In most industries, technology-enabled competition is deemed healthy and vital. Accustomed to a hyper-competitive modern world, we expect even the largest and most prestigious companies to be continually challenged by nimbler, more creative upstarts. Economists teach that disruptive innovation by newcomers and creative destruction of entrenched incumbents leads to better products and services. When a century-old auto company, airline, investment bank, or newspaper files for bankruptcy or disappears altogether, we regret the attendant human suffering but count the loss as the price of progress, knowing that without competitive innovation and destruction we would enjoy a standard of living no better than our great-grandparents did.
Higher education, though, has been different. Large universities rarely cease to operate. Nor are the prestigious ones quickly overtaken. Part of the reason is a dearth of disruptive competition. The most innovative would-be competitors, for-profit education companies, find great success among working adults, many of whom care more about the content and convenience of their education than the label on it.
But many young college students still seek the assurance of traditional university names and the benefits of campus life. Because of loyal support from this large group of higher education customers, the incumbents have felt little pressure from the for-profits’ use of potentially disruptive online technology.
Meanwhile, the terms of competition among traditional institutions, the public and private not-for-profit universities, have been set primarily by those at the top. The strategy of most schools is one of imitation, not innovation. Little-known and smaller institutions try to move up in the ranks by adding students, majors, and graduate programs, so as to look more like the large universities. They also task their faculty with research responsibilities. In the process the emulators incur new costs and thus must raise tuition. This blunts the price advantage that they began with. They are stuck in a dangerous competitive middle ground, neither highest in quality nor lowest in cost. The great schools, rather than being discomfited by the imitation, seem all the more desirable because of it.
In their defense, the institutions that emulate Harvard and strive to climb the Carnegie ladder are doing just as conventional business logic dictates -- trying to give customers what they want. The great universities such as Harvard inspire not just administrators, faculty, and alumni at other schools. They also excite the most elite prospective students, who want to win admission to the most Harvard-like institution they can. Thus, less prestigious schools emulate Harvard’s essential features, such as graduate programs and expert faculty researchers and research facilities. They also give students costly non-educational amenities such as intercollegiate athletic teams, which Harvard no longer supports at the level of the most competitive schools.
The result of this competition-by-imitation is to solidify past educational practice among traditional universities, making them increasingly more expensive but not fundamentally better from a learning standpoint. The great-grandparents of today’s students would easily recognize the essential elements of modern higher education. Though the students are more diverse, the shape of classrooms, the style of instruction, and the subjects of study are all remarkably true to their century-old antecedents.
Great-Grandpa and Grandma would likewise recognize the three schools atop U.S. News’s 2010 college rankings: Harvard, Princeton, and Yale. In fact, asked to guess, they’d probably have picked just those three.
Only the costs of a higher education, one can argue, have kept pace with the times. In the 10 years after 1997, the inflation-adjusted price of a year of college at the average public university rose by 30 percent, while the earning power of a bachelor’s degree remained roughly the same. Cost increases derive partly from higher faculty salaries, but more from activities unrelated to classroom instruction. Scientific research, competitive athletics, and student amenities require both large operating outlays and the construction of high-tech laboratories, football stadiums, and activity centers. As a result, the cost of higher education grows faster than faculty salaries or other instruction-related costs.
The problem is not unique to higher education. In fact, in products ranging from computers to breakfast cereals, history reveals a pattern of innovation that ultimately exceeds customers’ needs. Hoping to get an edge on their competitors, companies offer new features, such as faster processing speeds in a computer or increased vitamin fortification in cereals. These enhancements are sustaining innovations rather than reinventions: the product becomes better while its basic design and uses remain the same.
The catch, as Clayton Christensen has shown in The Innovator’s Dilemma, is that these performance enhancements at some point exceed even the most demanding customers’ performance needs. The producer is incurring greater costs and thus must raise prices. That leaves the typical purchaser of a $5,000 laptop or a $5 box of cereal paying more than they want to, given what they actually need.
