Why Higher Ed Loves Hybrid Innovations

Online education has not yet proven to be the "disruptive" force many predicted because most colleges have used it to adapt rather than change their business models, Julia Freeland Fisher and Alana Dunagan argue.

 

March 29, 2017
 

A  study last month on the high costs of online learning grabbed headlines. According to a survey by WCET, higher education institutions’ distance learning programs appeared no cheaper, and in some cases reported being even more expensive, than traditional face-to-face instruction.

This finding bucks the conventional wisdom that online learning is always cheaper. Logically speaking, it ought to be cheaper: delivering lectures and content online lends itself to lowering labor costs, generating efficiencies in assessment, and scaling at a fraction of the cost of face-to-face instructional models.

WCET’s finding might undermine that logic. It also might challenge our long-held belief that online learning constitutes a disruptive innovation. Disruptions leverage technology to make expensive products and services more affordable and accessible than previously imaginable. Is online learning in fact not disrupting traditional higher education? Are colleges somehow immune to these disruptive forces?

But a closer look reveals why the seemingly disruptive technology of online learning is not driving down costs at the institutions WCET surveyed: Many traditional colleges and universities are deploying online learning as a hybrid innovation, not a disruptive one.

A hybrid innovation emerges when a company takes a disruptive technology and layers it on top of its existing business model, to serve its existing customers, at an equal or higher margin. Think of numerous “bricks and clicks” retail outlets.  As the technology for online transactions emerged, these players added online shopping functionality to offer customers the opportunity to purchase online, while retaining bricks-and-mortar stores where consumers could try out products before purchasing them.

Conversely, Amazon's fully online disruptive approach to retail caught on among shoppers who valued selection much more than the ability to touch and feel a product before purchase.

The tendency to pursue hybrid innovations makes sense considering the incentives to which companies tend to respond. When a disruptive technology emerges, the leading firms in a given field usually do not completely ignore it as they march forward with better products with higher profits for their best customers.

Instead, they try to incorporate the disruptive technology into their business models using a sustaining innovation strategy -- in other words, they create a hybrid. The hybrid solution marries the old product or service with the new technology in an attempt to create a “best of both worlds” alternative that the incumbent firms can market as a better product to their existing customers.

Most industries go through a hybrid stage -- from cars like the Toyota Prius to early ships that used sails plus steam, and from banks that offer in-person branches plus online banking to retail outlets pursuing both “bricks and clicks” strategies. In all of these cases, existing businesses tended to embrace exciting new technologies while shying away from wholly dismantling their business models or going after lower-margin customers.

WCET’s findings reveal that many institutions are deploying online programs as a hybrid innovation. Our latest research, College transformed: Five institutions leading the charge in innovation, explores the implications of this strategy. In it we describe the innovation agendas at five traditional institutions, highlighting institutions that are employing either hybrid or disruptive strategies. Hybrid strategies are easier to implement than disruptive models, but unlike disruptive approaches, they are unlikely to bend the cost curve in higher ed.

In the current higher education race to out-compete others on the basis of prestige, it’s far easier to add bells and whistles to an institution’s existing business model than to fully reinvent it. By and large, higher education policy only encourages this behavior. Rigid accreditation requirements entrench leaders in the traditional business model of higher education and encourage reinforcing traditional metrics of success. The higher education equivalent to Amazon’s marketplace is largely blocked from the system because institutions can’t fill out a report on how many customers came into their store and “substantively interacted” with their merchandise.

Reinventing, not Reinforcing

Disruptive innovations, on the other hand, emerge from a foundation of entirely new resources, processes and priorities. They target consumers who are otherwise shut out of or over-served by the existing market. And rather than reinforcing the traditional business model undergirding higher education, they reinvent it.

Unsurprisingly, as disruptive innovation theory posits, it’s far easier for new entrants in a market to pursue a disruptive strategy because they can build a new business model from scratch. For incumbents like traditional higher education institutions, pursuing a disruptive strategy requires isolating the new model from the old.

Our paper highlights some institutions -- like Southern New Hampshire University and Arizona State University -- that are trying to do just that. Both have taken this disruptive tack by building online learning programs at a lower price, serving new students otherwise shut out of the traditional system.

But WCET’s findings suggest that hybrid innovations may represent the far more common route among traditional players implementing online learning.

Hybrid innovations are not a bad thing. Both disruptive and hybrid innovations can help address challenges facing higher education leaders, like workforce alignment or diversifying revenue streams. For example, Simmons College managed to add online courses to its graduate program, radically expanding the number of students it could serve. But merely integrating technology or distance learning into an institution’s strategy will not set it on a disruptive trajectory, nor will it put a dent in the institution’s ability to tackle affordability and scale over the longer term.

WCET’s findings should not be cause for alarm. Tacking disruptive technologies onto the existing higher education system — a la hybrid innovation — can make the system better, at least so far as we currently define “better.”

Still, in the long run, institutions risk missing the true opportunity that online learning stands to offer. By fully embracing disruptive business models institutions could usher in an entirely new system of creating and measuring human capital, making higher education more affordable and accessible for students who have long been pushed to the margins.

Bio

Julia Freeland Fisher is director of education, and Alana Dunagan, a higher education researcher, at the Clayton Christensen Institute.

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