In
the face of disruptive change, higher education needs a new, more innovative
business model.
By one, and only one, measure,
the institutions of higher education around the world are remarkably
successful: They reach far more people today than ever before. About a third of
Americans over the age of 18 have attained a bachelor’s degree or higher — up
from less than 20 percent 30 years ago. In the rest of the world, far more
people than in the past are seeking higher education, especially in emerging
economies, where immense numbers of young people yearn for professional careers.
By all other measures, however, the 4,500 institutions currently serving more
than 21 million students in the U.S., and the 6,500 other institutions around
the world, collectively deserve failing grades.
First, they fail to help students
fulfill their goals. Even in the U.S., which has 60 percent of the top-ranked
universities in the world, the overall metrics on successful matriculation are
dismal. Less than two-thirds of students enrolled in a four-year institution
attain the targeted degree. Of students entering a community college, less than
half graduate or transfer to a four-year school within six years. Although not
every aspirant will be destined for success in higher education, these
statistics suggest a systemic institutional problem.
Second, the cost of a college or
university degree is out of control. Despite their questionable performance,
tuition at four-year universities has tripled in constant dollars over the past
30 years — a faster rate of increase than much-maligned healthcare — and total
U.S. student debt now stands at more than US$1 trillion. Worse still, one out
of two recent college graduates is unemployed or working in a job that does not
require a degree.
Third, institutions of higher
education fail to meet the needs of another critical constituency: employers.
Even as the U.S. unemployment rate remains stubbornly high, employment
forecasts predict a shortage of educated, medium- to high-skilled employees in
the fields of science, technology, engineering, and math (known collectively as
STEM). There are simply not enough mathematically capable young people in the
pipeline. Despite the prospect of millions of unfilled jobs, many institutions
continue to allocate their scarce resources to the softer fields — the
humanities and social sciences — while underfunding the investment in science
education that would enable and encourage students to pursue these high-demand
positions.
In the business world, such poor
performance typically leads to industry restructuring fueled by new entrants,
as well as innovation by a subset of incumbents. Those moving too slowly or in
the wrong direction don’t survive. Higher education might seem immune from such
dynamics. And it probably would be immune if it weren’t for one factor: the
technological disruption of the Internet and online learning.
For years, experts have predicted
that online learning would change the basic operating model of higher
education. Now, this transformation finally seems poised to happen. Nascent
competitors appear eager to disrupt the existing, complacent enterprise
structure of universities. Students seem similarly eager for change; according
to the Sloan Consortium, in the U.S., more than 6 million students took at
least one online course during the fall of 2011; that’s more than 30 percent of
all higher education students. In one recent experiment, Stanford University
attracted the interest of 356,000 people from 190 countries by offering three
free online computer science courses. Forty-three thousand people received a
certificate of completion of at least one course.
The distribution of free
videotaped lectures by renowned professors spreads knowledge for social good;
however, it falls far short of solving the fundamental problems of
effectiveness, cost, and relevance in higher education. Fortunately, university
leaders are beginning to recognize that they could soon face the kind of
disruptive competition already familiar to those in the corporate world.
Clayton Christensen and Henry J.
Eyring have articulated a view of this potential disruption in The
Innovative University (Jossey-Bass, 2011). “Until the relatively
recent emergence of the Internet and online learning, the higher education
industry enjoyed an anomalously long run of disruption-free growth,” they
write. “The demand for the prestige the elite schools confer far exceeds the
supply, allowing them to cover rising costs with tuition increases and
fundraising campaigns.”
Although those few elite
institutions may be buffered from disruptive forces, the vast majority of
institutions of higher education face disintermediation in their existing
relationships among employers and students. Pressure from new entrants as well
as the leaders among existing players could squeeze out weaker institutions,
repeating the pattern of so many other industries.
To navigate through
these forces, universities need to follow the example of their business
counterparts and fundamentally rethink what they do. They need to foster new
capabilities, reconsider their means of attracting revenues, and allocate costs
more closely to their value proposition. In short, using the language of
strategy, it’s time for a new business model.
