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Under the financial spotlight – what you can do to drive efficiencies

Working under financial scrutiny

Companies undergoing investment or buyout from Private Equity (PE) firms and Venture Capitalists (VC) face a high level of financial scrutiny. The spotlight is on them to drive efficiencies, reduce costs and improve operating margins. For independent training companies providing fixed-cost apprenticeship programmes, this means finding other ways to improve profitability. According to Deloitte, additional value drivers divide into two main categories: cost transformation driven by structural margin improvements, and data-driven growth informed by cutting-edge analytics.

Improving profitability in apprenticeship delivery

Apprenticeships are fixed-cost programmes, which means PE and VC investors cannot explore price change as an opportunity to increase the value of their investment. Instead, they focus on driving growth and limiting costs to improve efficiency and profitability.

In the case of limiting costs, independent training providers (ITPs) are continuously looking to optimise learner retention and achievement rates. Breaks in learning and learner drop-outs are not only costly, but are hard to forecast. There are many external contributing factors, from the Great Resignation to fluctuating workloads and ever-changing personal circumstances in today’s uncertain world. Providers are right to focus efforts on providing personalised learning journeys coupled with high-quality mentoring and coaching; staying close to learners and their employers to keep engagement levels high and pre-empt any issues.

Alongside this spotlight on monthly revenue, a broader value analysis will identify any low-value activities that could be stripped out to improve profitability. There is a delicate balance to be struck between increasing the number of learners per cohort to drive higher profit, and delivering a personalised programme that puts the learner experience above all else. We know that employer engagement is a critical success factor for providers, and having closed cohorts of learners for larger employers has been proven to land extremely well. As long as there is flexible technology to support it, providers are able to create truly tailored learning journeys that align to both individual learner needs and the employer’s strategic goals: a self-perpetuating cycle of stakeholder satisfaction and demand for more provision. This is rather unique to our sector, where unspent Levy is prevalent and finding budget is generally not an issue.

Tutor/coach caseload is a further balancing act to be negotiated. Of course, for salaried coaches, a higher caseload can drive financial efficiency, but it can be a slippery slope. As above, the learner experience needs to remain paramount and over-stretching tutors will have a direct impact on key stakeholders. A small number of providers are setting caseload targets of up to 60 learners per tutor. If this forms part of your cost-saving strategy, it’s worth asking a critical question: ‘Is this achievable with the technology you have in place?’ Having delivery staff that are working to capacity of course makes financial sense, but they do need the right supporting technology, systems and processes if they are to succeed. Look for a system that significantly reduces the administrative burden, freeing them up to focus on quality coaching across their caseload, without risking burnout and costly mistakes.

Also unique to the sector is the Education and Skills Funding Agency (ESFA) mechanism of clawing back funds based on discrepancies around Initial Assessment, negotiated price, off-the-job training requirements and the Apprenticeship Agreement. Many providers, even those that are well established and with dedicated resource, still lack confidence in the detail of where the pitfalls and risks are. Maintaining accuracy around data submitted to support the funding claim is an ongoing challenge, and it is well worth investing the time to make sure your team is fully up to speed with latest ESFA funding rules.

With the arrival of Covid, providers that were reliant on in-person delivery, often with arduous paper-based onboarding and compliance processes, were forced into a major rethink on how to adapt. A number of these providers have since decided to adopt a permanent blended learning approach, partly to appeal to the online accessibility demands that are now commonplace, and also through the realisation of the cost efficiencies up for grabs through reduced travel and associated time and expenses. Blended learning continues to evolve and for anyone who works within the world of learning and development, remains a fascinating topic that will continue to shape our professional future.

Given price is fixed, successful providers turn their attention to their value proposition. Whether providers are focused on a particular region, employer size or industries, they need to be able to prove the quality of the programmes they provide. Having accurate and up-to-date data – and ideally relevant and recent customer feedback or case studies – at their fingertips is fundamental to give investors and others confidence in the brand and growth strategy. This qualitative data, in the form of feedback from customers, is essential for proving the quality that they are providing for partners and learners alike.

Kerry Boffey, founder of the Fellowship of Inspection Nominees (FIN), described this in a recent webinar in partnership with Aptem: “Feedback from learners and employers is a key element of quality improvement and listening to what our customers have to say gives a good insight into their experiences and perceptions of the training providers’ work and impact. What learners can articulate and demonstrate is an important part of an Ofsted inspection and, likewise, the opinions and experience of employers are equally paramount. The problem is that perceptions can be far removed from reality and, as inspection methodology has moved significantly with far greater emphasis on direct communication with learners and employers, this can have a weighty impact on the evidence base. Providers can find themselves desperately defending the provision against an incorrect perception.”

Using insights such as from the Aptem Intelligence Dashboard quarterly analysis, providers can move into growth areas, adding to their existing catalogue of programmes subjects that are trending or forecast to grow. Existing programmes can also be extended with paid-for add-ons, increasing the value of each contract and genuinely adding value for the employer through personalisation. Finally, providers can explore moving into adjacent markets which require similar operating models and set-ups. They may consider the Adult Education Budget, offering Traineeships or Study Programmes, or moving into Corporate Learning or higher education. Even during more stable times, any growth decisions need to be mindful of the ability to maintain the programme quality, or risk seeing learner dropouts and non-completion or slow completion rates increase.

