CHAPTER 1: INTRODUCTION

1.1 Background of ABC learning:

ABC Learning Centres Limited (‘ABC Learning’) grew to be Australia’s largest corporate child

care provider founded in Brisbane in 1988 by Eddy Groves and his wife, Le Neve. During the

time of its high peak it ran approximately 4,700 childcare centers and provide care services to

more than 1,10,000 children throughout Australia, New Zealand and the United States and the

UK which established them as an International organization. Since being listed on the Australian

Stock Exchange in March 2003, with 43 centers ABC Learning had experienced a meteoric rise.

The principal function of ABC Learning was the operation of its long day care centers. ABC

Learning offered child care for children from six weeks up to pre-school age. Many centers also

offered before and after school and vacation care. The vision of ABC Learning’s was to ensure

that each child was loved, nurtured and educated and thus given the best possible chance in life.

The ABC learning had four building blocks to ensure the development of the children as 1. A

learning curriculum, 2. Nutrition and physical development, 3. Center staff training &

development and 4. Facilities and environment.

Assessed by turnover and market share, ABC Learning was the largest corporate child care

provider in Australia and the largest listed provider in the world (Haynes 2006). For the financial

year ending June 2005, it had revenues in Australia and New Zealand totaled almost $300

million and it controlled between 20 and 25% of the Australian child care market (ABC Learning

Annual Report 2005). In 2005 ABC Learning entered the US market with the acquisition of

Learning Care Group Incorporated which operated 460 centers (Rochfort 2005). ABC Learning

was also considering expanding into Canada and Asia. Plans to introduce a comparable

government subsidy scheme for child care in Canada make it the more likely destination

(Wisenthal 2005). According to its CEO, Eddy Groves, ABC Learning aims to ‘grow even

further’ as it seeks to increase its market share in Australia and develop its operations abroad

(ABC Learning Annual Report 2005, p. 4).

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After all the successful history back in October, 2008, the ABC Learning had their backdrop of

severe debt and financial crisis which forced the ABC Learning to go into voluntary

administration as on November 06, 2008. During that time 40% of their centers were

unprofitable and the company’s Board of Director handed ABC Learning over to administrator.

In April, 2008 the CEO of ABC Learning was forced to sell his US business to pay down debt.

1.2 Objective of the study:

The objective of this report is to find out the answers of three questions. Those questions are

given below:

Critically evaluate the main reasons for ABC Learning collapse.

Identify & discuss the main business features of the childcare industry.

What policy regime do you recommend for a viable childcare industry?

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CHAPTER 2: ANSWERS OF THE QUESTIONS

2.1: Identify and discuss the main business features of the childcare industry.

Answer:

Industry refers to the production of economic goods (either material or a service) within a given

economy of a particular country.

2.1.1 Child Care or Day care Industry: Child care or day care is care of a child during the day

by a person other than the child's legal guardians typically performed by someone outside the

child's immediate family. Day care is typically an ongoing service during specific periods, such

as the parents' time at work.

The service is known as child care in the United Kingdom and Australia and child care or day

care in North America.

Day care appeared first in France about 1840, and the Société des Crèches (means “Society of

Day Care”) was recognized by the French government in 1869. Originating in Europe in the late

18th and early 19th century, day cares were established in the United States by private charities

in the 1850s, the first being the New York Day Nursery in 1854.

2.1.2 Business features of the Industry:

The Childcare industry is not a profitable industry and they do not generate high profit unless

anyone can charge higher fees. It’s a very expensive business to run and that’s why the

occupancy has to be good. The major expenses are the salary of staffs which is almost 85% of

total expenses. In addition to that there are also few expenses as food, equipment, toys,

administration and maintaining premises.

The vast majority of childcare is still performed by the parents, in house nanny or through

informal arrangements with relatives, neighbors or friends. For example, in Canada among two

parent families with at least one working parent, 62% of parents handle the childcare themselves,

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32% have other in-home care (nannies, relatives, neighbors or friends) and only 6.5% use a

formal day care center.

Customers: The industry consists of establishments that provide paid care for infants, toddlers,

preschool children, or older children in before- and after-school programs.

Types of service: Two main types of child care make up the child day care services industry:

center-based care and family child care. Formal child day care centers include preschools, child

care centers, and Head Start centers. Family child care providers care for children in their home

for a fee and are the majority of self-employed workers in this industry, which does not include

occasional babysitters or persons who provide unpaid care in their homes for the children of

relatives or friends.

2.1.3 HR requirements for the industry

Preschool teachers, teacher assistants, and child care workers are required.

About 45 percent of all child day care workers have to have a high school degree or less,

reflecting the minimal training requirements for most jobs.

Employment: Child day care services provided wage and salary jobs and there are a large

number of self-employed and unpaid family workers in the industry, most of whom are family

child care providers. Jobs in child day care are found across the country, mirroring the

distribution of the population. However, day care centers are less common in rural areas, where

there are fewer children to support a separate facility.