Know Your Potential Rivals
Sun Tzu, one of the earliest
writers on the art of strategy, implored his readers, “Know your enemies and
know yourself.” Faced with a competitive threat, businesses seek to benchmark
their rival (and potential rival) innovators, not just in their own industry
but across industries. Like most businesses over the past decade, higher
education should focus on the disruptive implications of Internet-enabled
innovation.
The most obvious place to start
would be the for-profit, online universities — such as Phoenix, DeVry, and
Kaplan — which currently serve 9 percent of all college and graduate students.
But, as with the early Internet businesses of the 1990s, more may be learned by
their failures than their successes. Graduation rates are a dismal 14 percent,
and loan defaults run rampant as graduates fail to find employment. None of the
online universities seem to have developed any breakthrough technology for
delivering education; they have simply avoided the capital investment in
facilities while extending their reach to a larger target market. That’s a classic
“virtual model.” Although profitable for some investors and executives, these
institutions seem to have exploited a niche but have not truly innovated.
There are also sources of
innovation within universities themselves. Some neurologists, cognitive
psychologists, and education researchers have just recently begun to
collaborate in a multidisciplinary field dubbed “mind, brain, and education.”
They are employing increasingly sophisticated equipment to examine the
neurobiological responses within the brain and applying those insights to the
classroom. For example, a cross-disciplinary research team from the University
of Bristol, including faculty of the Graduate School of Education, the
Department of Computer Science, and the Department of Experimental Psychology,
examined the role of dopamine release in response to uncertain rewards in a
computer-based learning activity.
But just as with businesses that
ignore innovative ideas that bubble up from within, these innovations often
fail to interest the broader organization. In his presidential address to the
International Mind, Brain, and Education Society conference in 2009, Kurt
Fischer of Harvard University acknowledged the prevalent skepticism about
building a bridge between research scientists and education practitioners. But
he countered by highlighting the integration of scientists, doctors, and nurses
in major teaching hospitals.
He also invoked the
private-sector example: “Almost every major modern business grounds itself
solidly in research that is shaped by practical questions about how products
function and how they can be used effectively in context. What happened to
education?”
One innovative company, Carnegie
Learning Inc., has demonstrated the practical value of this integration in
computer-aided learning. Founded in 1998 by cognitive psychologists Steven
Ritter and John Anderson, the company continuously tests and refines its
products — such as its MATHia software, developed for primary school students
and teachers — in response to constant feedback from field experience and new
research on such areas as intrinsic motivation and academic alienation. MATHia
monitors student performance to adjust problems dynamically to the appropriate
degree of difficulty and also customizes word problems to reflect student
interests, even including names of friends. Although it is focused on primary
education, Carnegie Learning’s successful science-based approach offers an
excellent model for multidisciplinary efforts targeting adult learners in
higher education.
Another model tied to the
traditional higher education players, Coursera, was founded in 2011 by Stanford
professors Andrew Ng and Daphne Koller with funding from venture capitalists
John Doerr of Kleiner Perkins Caufield & Byers and Scott Sandell of New
Enterprise Associates. Positioned as social entrepreneurship, Coursera grabs
headlines by building tools to broadcast existing content through free video
lectures in partnerships with top-ranked universities such as Princeton and the
University of Virginia. Intent on efficiently managing massive course
enrollment, the company seeks to develop new tools, such as software that
prioritizes student questions for interactive sessions with thousands of
participants and for organizing peer-reviewed grading. Research in primary
education has shown that blind grading, peer grading, and self-grading
correlate strongly with teacher assessments, and can enhance learning.
(Disclosure: The Darden School of Business, where I am on the faculty, is
offering its own Coursera Massive Open Online Course, called “Grow to
Greatness: Smart Growth for Private Businesses,” beginning January 28, 2013, as
part of a University of Virginia initiative. I am not directly involved in this
course. As of September 2012, more than 23,000 people had registered for it.)
