In search of the elusive cash cow

31st January 1997 at 00:00
On the face of it, a farm outside Aberdeen and a high-tech centre writing the latest computer software might not have much in common. They are, however, both part of the growing number of commercial enterprises which Scotland's colleges are using to boost their coffers, as student numbers rise to record levels.

The catalyst for this greater commercial awareness and activity in the further education sector was incorporation in 1993. While many within the management of Scotland's colleges are still facing financial problems stemming from this move out of local authority control, the autonomy has made it possible for colleges to be more responsive to commercial opportunities - or perhaps made it inevitable.

Each of the colleges engaged in commercial activity does so in its own unique way, but their approaches fall into two basic categories: those who form limited companies to use their expertise to engage in direct business ventures; and those who keep commercial activity within the college, using it to fund specific areas and create links with the business community.

Perhaps the most successful venture by a limited company has been Aberdeen College's wholly-owned subsidiary, ASET (Aberdeen Skills and Enterprise) Ltd, which last year had a turnover of #163;1.25 million of which #163;138,000 went to the college. It also pays the college #163;500,000 for the staff that it employs.

The company specialises in highly customised courses for the oil industry,and it accounts for 70 per cent of the market in explosion-training designed to prepare for Piper Alpha-type incidents. The college also owns Clinterty Estates Ltd, a profitable commercial farm that also provides on-the-job training for agriculture students.

Aberdeen's approach to its business activities is to seek a direct financial injection into the college's budget, and Rae Angus, the principal, is effusive about the role the company has in the college. "When we created the company, the broad need was to cross-subsid ise courses. It has also allowed us to keep our charitable status and the tax benefits that come with that. In addition, it has been a vehicle for cultural change within the college in terms of creating greater commercial awareness."

This approach to commercial activity contrasts with that of Dundee College, where a conscious decision was made not to create a private limited company but to have staff work directly in commercial activity. Ian Ovens, the principal, says: "I've always thought that corporate work is something that colleges should be involved in. It definitely gives an added dimension to their work, but I see us being more in the mould of the American community college, where companies come to us as a source of expertise. By not setting up a private company, I think we can use staff more flexibly and be more responsive to their needs."

Although the financial contribution that commercial ventures make to the college's budget is very welcome, for Mr Ovens these activities are as much about increasing the skills and credibility of the institution as they are the bottom line. Incorporation, he says, has allowed Dundee College to bring in experienced managers in the areas of human resources and finance, who can use their skills to make commercial activities more viable. These account for 2 to 3 per cent of Dundee's #163;15m turnover.

A similarly, less overt, commercial approach is taken at Glenrothes College, whose Centre for Industrial Technology has undertaken consultancy work on a commercial basis since 1972. Like all commercial activity in colleges, it cannot be funded out of core funds, so it has at least to break even.

As the centre's Jack Redpath explains, this has allowed it to keep in touch with the latest computer-assisted design technology. "I think if we were funded from the mainstream, we would have difficulty keeping up, such is the pace of change. Equipment is hard to come by, but we can get the software and write new programs to sell to companies."

Martin Fairbairn, director of finance at Stevenson College in Edinburgh, sounds a note of caution for those colleges searching for the elusive cash cow to alleviate their financial worries. "In the world of business there are a number of levels of financial accountability that exist. In the academic world there just isn't that level of control. Our primary role is to provide education and we shouldn't lose sight of that, " he says.

For Mr Fairbairn, the creation of a limited company to oversee Stevenson College's commercial activities was as much about its image as the actual services it offers. He maintains that "having a director's name at the bottom of the page has certainly made a difference. There was a perception that when companies were buying training, they felt they would feel safe with a flash, city-centre outfit who would charge them the earth for it."

The pressure on colleges to increase their earnings from non-Scottish Office sources is none the less bound to increase. The independent consultants' report on colleges' relationships with business, commissioned by the Association of Scottish Colleges and Scottish Enterprise, found that such contracts for the 43 colleges amounted to just over #163;14 million in 1994-95. This was 4 per cent of all college income for that year, which the report described as "a modest performance".

Some 76 per cent of colleges said they had a special section devoted to consultancy and customised training for businesses, 33 per cent had established companies to do so, and 24 per cent operated as part of a wider consortium of colleges in fulfilling contracts.

Practice varies widely. The consultants found that revenue-earning business from education contracts in 1994-95 ranged from 0 per cent to 21 per cent. The record appears to be held by Barony College in Dumfries, which relies on grants from the public purse for just half of its income, a result of the earning power of its deer and fish farms.

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