2.1.4 Types of Daycare:

Non-profit daycare: A nonprofit organization (abbreviated as NPO, also known as a not-for-

profit organization) is an organization that does not distribute its surplus funds to owners or

shareholders, but instead uses them to help pursue its goals and objectives. Parents are typically

the legal owners of a non-profit day care but there are some non-profits day care operated by a

board of directors made up of community representatives who just want what is good for

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children. Considerable research has accumulated showing that not-for-profits are much more

likely to produce the high quality environments in which children thrive.

Local governments, often municipalities, may operate non-profit day care centers. In non-profits,

the title of the most senior supervisor is typically "executive director", following the convention

of most non-profit organizations.

For-profit daycare: The for-profit sector of this industry includes centers that operate

independently or as part of a local or national chain. For-profit day care corporations often exist

where the market is sufficiently large or there are government subsidies.

There are also many family childcare providers who have chosen this field as a profession. Local

legislation will regulate the number and ages of children allowed per family child care home.

Some localities have very stringent quality standards that require licensure for family child care

homes while others require little or no regulations for childcare in individual's homes. Some

home day cares operate illegally with respect to tax legislation where the care provider does not

report fees as income and the parent does not receive a receipt to qualify for childcare tax

deductions. However, it is beneficiary for Day Care providers to be licensed so that they can

have access to financial benefits from their state government, or the federal government.

Family childcare may be less expensive than center based care because of the lower overhead in

family childcare. Many family childcare providers may be certified with the same credentials as

center based staff.

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2.2: Critically evaluate the main reasons for ABC Learning’s collapse.

Answer:

ABC Learning collapsed late in 2008 after several months of financial trouble which started on

February 2008 by largely margin call after the share value fall from 8.80 to 54 cents in august

2008. The main reason behind the collapse was the ABC learning’s rocketing debt levels from

the company’s rapid expansion overseas mainly from acquisition in USA & UK. The main

reasons behind ABC Learning collapse are pointed as below.

2.2.1 Opaque operation: The business model of ABC Learning was not well devised, the

economics of the individual sites were not fully coasted and no proper analysis happened for site

selections. There was no organizational hierarchy & it was not decentralized properly. That’s

why no supervision was there from the supervisor for the subordinates. In a ward there was a

huge lack of transparency of ABC Learning’s operations. In addition their income statement was

inaccurate in terms of their sources of profit. A big part of ABC Learning’s net profit was

generated through an unusual system of “Liquidated damages” & compensation from developers

of its new centers.

2.2.2 Inorganic expansion & Poor risk management: The expansion of ABC Learning was

based on borrowing & equity margin. A huge loan made the company risky as its leverage went

far beyond its capacity to repay. There was no risk management before merger & acquisition

which increased their debt up to 1.7 billion within 18 months. There was lack of systematic

accounting practice which means a professional accountant was not hired by the company. As

well as there was no professional recruitment for the finance department such as internal auditor.

The role of government was also very much important as there should have government

regulation against merger and acquisition which was not there by Australian government.

2.2.3 Staffing problem: ABC Learning had a relief staff provider named as 123 Careers with

whom ABC Learning had also experienced a serious problem. They had an outstanding of $9

million to 123 Careers as well as they faced problem with compensation package of 16000

employees of $31 million which made the high turnover & lack of efficient employees.

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Employees were unsure about their job security. The employment throughout all centers were

not well distributed which means the ratio between children & careers was well managed. There

was also casual employment which doesn’t support the industry standard.

2.2.4 Practices of nepotism: The CEO of ABC Learning practiced nepotism by involving his

former brother in law in the major expenditure as he provided the maintenance & refurbishment

work to Queensland maintenance service owned by that brother in law.

2.2.5 Poor managerial skill: Firstly, the CEO of ABC Learning Eddy Groves was fully

inexperienced in this particular industry as well as the board of directors was the politicians. So

ABC Learning was managed by the totally inexperienced management whereas management

needs to have hands-on knowledge as there was no well developed service quality benchmark in

this industry. Those inexperienced management could not recruit the right persons for the right

places who might forecast & protect the collapse.

2.2.6 Ineffective HR department: In ABC Learning there was lack of human resource practices

because there was no HR planning as job analysis, recruiting & selecting the right person, proper

training and development. There was no performance management which could do the

performance appraisal of the employees.

2.2.7 Problems with franchise (RMCs): Franchise is not a popular option for childcare

industry, which was not considered by ABC Learning & they started regional management

companies (RMCs) as ABC Learning franchises. ABC Learning staff ran the near about 800

RMCs to avoid payroll tax.

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2.3: What are the policy regime do you recommend for a viable childcare industry?

Answer:

Childcare industry is not a profitable industry as it doesn’t generate high profit unless one can

charge very high fees. The occupancy has to be good enough otherwise it will not generate profit

for the organization. The major expenses of the childcare industries are staff salaries while there

are other expenses as food, equipments, toys, administration and maintaining grounds or

premises. So all the above things need to keep under consideration before entering into this

industry. Followings are the policy regime recommended for a viable childcare industry.

