Examining the traditional universities through the lens of innovation, we see that a muddled business model is causing the industry's ruinous cost increases. For decades now, these institutions have offered multiple, concurrent value propositions: knowledge creation (research), knowledge proliferation and learning (teaching), and preparation for life and careers. They have as a result become extraordinarily complex—some might say confused—institutions where significant overhead costs take resources away from research and teaching. A typical state university today, for example, is the equivalent of a three-way merger of the consulting firm McKinsey—focused on diagnosing and solving unstructured problems; the manufacturing operations of Whirlpool—which uses established processes to add value to things that are incomplete or broken; and Northwestern Mutual Life Insurance Company—in which participants exchange things to derive value: fundamentally different and incompatible business models all housed within the same organization.
Meanwhile, rival organizations using online learning in a new business model focused exclusively on teaching and learning, not research—and focused on highly structured programs targeted at preparation for careers—have benefited from a significant cost advantage and have been able to grow rapidly.
---"Colleges in Crisis: Disruptive change comes to American higher education, " by Clayton M. Christensen *and Michael B. Horn*, Harvard Magazine (July-August 2011)
That was also my conclusion, more-or-less, a decade ago when first confronted with the issues that suggest so strongly an unsustainable business model for traditional higher education. As many of you know, while a corporate tax-financial executive, I served in leadership roles on education-related boards and councils. In time, I concluded that today's education issues were more important than what I was doing professionally. I left my corporate post and enrolled in a doctoral program in higher education policy. Then the learning began.
It soon became apparent to me that so much of what had been learned in the business world was dismissed as inapplicable in American higher education. But the confusion of the university business model for the conglomeration of research, teaching, and other educational functions across a range of colleges and professional schools has been made apparent by decades of unsustainable increases in costs and tuition. It is hard not to conclude that there is an inherent cost-inefficiency in the traditional higher education model--and that it cannot deliver competent educational outcomes at an affordable price to the more economically constrained, but growing, middle- and lower-income American student populations, traditional or nontraditional.
So, I was hopeful, at least, about the role and influence of the no-frills, for-profit colleges, even if most were oriented toward professional education, even if most appeared relatively insubstantial or rough around the edges. But I was not at all convinced that on-line courses and learning would form the foundation for an effective higher education model that could replace the one failing today. I didn't see it soon evolving into the kind of "disruptive innovation" the article's authors describe. (Perhaps it's just that I embrace so warmly the joys of my traditional college classroom experience, and have difficulty relating to education without classrooms.)
Mssrs. Christensen and Horn lay out the problem first in broader terms:
It soon became apparent to me that so much of what had been learned in the business world was dismissed as inapplicable in American higher education. But the confusion of the university business model for the conglomeration of research, teaching, and other educational functions across a range of colleges and professional schools has been made apparent by decades of unsustainable increases in costs and tuition. It is hard not to conclude that there is an inherent cost-inefficiency in the traditional higher education model--and that it cannot deliver competent educational outcomes at an affordable price to the more economically constrained, but growing, middle- and lower-income American student populations, traditional or nontraditional.
So, I was hopeful, at least, about the role and influence of the no-frills, for-profit colleges, even if most were oriented toward professional education, even if most appeared relatively insubstantial or rough around the edges. But I was not at all convinced that on-line courses and learning would form the foundation for an effective higher education model that could replace the one failing today. I didn't see it soon evolving into the kind of "disruptive innovation" the article's authors describe. (Perhaps it's just that I embrace so warmly the joys of my traditional college classroom experience, and have difficulty relating to education without classrooms.)
Mssrs. Christensen and Horn lay out the problem first in broader terms:
Despite a long track record of serving increasing numbers of students during the past half-century, graduation rates have stagnated. A higher proportion of America's 55- to 64-year-old citizens hold postsecondary degrees than in any other country—39 percent—but America ranks only tenth in the same category for its citizens aged 25 to 34 (at 40 percent). And none of America's higher-education institutions have ever served a larger percentage of its citizens—many from low-income, African-American, and Hispanic families.