Investing in the future

PE holdings have increased in recent years. Around the time of the Great Recession, the typical length of a private equity investment was 3.8 years; it’s now 5.4 years. VC-backed companies typically go public around six years later. This allows plenty of time to test and determine a strategy that will prove profitable into the future.

However a company is sold, the investor will be intent on proving both current business efficiency and future business potential to gain the highest possible price. This means that ITPs going down this route need to strike a balance between the cost limiting and growth strategies that we explored earlier. Future-focused plans should take into account the bigger global picture and look beyond sector trends.

According to Deloitte’s 2020 report into private equity investment and value creation: “The current global environment has only added urgency to the cause of bringing a strong value creation mindset to every PE transaction. The uncertainty the crisis injects into the business environment complicates efforts to build accurate forecasts and develop effective strategies. Weaker growth challenges the fundamentals that support traditional underwriting assumptions and make it possible to deliver on the deal thesis. What’s more, given how business circumstances have suddenly shifted (and will surely shift again in future crises), there is a premium on adaptability and on having every tool available to create resiliency and preserve or unlock value.”

Alongside agility, sustainability and diversity, equity and inclusion are also important drivers for PE firms, according to EY’s 2022 Global Private Equity survey. ITPs pursuing investment will need to have the data and strategies in place to demonstrate these attributes.

Choosing and using the right technology

Deloitte also highlights the importance of digital customer engagement: “Digital interactions should no longer start and end with an online sale. Rather, the engagement begins with customer enticement through omnichannel marketing and continues beyond the transaction to online reviews and social influence. Producing an enjoyable and flawless customer journey has become central to customer acquisition and retention. Customers now expect a coherent and seamless journey and a level of engagement that is only created in a data-rich environment.”

Creating a seamless customer journey relies on having the right digital technology in place: technology that supports personalisation and will support the provider to adapt and grow in the future. When determining the right product to use, apprenticeship providers should keep in mind the emphasis Deloitte places on adaptability. The technology they employ should be flexible enough to enable them to test and enter new markets, increase learner cohort numbers, or adapt existing programmes with paid add-ons. What’s more, the right, intelligent software can support greater efficiency, freeing up staff time to focus on customer support and relationships, for example, rather than repetitive administration tasks.

It is also worth weighing up the benefits and drawbacks of outsourcing software and IT support. Outsourcing can provide access to technical talent that providers may struggle to recruit themselves, and at a cheaper cost. Given the focus on savings from PE and VC investors, this is a considerable benefit. It also has the advantage of freeing up time to focus on other operational and strategic priorities. However, outsourcing must be done with care. It is not only valuable data and security that is placed into the hands of an external provider, but also a fundamental factor of overall business success. It’s essential to take the time to choose the right provider, build trust and establish clear communications, and have an onboarding period that ensures complete operational and strategic alignment.

Working closely with external providers can be the solution to catalysing business growth and ensuring quality. As Terry Hodgetts, Director of Corporate Client Solutions at Aston University, said of Aptem: “They showed a clear, demonstrable understanding of the apprenticeships environment. They asked questions and clearly understood our needs. A good apprenticeships management system isn’t just about the administration. It’s about the user experience, both for the apprentice and for the employer. In Aptem, we found a tool that is truly adding value to the service that we’re delivering.”

Access to real-time data

According to Ethan Vogelhut, Head of Buyout Investments Americas at Schroders Capital, following a buyout, “Getting the right reporting in place quickly is really important. To move the business forward, we need to be able to track the performance drivers we’ve identified.”

All businesses should be driven by data, but for those under VC/PE scrutiny it’s even more important. Aside from the imperative to track performance while testing strategies during the typical 100-day period of intense activity following acquisition, increasingly stringent regulations require PE firms to deliver accurate financial reporting in a timely manner. Investors need to know that regulatory requirements are all being fulfilled.

ITPs need access to real-time, accurate data. They need to know how to use this to explain where the company is and, as far as possible, what the near future holds. Deloitte explains the value data provides: “Newly accessible data sets and analytic capabilities are vital today for their ability to inform strategic decision-making and for providing novel avenues for customer engagement and acquisition. The capabilities to fully exploit big data allow an organisation to be agile and effective in uncovering and monetising new market opportunities, especially through all important digital channels.”

Natalie Hare, Head of Operations at Haddon Training, describes this from a provider’s perspective. “With the pandemic, new platform and new management, there has been a lot of change for the team at Haddon. We know that the quality of education is always there, regardless of what is going on behind the scenes. Ofsted is around the corner, and supported by Aptem’s Power BI reporting functionality, we feel ready to showcase our high-quality training provision. Once you’ve got it set up and going, the whole piece around reporting and consolidating data is just so much easier [with Aptem]. Especially in management, you spend a lot of your time needing to analyse things and pulling reports left, right and centre. You can literally get any data you need from anywhere within the system, so that’s been a huge plus at management level.”

In summary, for ITPs considering future investment and growth it’s essential to have future-focused strategies and data ready at your fingertips. You need to be able to demonstrate the efficiency of current operations, and highlight effective approaches that could carry you into the future. Finding the right technology is essential to this process. The right product and partner can support analysis, trend spotting, reporting and growth.

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