Much of what universities are doing is standard management practice: improve the product; give customers more of what they want; watch the competition. But it leads even great enterprises to fail, as detailed in The Innovator’s Dilemma. Inevitably, while the industry leaders focus on better serving their most prized customers and matching their toughest competitors, they overlook what is happening beneath them. Two things are likely to be occurring there. One is growth in the number of would-be consumers -- students, in the case of higher education -- who cannot afford the continuously enhanced offerings and thus become non-consumers. The other is the emergence of technologies that will, in the right hands, allow new competitors to serve this disenfranchised group of non-consumers.
Until the relatively recent emergence of the Internet and online learning, the higher education industry enjoyed an anomalously long run of disruption-free growth. In times of economic downturn, there were cries of alarm and calls for reform. But for the elite, well-endowed private schools, a bit of budget tightening sufficed until the financial markets recovered. The demand for the elite schools confer far exceeds the supply, allowing them to cover rising costs with tuition increases and fund-raising campaigns.
Even many less-prestigious universities benefit from accreditation, which has elevated them over unaccredited institutions. Public universities also enjoy the long-term commitment of taxpayers. In the absence of a disruptive new technology, the combination of prestige and loyal support from donors and legislators has allowed traditional universities to weather occasional storms. Fundamental change has been unnecessary.
That is no longer true, though, for any but a relative handful of institutions. Costs have risen to unprecedented heights, and new competitors are emerging. A disruptive technology, online learning, is at work in higher education, allowing both for-profit and traditional not-for-profit institutions to rethink the entire traditional higher education model. Private universities without national recognition and large endowments are at great financial risk. So are public universities, even prestigious ones such as the University of California at Berkeley.
Price-sensitive students and fiscally beleaguered legislatures have begun to resist costs that consistently rise faster than those of other goods and services. With the advent of high-quality online learning, there are new, less expensive institutional alternatives to traditional universities, their standing enhanced by changes in accreditation standards that play to their strengths in demonstrating student learning outcomes. These institutions are poised to respond cost-effectively to the national need for increased college participation and completion.
For the vast majority of universities change is inevitable. The main questions are when it will occur and what forces will bring it about.
WASHINGTON -- Higher education hates the U.S. Education Department's recently enacted regulation requiring institutions to seek and gain approval from any state in which they operate, and has fought it on multiple fronts. Late Tuesday colleges and universities got at least a temporary reprieve from the part of the rule to which they most object -- its application to online programs in which even one student from a state enrolls.
The New York Times Company plans to continue its slow advance into the realm of higher education this fall. It announced today that it is teaming up with the University of Southern California to offer continuing education programs to try to tap a growing market of adults looking to pick up new skills.
A few weeks ago, the U.S. Department of Education released a report that looked at 12 years' worth of education studies, and found that online learning has clear advantages over face-to-face instruction.
The study, "An Evaluation of Evidence-Based Practices in Online Learning: A Meta-Analysis and Review of Online Learning Studies," stated that “students who took all or part of their class online performed better, on average, than those taking the same course through traditional face-to-face instruction.”
Except for one article, on this Web site, you probably didn’t hear about it -- and neither did anyone else.
But imagine for a moment that the report came to the opposite conclusion. I’m sure that if the U.S. Department of Education had published a report showing that students in online learning environments performed worse, there would have been a major outcry in higher education with calls to shut down distance-learning programs and close virtual campuses.
I believe the reason that the recent study elicited so little commentary is due to the fact that it flies in the face of the biases held by some across the higher education landscape. Yet this study confirms what those of us working in distance education have witnessed for years: Good teaching helps students achieve, and good teaching comes in many forms.
We know that online learning requires devout attention on the part of both the professor and the student -- and a collaboration between the two -- in a different way from that of a face-to-face classroom. These critical aspects of online education are worth particular mention:
Greater student engagement: In an online classroom, there is no back row and nowhere for students to hide. Every student participates in class.
Increased faculty attention: In most online classes, the faculty’s role is focused on mentoring students and fostering discussion. Interestingly, many faculty members choose to teach online because they want more student interaction.
Constant access: The Internet is open 24/7, so students can share ideas and “sit in class” whenever they have time or when an idea strikes -- whether it be the dead of night or during lunch. Online learning occurs on the student’s time, making it more accessible, convenient, and attainable.