Indeed, the quality of America’s colleges and universities has been judged historically not by the numbers of people the institutions have been able to educate well, regardless of background, but by their own selectivity, as seen in the quality and preparedness of the students they have admitted. Those institutions that educated the smartest students, as measured by standardized tests, also moved up in the arms race for money, graduate students, and significant research projects, which in turn fueled their prestige still further, as faculty members at such schools are rewarded for the quality of research, not for their teaching.
And yes, I do understand if that were the extent of the higher education problem, we would be having a different type of change discussion. But the authors then address the more threatening underlying issues and failures:
More fundamentally, the business model that has characterized American higher education is at—or even past—its breaking point. Many institutions are increasingly beset by financial difficulties, and the meltdown since 2008 is but a shadow of what is to come. Undergraduate tuition has risen dramatically: at a 6.3 percent annual clip for nearly the last three decades—even faster than the much-decried 4.9 percent annual cost increases plaguing the healthcare industry. The full increase in the price of higher education has actually been hidden from many students and families over the years because gifts from alumni, earnings from private university endowments, subsidies from state tax revenues for public universities, and federal subsidies for students have been used to mitigate some costs. But universities are exhausting these mechanisms...
During the past 15 years, state-supported schools have been shifting the burden of tuition to students and their families, who were initially shielded from the consequences because, as noted, aid had increased so rapidly that the net price to students fell, on average. But those offsetting government dollars have not kept up of late. State universities, feeling the budget crunch, have resorted to all sorts of devices to try to stay afloat—including cutting back the number of students they enroll at the very time the country needs more of its population educated. Severe government budget crises have only exacerbated the trend of shifting the costs of higher education to students and their families, a shift that is likely to become far more intense in the future because of the enormous obligations that federal, state, and local governments face in funding the pension and healthcare costs of their current and retired employees—as well as aging baby boomers.Many of us understand all that too, don't we. Its certainly nothing new to those who have been dealing with higher education as students, parents, university administrators, legislators, and yes, taxpayers. Increasing numbers of books, articles and TV reports have been written or produced about one aspect or another of troubling indicators over the last couple decades. But no one appears ready to seriously tackle the issue, including most of all the higher education institutions themselves.
So yes, I left my higher education studies skeptical about the likelihood of substantive change initiatives at traditional universities themselves. Although some were experimenting with "on-line" learning, they were limited, complementary applications or marginal ventures unthreatening to the universities base educational model and enterprises. But that appears to be changing, at least in some institutions--because it must. Messrs. Christensen and Horn piqued both my interest and excitement with their observations of how change is being forced on many institutions of high education by what they call "thriving disruptive innovation."
Just at the moment when these challenges to established higher education have arisen and compounded, another group of universities has arisen whose financial health is strong and enrollments have been booming. And yet the brands of these schools are weak and their campuses far from glamorous; sometimes the campuses are even nonexistent from the perspective of students, as online learning has largely driven their growth. How could this upstart group be so successful when the rest of higher education is treading water at best?
The success of these online competitors and the crisis among many of higher education's traditional institutions are far from unique. These are familiar steps in a process known as "disruptive innovation" that has occurred in many industries, from accounting and music to communications and computers. It is the process by which products and services that were once so expensive, complicated, inaccessible, and inconvenient that only a small fraction of people could access them, are transformed into simpler, more accessible and convenient forms that are also, ultimately, lower in cost. We are seeing it happen more rapidly than one could have imagined in higher education, as online learning has exploded: roughly 10 percent of students took at least one online course in 2003, 25 percent in 2008, and nearly 30 percent in the fall of 2009.
What is exciting about this emerging reinvention it that it has significant potential to help address the challenges facing American higher education by creating an opportunity to rethink its value proposition—its cost and quality...