2.3.1 Job Opening: Job openings should be numerous because dissatisfaction with benefits, pay,

and stressful working conditions causes many to leave the industry

2.3.2 Effective & organized HR department: It is obvious that, for every organization there

should be an effective & organized HR department with specific policies to run all the

operations, otherwise they might collapse as ABC Learning. The employment for a child care

industry would be as follows:

a) Job Analysis: Job analysis for this industry will determine the duties & skills required for

childcare industry & which person would be hired for it. Mainly Preschool teachers, teacher

assistants, and child care workers are required for this industry.

i) Job description: Helping children grow, learn, and gain new skills can be very

rewarding. The work should be sometimes routine; however, new activities and

challenges mark each day. Child care can be physically and emotionally

challenging, as workers constantly stand, walk, bend, stoop, and lift to attend to

each child’s interests and problems. Child care workers must be constantly alert,

anticipate and prevent trouble, deal effectively with disruptive children, and

provide fair, but firm, discipline. The hours of child day care workers vary. Many

centers are open 12 or more hours a day and cannot close until all of the children

are picked up by their parents or guardians. So energetic & cool minded. There

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might be unscheduled overtimes. Employees have to be there until all of the

children’s parents come & pick up their children.

ii) Job Specification: Child care centers should have staffing requirements that are

imposed by the country. Although requirements may vary, in most cases a

minimum age of 18 years should be required for teachers, and directors or officers

should be at least 21. In some places, assistants may work at age 16—in several,

at age 14. Teachers must have a high school diploma and, in many cases, a

combination of college education and experience. Assistants and child care

workers may need a high school diploma. If it is necessary, a childcare company

should hire workers who have received credentials from a nationally recognized

child day care organization.

b) Recruitment & Selection: In the case of recruitment & selection process, there should be a

clear personnel policy. Childcare industry is a very specialized industry, so HR managers should

hire accounting, finance, legal & management expertise. Before the final selection of an

employee, HR managers should obviously check the references of that particular employee

because parents will not ever handover their child to a criminal or bad person. There shouldn’t be

any practice of nepotism like ABC Learning. The CEO & the board of directors should be

manned by experienced & qualified people.

c) Training & performance management: Because there is no service quality benchmark for

childcare industry, so training & performance management is essential for a viable childcare

industry. Each and every employee should be carefully supervised through performance

appraisal.

2.3.3 Employee management: A childcare industry should manage its employees in a well

mannered system. A huge number of employees are required for a childcare company.

Employees should be effectively distributed to each centre according to the employee demand of

that particular centre. To reduce employee turnover, a childcare company should provide enough

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job security to employees. Casual employment is not a good option for a childcare industry, so

HR managers should concentrate on permanent employment.

2.3.4 Effective management decisions: Because childcare is a very specialized industry, huge

investments & expenditures are require in this industry, so management decisions should be

effective. A company may collapse because of a single wrong decision. It’s too costly to

establish a new center, so the managers should be aware of site selection for the establishment of

a new centre. In case of merger & acquisitions, management should conduct feasibility study.

They should justify whether they have enough capital or not, whether the asking place is a

suitable place to build up a centre or not, whether it will be helpful for both the general people &

company or not, how big should be the particular center, how many employees should be

recruited for that centre, how much should be the investment, what facilities should be provided

by the particular center etc. Borrowings should be conducted within a limit. Sources of profit

should be systematic (e.g. by improving service quality & by gaining new customers). Liquidity

damages, compensations & government subsidies shouldn’t be the main sources of profit. If a

particular company does not have enough capital to establish a centre then it may choice

franchise option (e.g. regional management company or RMC). Although franchise is not a good

option for childcare industries but if anybody wants to develop franchise, HR managers should

let those franchises to run independently so that the staffs can concentrate on its parents

company’s own operations.

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CHAPTER 3: CONCLUSION & REFERENCES

Conclusion: The collapse of ABC learning was not basically because of the severe debt and

financial crisis but also there were many more things related behind it. The role of the

government was also a vital point, as well as the inexperience CEO, the unprofessional Board of

Directors, the wrong decision of management in every step, untrained and ineffective human

resource department, and many more. The vision was perfect for the ABC learning but the way

of achieving the vision was wrong and resulted as the collapse of the organization. So every

organization before entering into a service industry which is highly specialized as childcare

industry they should consider all those mentioned fact and will hire each and every employee in

every department after matching with industry standard. The forecasting has to be done by

highly specialized so that the operations move smoothly and soundly. The financing has to be

secured by their expected revenue so that they can pay off their debt and does not fall in bank

crafty.

References:

1. ABC Learning. (n.d.). Retrieved from http://www.childcare.com.au/2. Wikipedia. (n.d.). Retrieved from http://en.wikipedia.org/wiki/Day_care3. Wikipedia. (n.d.). Retrieved from http://en.wikipedia.org/wiki/ABC_Learning4. Yusuf, Q. A. ABC Learning: Collapse of an ENtrepreneurial venture.

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