Farther afield, the software
company TopCoder Inc. is challenging the fundamental need for an advanced
degree by explicitly measuring ability, not pedigree. When Jack Hughes founded
it in 2000, the company set out to tackle the business challenge of recruiting
and assessing programming talent. Rather than relying on education credentials,
TopCoder runs coding competitions to identify top talent on the basis of
demonstrated proficiency. These Web-based challenges are often sponsored by
technology leaders, such as Google and Sun Microsystems, and attract
participants from around the world; the site maintains more than 400,000
individual profiles. The ratings inform companies seeking to crowdsource
software components in a reverse auction or hold “bug races” to eliminate
errors in programs. The TopCoder model offers a new spin on certification and
fulfills workers’ growing desire for flexible working arrangements rather than
9 a.m. to 5 p.m. cubicle-based jobs.
Although not an obvious place to
find innovative business models, evangelical megachurches offer lessons on
scaling up technology while maintaining an immersive experience. For example,
North Point Ministries in Atlanta serves an average of 30,000 congregants
each week through a network of five campuses, and its collection of
podcasts, newsletters, and streaming videos are accessed a million times per
month. Each facility seats from 1,000 to 5,000 attendees; the church employs
theater-style screens broadcasting from high-definition cameras originally
designed for NASA. The multi-campus network supports this immersive experience
through three levels of engagement using a house as the metaphor:
The “foyer” hosts Sunday morning
sermons (with production values worthy of a premium rock concert); the “living
room” holds smaller, more active periodic events; and the “kitchen” is the
place for weekly study groups of eight to 12 people led by lay members
of the church. Those who remember how the televangelists of the 1970s and
’80s leveraged cable television will recognize the need to watch this model
closely.
Online gaming offers another
technology model worth exploring. Massive multiplayer role-playing games — such
as the immensely popular World of Warcraft — create a world in which participants
can collaborate to tackle complex challenges. The original Warcraft game, first
released in 1994, has spawned three additional releases; the latest version
supports more than 9 million subscribers. More than 200 servers around the
world host “realms” with up to 1,500 simultaneous users controlling avatars who
individually or collectively pursue quests and battle for dominance against
competing factions. The game was not designed for educational purposes, but
some believe it could play more of a university-like role.
The popular science fiction novel Ready
Player One, by Ernest Cline (Crown, 2011) portrays an energy-drained future
world in which most of the population spends time plugged into “OASIS,” a
massive multiplayer environment accessed with goggles and gloves by the poor —
or fully immersive clothing and equipment by the wealthy. In this dystopia, set
in 2044, the masses attend virtual schools that were built by simply
replicating software code and recruiting teachers to connect and lecture remotely
— using technology that mostly already exists.
Know Yourself
These examples of disruptive
applications of technology represent a threat or an opportunity, depending on
how institutions of higher education react. An ordinary, second-tier college
cannot compete if Stanford finds a way to cost-effectively monetize a 100-fold
increase in its student population reached online. It isn’t clear whether
Stanford seeks to do so, but someone almost certainly will — and institutions
of higher learning must plan for that day.
Before taking action,
universities and colleges need to take stock in their own positioning: “Know
yourself,” as Sun Tzu advised. Using the language of business strategy,
institutions must understand their “value propositions” from a set of four
distinct benefits.
Selection
For employers, the admissions
process of a top-ranked university generates tremendous value by culling
applicants to create a select pool of potential employees. At top business
schools, the recruiting process begins before matriculation starts; recruiters
track the progress of those who have been accepted. In other high-demand fields
and for the right undergraduate majors (such as finance, economics, and some
engineering fields), hiring decisions can occur well before graduation. The
value generated through the admissions process directly correlates to a
university’s “brand value.”
Knowledge
The creation of new understanding
and capabilities, for society as a whole (and perhaps for faculty egos),
resides at the center of the mission of leading universities. Although
imparting that knowledge to students may take a backseat, it offers a
potentially critical value for employers. At a leading liberal arts college, an
admissions director captured the essence of the philosophy: “We train you
for nothing…but we educate you for anything.” A financially
stretched parent may bristle at the thought of paying $200,000 for that
four-year education; however, in a fast-changing world, the ability to build on
foundational knowledge and adapt can be a highly prized asset — if you can
afford it.
Certification
Many university leaders balk at
the idea of providing training in technical and problem-solving skills, but it
should be a critical part of their value proposition. In many of the STEM disciplines,
employers seek technical skill certification. A few short tests in a typical
job interview process cannot validate the breadth and depth of technical skills
typically sought.