When America's traditional universities arose, knowledge was scarce, which meant that research and teaching had to be coupled tightly. That is no longer the case. Today, the Internet is democratizing people's access to knowledge and enabling learning to take place far more conveniently in a variety of contexts, locations, and times.
But can on-line education really arise to the heft and impact necessary for this "disruptive innovation" to materially change American higher education? Can it force the cost-efficiency, educational outcomes, and affordability in higher education that America now desperately needs ?Online education can effect the transformation not only of curriculum but also of learning itself. Judging it by the metrics used to govern the old system is both inappropriate and limiting (as is true of all disruptive innovations). Online learning allows education to escape from the focus on credit hours logged and "seat time" in classrooms to new standards that tie progress to students' competency and mastery of desired skills. [But] although this transition has begun, much of online learning's promise for higher education is still on the horizon.
The emerging online universities fit the pattern of a disruptive innovation for higher education. Not only did they get their start as simple products and services, they started by serving those who were overlooked by or could not access the typical colleges and universities—by making education far more convenient. Now online learning is beginning to improve and serve more demanding customers. But this transition is still early, and the country's higher-education policies have incentivized little of this transformational behavior: government policies have continued to emphasize access to a higher education regardless of quality and true cost, which has held back the evolution.
This suggests a clear path forward for policymakers and stakeholders looking to reinvent American higher education—to realize real gains in cost and in student learning of essential skills. Their goals should be to embrace the disruptive innovation, to focus on new measures to judge its quality, and to encourage innovation driven by improving student outcomes and lowering overall costs.
And what does this mean for existing higher education institutions, those who embrace it more, and those who embrace it less?
Typically, the existing and established players in a sector do not survive battles of disruptive innovation; upstart companies utilizing the disruption upend them. Rather than recognize these disruptive innovations as exciting new opportunities, the established players characteristically regard them as mere sideshows to their core operations. Predictably, the majority of universities have taken this same defensive stance and so have done little to adopt this disruptive innovation and to reinvent themselves.
This stance exposes an even more significant problem that is forcing many American universities outside the top institutions to the brink of collapse. Although some traditional universities have used online learning as a sustaining innovation—in effect disrupting their individual classes—almost none have used it to change their business model in any significant way. Whenever we have seen a disruptive innovation reinvent a sector, change has resulted from the joint action of a new technology and an accompanying new business model. But cost increases and an increasingly broken business model—reliance on ever-rising tuition, more endowment income or government support, and research funding, all wrapped up in expensive physical campuses with large support staffs—continue to plague much of higher education...
This is a hopeful story for America, and there is even a potential silver lining for many of the existing institutions of higher education, too. Our studies reveal that incumbents sometimes survive and thrive amid disruption—in every case, because they are able to create independent divisions, unfettered by their existing operations, which can use the disruption inside a new business model that reinvents what they do.
If it is a hopeful story, it is also a necessarily unsettling and painful one, one that indicates more the replacement of today's traditional education institutions than their change or reform. I wish that did not have to be so, but it probably must. If only a small number of businesses find the strength and resolve to venture in the direction of remaking themselves when they must--and do it successfully--it is hard to expect that very many universities will.
And as business has learned, success will depend on restructuring and incorporating the most effective innovations and practices to achieve cost-efficent, high quality services. We could therefore expect to see fragmentation of the larger university divisions to achieve the necessary focus on competence, cost reduction, and required outcomes. There will likely be different avenues available for a range of educational needs, competent ones with successful outcomes at different price points--depending on how broadly one wants to define the educational experience, and how much one is willing to pay for it. Residential? Social? Athletic? Entertainment? Advanced facilities? Or, increasingly, just the basics, please, just the wanted or needed outcome, available when, where, and how I can fit it into my life and make it work for me. Which means on-line, at home or work or wherever. And that will likely provide the educational life raft for much of America in the future, for the rapidly increasing numbers of students and families for whom today's traditional higher education experience is too costly and inconvenient to be a reasonable choice.
