or just because they want to bite his arm off.

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