One of the arguments for multi-academy trusts (MATs) is that they ought to be able to help schools deliver improved financial economies of scale particularly – but not only – in relation to procurement, support services and back office functions. Certainly there is a need to realise these benefits judging by the parlous state of academy finances.
An NfER analysis of DfE data showed that in 2015/16:
- 62% of MATs were in deficit – the comparable figure for single academy trusts (SATs) was 49%
- Overall MAT expenditure exceeded income by 2.2%
- The cumulative deficit for MATs was £235 million
- The larger the trust, the more likely it had a deficit position – around 7 in 10 Established, Regional and System Trusts were in deficit compared with around 6 in 10 of Starter Trusts
The position is almost certain to have worsened in 2017/18. MATs are probably living off balances but that is unsustainable in the medium term – hence the urgency to address the efficiency and economy of scale challenge. There is some evidence that this is starting to happen.
MAT financial efficiencies
In the DfE’s 2017 survey of academies MATs reported that the larger the MAT, the greater the likelihood of achieving efficiencies – see table below.
The proportion of SATs and MATs (by size) who have made financial efficiencies
Source: DfE Academy Survey 2017
The four defined areas where MATs are making the biggest efficiency savings are ICT, energy/utility bills, catering and human resources. The fact that there are a range of services where MATs have achieved only relatively low levels of efficiencies suggests that there is considerable scope for MATs to realise greater economies in these areas.
Areas where MATs report they have made financial efficiencies
Base: MATs with 2+ academies =159; and SATs 257 Source: DfE Academy Survey 2017
The potential for greater economies of scale
There are three further pieces of evidence that reinforce the argument that MATs could operate even more efficiently than at present. First, the DfE 2017 academy survey indicates that only just over half of MATs (55%) are making use of a procurement framework – a mechanism that provides an off-the-shelf vehicle for tapping into economies of scale when purchasing goods and services. Second, the extent to which MATs have outsourced services varies considerably by service – as the chart below illustrates. Outsourcing can include using other MATs or local authority services as well as a commercial operator.
We need further research on this but the functions where there are the highest level of reported efficiency savings tend to be the services where there is also a significant level of outsourcing. Conversely facilities/site management is reported as having the lowest level of financial efficiencies and is least likely to have been outsourced. That is not to equate outsourcing with efficiency but it does suggest that MATs may need to do some more thinking about their approach to estate management.
Level of outsourcing of services from MATs
Base: MATs with 2+ academies = 267 Source: DfE Academy Survey 2017
The third source of evidence comes from a report by the Education Policy Institute (EPI), which found that:
- SATs spend more on back office costs at primary level (£27 per pupil) than MATs, though spending levels are similar at secondary level.
- Medium-sized MATs (of around 6-10 academies) tend to spend slightly less on back office costs than smaller MATs (5 or fewer), though this correlation is weak.
- There is significant variation in the amount spent per pupil on back office costs between trusts of the same size.
- The evidence is mixed on whether the length of time an academy has been in a MAT makes it more likely that economies of scale will be achieved.
- Geography is significant in MATs realising economies of scale – MATs that are more geographically dispersed tend to spend more per pupil on back office costs. In contrast, “standardising various practices (such as staffing contracts), or tendering certain services (such as cleaning) across schools, noticeably reduced marginal costs once clusters of schools reached a ‘critical mass’ of around 3-6 academies”.
- Technology can help to bring about further efficiency savings and overcome barriers such as geography – e.g. greater use of video conferencing to reduce travel costs and intranet and cloud computing to share standardised materials and best practice.
The finding on variations in costs between MATs of a similar size echoes what we know about variations in performance between MATs with similar pupil profiles. The finding on the significance of proximity has relevance not just for back office functions but also for achieving educational, leadership and staffing economies of scale. I’ll elaborate on this in my next blog on MATs!
There are a number of actions that MATs can take to realise the potential benefits of scale as they grow. Lessons on clustering and standardising business processes need to be heeded. The use of technology should be maximised. Adopting a strategic approach to testing the market for services on a phased basis makes good sense. However, I would argue that the single most important step that MATs can take is to appoint as soon as possible in their existence a high calibre Director of Finance or Chief Operating Officer (COO). They should be given the mandate to develop plans for ensuring that the MAT becomes more than the sum of its parts in terms of its financial and business operations. Their performance should in part be judged on their progress in realising the savings from working together. The right appointee will also free up the energies and time of the CEO and other leaders to focus on the core business school improvement.
Obviously being able to afford to make such an appointment is partly related to the size of the MAT. However, the DfE 2017 academy survey reports that over two-thirds of MATs (69%) with between two and five academies have appointed a full-time director of finance – though the figure jumps to 96 per cent for MATs with six or more academies. Some of those MATs that are struggling to afford a good COO might like to think about including support to establish the post in their bid to the recently announced Multi-Academy Trust Development and Improvement Fund.