So, does all that make sense? Is this the new, more diverse and effective higher education landscape now starting to form, even if most of us can't yet see the scope, contours or details of how it is changing?
Unaddressed was the re-forming of research institutions, with or without doctoral studies programs. Johns-Hopkins was originally a research and graduate studies institution; might it and other doctoral divisions return in some fashion to those roots? And what of the venerated liberal arts college, which is also burdened with a notable measure of the same cost-inefficiencies universities suffer? What form will tomorrow's liberal education in the humanities, arts and sciences take; who or what will constitute its market; and where will its champions be found?
As the authors made clear, we are just in the early stages of this process. But the pace of the process will likely be forced to quicken as the increases in cost and tuition at colleges and universities continue unchecked--and the greater demands of America's public, economy, and government policies continue unmet. But no one yet appears able to see just how it will all unfold, the timing, or exactly what it all will look like when all the change has had its way. Still, if you sense authority or prescience in this article, then expect to see these kinds of changes occur more visibly and at an increasing rate, as we also see an increasingly troubled and failing traditonal higher education model.
[*Clayton M. Christensen, M.B.A. '79, D.B.A. '92, is Cizik professor of business administration at Harvard Business School. Michael B. Horn, M.B.A. '06, is the co-founder and executive director for education of Innosight Institute, a nonprofit think tank devoted to applying the theories of disruptive innovation to problems in the social sector. Christensen and Horn are the coauthors, with Curtis W. Johnson, of Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns.]
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And as business has learned, success will depend on restructuring and incorporating the most effective innovations and practices to achieve cost-efficent, high quality services. We could therefore expect to see fragmentation of the larger university divisions to achieve the necessary focus on competence, cost reduction, and required outcomes. There will likely be different avenues available for a range of educational needs, competent ones with successful outcomes at different price points--depending on how broadly one wants to define the educational experience, and how much one is willing to pay for it. Residential? Social? Athletic? Entertainment? Advanced facilities? Or, increasingly, just the basics, please, just the wanted or needed outcome, available when, where, and how I can fit it into my life and make it work for me. Which means on-line, at home or work or wherever. And that will likely provide the educational life raft for much of America in the future, for the rapidly increasing numbers of students and families for whom today's traditional higher education experience is too costly and inconvenient to be a reasonable choice.
So, does all that make sense? Is this the new, more diverse and effective higher education landscape now starting to form, even if most of us can't yet see the scope, contours or details of how it is changing?
Unaddressed was the re-forming of research institutions, with or without doctoral studies programs. Johns-Hopkins was originally a research and graduate studies institution; might it and other doctoral divisions return in some fashion to those roots? And what of the venerated liberal arts college, which is also burdened with a notable measure of the same cost-inefficiencies universities suffer? What form will tomorrow's liberal education in the humanities, arts and sciences take; who or what will constitute its market; and where will its champions be found?
As the authors made clear, we are just in the early stages of this process. But the pace of the process will likely be forced to quicken as the increases in cost and tuition at colleges and universities continue unchecked--and the greater demands of America's public, economy, and government policies continue unmet. But no one yet appears able to see just how it will all unfold, the timing, or exactly what it all will look like when all the change has had its way. Still, if you sense authority or prescience in this article, then expect to see these kinds of changes occur more visibly and at an increasing rate, as we also see an increasingly troubled and failing traditonal higher education model.
[*Clayton M. Christensen, M.B.A. '79, D.B.A. '92, is Cizik professor of business administration at Harvard Business School. Michael B. Horn, M.B.A. '06, is the co-founder and executive director for education of Innosight Institute, a nonprofit think tank devoted to applying the theories of disruptive innovation to problems in the social sector. Christensen and Horn are the coauthors, with Curtis W. Johnson, of Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns.]
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