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'New Players, Different Game'

August 30, 2007

At the beginning of their new book on for-profit higher education, William G. Tierney and Guilbert C. Hentschke talk about the academic division between "lumpers" and "splitters," the former focused on examining different entities or phenomena as variations on a theme and the latter focused on classifying entities or phenomena as truly distinct. In New Players, Different Game: Understanding the Rise of For-Profit Colleges and Universities, just published by Johns Hopkins University Press, Tierney and Hentschke consider the ways for-profit colleges are part of or distinct from the rest of higher education. Tierney and Hentschke are professors at the Rossier School of Education at the University of Southern California, where Tierney is also director of the Center for Higher Education Policy Analysis. They responded to questions via e-mail about their new book.

Q: You talk about the concept of "disruptive technologies" early on in the book -- how do you see for-profit higher education fitting (and not fitting) that model?

A: For-profits are not, technically, just a 'technology.' But they do function in a manner that is radically different from the manner in which traditional postsecondary institutions function. For-profits, like their traditional brethren, come in many shapes and sizes -- some are gigantic (such as the University of Phoenix) and others are small barber's colleges. What differentiates them from traditional institutions is that they have a different decision-making model, different ways to develop and deliver the model, and different ways to measure success. The point is not that all for-profits utilize distance learning (because they do not), but that they eschew the established norms of the academy and pursue success in quite different ways.

"Disruptive technologies" have several defining characteristics, most of which apply quite accurately to for-profit higher education and distinguish it from traditional non-profit higher ed. (1) They represent an innovation that both created new markets and took root among higher ed's "worst customers". (2) They are often "cheaper [cost, not price], simpler, smaller, and more convenient to use" than traditionals. (3) Initially they under-perform traditionals as they bring a different value proposition to the marketplace (no frills, no football teams, no ivy covered walls, etc.). (4) After taking root with a relatively simple service (skill training), they inexorably get better until they are competing more directly with traditional institutions.

Q: To what do you attribute the significant growth in for-profit enrollments?

A: They are structured and governed to seek net revenues (profits), and profits can only accrue through a combination of profitability per sale and number of sales. Hence, growth (with profitability) is a primary focus of these institutions. Further, growth feeds economies of scale (adding to profitability), enabling those that successfully grow to capture benefits that enable them to grow even more. That is why growth in this sector is both higher than the industry average and why the larger firms in this sector are growing faster than the smaller ones. Two particular features of the for-profits are particularly advantageous here: being able to spread program investment costs across more and more campuses, reducing per program development costs, and "plugging into" new campuses only those programs which appear to be most prone to growth. Contrast this model to traditionals.

Q: You note that a major difference among sectors is the lack of a faculty role in governance at for-profits. How significant is this? Will it keep for-profit higher education from being accepted as an equal in academe?

A: We maintain in the book that both sectors have a great deal to learn from one another. American higher education became second to none in the 20th century at a time when faculty governance was established, tenure became the norm, and academic freedom became the centerpiece of academic life. Just as traditional colleges and universities are learning how to accommodate the pressures of the marketplace by utilizing some strategies of the for-profits, for-profits also need to come to grips with those governing strategies in the traditional postsecondary world that have made them pre-eminent institutions. Our concern now is that individuals in both sectors too often believe they have little, if anything, to learn from one another. We believe the opposite -- they both have a great deal to learn. Ignorance may be bliss, but it is a failed strategy for any postsecondary institution in the 21st century.

Q: How do for-profit and nonprofit colleges differ in their measures of success, and why do those differences matter?

A: To the extent that success among for-profits is measured in metrics of enrollment growth and financial profitability, success among traditionals is measured by enrollment quality constrained by capacity. The difference is pronounced. Enrollment quality is a prime measure of prestige among traditionals, with quality measured in many ways, e.g., entering SATs, percent completion, percent transfer to higher levels of education, and so on. Increasing enrollments for traditionals actually works against quality at least in the short run. The core difference in measures of success, and associated behavior, can be seen in the admission incentives of the two types of institutions. For-profifts will take as many as then can above a (sometimes ill-defined) minimum level of qualifications, and grow capacity as they can; traditionals will take the "best" students they can, up to a (rather fixed) capacity constraint.

Q: Based on your study, do you believe for-profit higher education deserves to have special government oversight beyond that nonprofits receive?

A: There are two different issues here. One involves government oversight of higher education as an industry and the other involves government oversight of for-profit corporations. Re: higher education.... the idea of different kinds of oversight being a function of the sector location of the institution is less defensible than the idea of tailoring government oversight to the government functions and purposes. For example, to the extent that governments provide some student financial aid in order to
promote student access to (or completion of) specific programs, then, all else equal, sector location of the organization should not shape differences in oversight. Re: corporate governance oversight ... the government is already providing a different (and additional) set of rules affecting for-profit corporations, including clearly not limited to those in higher ed. All of the structures
(and strictures) that emanate from Sarbanes-Oxley, for example, apply as much to for-profit higher ed as to another other goods- or services-producing corporation.

Q: You suggest at the end of your book that for-profits are becoming part of higher education as a whole, not their own category. Why do you think that's the case?

A: Two trends are likely to continue to grow: (1) Postsecondary education is a growth industry. In an age of globalization consumers need more education which will stimulate the need for more providers. (2) Although "learning for learning's sake" will still be possible, the greatest increase will come in arenas that are able to demonstrate clear, demonstrable learning objectives and outcomes. These trends will impact all institutions -- for-profits and not-for-profits. Although we will see sector differentiation where different institutional types will create a niche for themselves (or die), such differentiation will be under a large umbrella
known as postsecondary education.

 

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