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We had another great discussion in our Strategy and Competition in Higher Education class last night. This one was on disruptive innovation in higher education and featured a very special guest.
Pre-reading for this week’s class included Disrupting College, by Clayton Christensen, Michael B. Horn, Louis Soares, and Louis Caldera. The report laid a foundation for discussing how the combination of technology and a different business model allowed “upstart” firms to first gain a toehold and then conquer market leaders in a variety of industries – steel, cars, computers, etc.
From Disrupting College:
“It is easy to frame disruption as a threat from the point of view of specific companies and institutions. Yet disruption is an unambiguously good thing from a macroeconomic point of view. It is a primary driver of economic growth and a key force that mitigates inflation. It is the process by which expensive, complicated products and services become simple and affordable.”
And, “What the theory of disruptive innovation suggests is that the business model of many traditional colleges and universities is broken. Their collapse is so fundamental that it cannot be stanched by improving the financial performance of endowment investments, tapping wealthy alumni donors more effectively, or colleting more tax dollars from the public. There needs to be a new model. The only question is whether traditional universities will undertake this replacement themselves, or whether community colleges, for-profit universities, and other entrant organizations aggressively using online learning will do it instead—and ultimately grow to replace many of today’s traditional institutions.”
The report also discusses how the definition of “quality” changes when these new entrants bring a product to market that is viewed by market leaders as substandard. Prior to the lower end product becoming available, many people were non-consumers of these products, since their needs were far simpler than current products offered and their pocket book smaller. However, relatively quickly, market leaders cede the low end of the marketplace to the new entrants with inferior products (since it’s not as profitable to serve this segment) and customers that can now afford this lower end product are quite happy with it. Over time, however, these new entrants improve their product and, based on their lower cost business model, can serve a wider audience with higher quality products and a lower price.
Our first discussion in the SCHE class last night was about some of the potential disruptive innovations facing large, research-intensive public universities (e.g., UC Berkeley) and for-profit universities (e.g., Grand Canyon University) and MITx loomed large in that discussion, as did the California State University System’s plan to create a centralized gateway to all Cal State online courses as a first step in creating a high quality virtual campus. Technology enabler? Check. New business models? Possible check.
We also had the privilege of hosting Michael B. Horn, one of the authors of Disrupting College and Executive Director of the Education Practice at the Innosight Institute. Michael went over the idea of disruptive innovation and how it applies to higher education in more detail and then took questions and a lively discussion ensued. The takeaway? Based on rising costs, different individual needs, the scalability of online education and the improvements in technologies and pedagogies in recent years, the disruption of the higher education market may occur very quickly. And the list of “best” colleges a decade from now may look radically different than the list of today.
What do you think? Will online education become the new wave of collegiate and continuing education? Will online providers – be they for-profit of not-for-profit – be the market leaders in the future? And how quickly do you think this will all take place, if ever?