Immersion
First-generation college students
may not realize the worth of this factor, and it may seem less tangibly
valuable than the fast track to employment that can come with selection or
certification. But immersion can yield the most lasting and meaningful benefits.
The college experience offers an
opportunity for creating rich connections among like-minded peers pursuing
stimulating activities independent of the pursuit of higher grade-point
averages and a job upon graduation. Parents who blossomed during their own
college years often maintain deep loyalty to their undergraduate institution
and may willingly place a high value on immersion despite its less-measurable
return on investment.
Together, these four benefits
provide a basic way to think about the value proposition for higher education.
Different institutions compete along different dimensions. Community colleges
highlight certification; many large state universities with top-ranked
basketball and football programs emphasize immersion. Secluded liberal arts
colleges offer a different form of immersion built on long-term networking
value. Research universities often stress knowledge, whereas the Ivy League
schools achieve excellence in selection. Few schools do well on all four
dimensions.
In the emerging disruptive
environment, all universities should start with an explicit articulation of the
customer value proposition and design a path forward that leverages technology
to deliver it. Simply put: Which of these four benefits should you emphasize,
and which should you put aside? And how can you leverage the Internet to
deliver that value proposition more widely and cost-effectively?
As the early days of the Internet
demonstrated, attracting eyeballs is easier than monetizing them. Coursera
seems bent on proving that axiom again, citing the societal benefits of
spreading knowledge in emerging markets rather than addressing the current
crisis in higher education. But can it create those benefits? A $10 fee for a
computer class of 100,000 students would generate a windfall and postpone
cost-cutting decisions at leading universities that have the reputation to
attract such a following.
Integrating activities that
validate the accrued knowledge of those students through TopCoder-style
competitions would increase the value of the courses.
Another path might be to leverage
partnerships to create satellite campuses — not just internationally as many
leading universities have done, but with second-tier or community colleges.
Following the lead of the megachurches, this model would multiply the reach of
“rock star” professors with local facilitators.
Such a model would require
partnerships with a broader reach, but it parallels the current model of
professor lectures augmented by research assistants that is common in introductory
courses on most campuses. Conceivably, this model could be delivered largely
online, linking the center with the satellites through high-quality
videoconferencing such as Cisco’s TelePresence.
Such paths would leverage the
talent at top universities and defray the costs of their highly immersive
offering, but what about second-tier schools? Aggressive players might leverage
their physical assets and access to a local population but cut out all research
as well as much of their faculty and administrative support. Others might
specialize more narrowly in the needs of local businesses in fields requiring
hands-on training. But attempting to be all things to all people will not be
sustainable. The once-feared shortage of college professors may quickly become
a glut — tenure or no tenure.
Forward to the Basics
Modern universities emerged in
the fourth and fifth centuries A.D. as monastic schools in Europe, focusing on
disseminating knowledge rather than creating it. The disruptions of the
Internet may return education to those roots. Today, many academics invest
their efforts in relatively narrow research, writing papers read only by other
academics, with relatively little time spent teaching and training students. In
some fields — such as the STEM disciplines — research advancements continue to
fuel economic growth and societal prosperity. But in others, the research
simply offers alternative perspectives on long-standing, foundational knowledge
such as the writings of Aristotle. In light of declining performance and
growing costs, institutions of higher education must invest their precious
resources more consciously.
They need not all follow a
STEM-based model, but they will need a clearer, more explicit rationale for
what they deliver, beyond “We teach what our faculty think is important,” or
they may not survive.
Although the specific path
forward for institutions of higher education may not be obvious, humanity can
take pride in the legacy of value of its colleges and universities, which have
been a primary mainspring of progressive knowledge and value for at least 1,500
years. Indeed, the source of their current disruption — the Internet — would
not exist without them; it began as a way to exchange data among military and
academic research computers. Institutions of higher education have the ability
to solve the crisis they currently face, but resolve presents the greatest
impediment. Will your alma mater or local source of new graduates leverage the
disruptive technology of the Internet by applying the principles of business
strategy…or will it be disintermediated by new entrants offering a better value
proposition?
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