At Walden University, where I am president, we have been holding ourselves accountable for years, as have many other online universities, regarding assessment. All universities must ensure that students are meeting program outcomes and learning what they need for their jobs. To that end, universities should be better able to demonstrate -- quantitatively and qualitatively -- the employability and success of their students and graduates.
Recently, we examined the successes of Walden graduates who are teachers in the Tacoma, Wash., public school system, and found that students in Walden teachers’ classes tested with higher literacy rates than did students taught by teachers who earned their master’s from other universities. There could be many reasons for this, but, especially in light of the U.S. Department of Education study, it seems that online learning has contributed meaningfully to their becoming better teachers.
In higher education, there is still too much debate about how we are delivering content: Is it online education, face-to-face teaching, or hybrid instruction? It’s time for us to stop categorizing higher education by the medium of delivery and start focusing on its impact and outcomes.
Recently, President Obama remarked, “I think there’s a possibility that online education can provide, especially for people who are already in the workforce and want to retrain, the chance to upgrade their skills without having to quit their job.” As the U.S. Department of Education study concluded, online education can do that and much more.
Jonathan Kaplan is president of Walden University.
While seeking to make college more affordable and accessible, the Obama administration has launched a worrisome but largely unnoticed assault upon the nation’s publishers and the vibrant market in online learning. The U.S. House has approved a White House-backed provision to provide $500 million to develop free, and “freely available,” online college courses.
The administration is pushing forward with its trademark certitude; Secretary of Education Arne Duncan humbly suggested last week that the administration’s American Graduation Initiative is the 21st century counterpart to Abraham Lincoln’s Morrill Act and to the landmark post-World War II GI Bill.
Duncan is particularly enamored with the $500 million to develop the “Online Skills Laboratory,” in which the federal government will “invite” colleges, publishers and “other institutions” to create online courses for Uncle Sam in a variety of unspecified areas. The feds will then make the courses freely available and encourage institutions of higher education to offer credit for them.
The proposal is both short-sighted and destructive. It’s one thing to encourage providers to develop ”open source” wares and to promote measures that encourage publishers, colleges and universities to reduce costs and save students money. But it’s another thing entirely for the federal government to use taxpayer dollars to provide services that will undercut those offered by self-sustaining private enterprises.
First off, it’s not clear what problem the administration hopes to solve. Online courses already exist and are offered by an array of publishers and public and private institutions. Access to online courses is hardly an issue. Online enrollment grew from 1.6 million students in 2002 to 3.9 million in 2007, when the figure equaled more than 20 percent of total enrollment at all U.S. degree-granting institutions. U.S. News and World Report reports that nearly 1,000 higher education institutions provide distance learning. For-profit online providers reported that online enrollment was up more than 25 percent from summer 2008 to 2009.
More than half a dozen major textbook publishers, including Pearson, McGraw-Hill, Cengage, W.W. Norton & Co., and John Wiley & Sons, as well as hundreds of smaller providers, develop and distribute online educational content. To take one example, Pearson’s “MyMathLab” is a self-paced customizable online course that the University of Alabama uses to teach online math to more than 10,000 students a year. Janet Poley, president of the American Distance Education Consortium, says that new course development is not a “terribly high need,” and “I’d rather see more of the money go into scholarships for online learning than reinventing courses that have already been invented.”
Now, I’m as skeptical of big publishing as most, and make no claims for the quality of any particular product. But the point is that exactly the kinds of online courses and materials that Duncan and the House are calling for already exist. If Duncan’s claim is that somehow these same providers or new providers will deliver a better-quality product when hired by Uncle Sam, he needs to make that case.
Further, if there is such urgency to act, it is hard to understand why the administration wants to launch a federally directed effort to develop new materials rather than find ways to leverage those that exist.
What is it that federal dollars will buy that isn’t already available? As Tom Allen, CEO of the Association of American Publishers, has noted, “State-of-the-art, market tested and validated educational materials are already available and in use by millions of students at virtually every public and private college campus in America…. Why spend hundreds of millions of taxpayer dollars for the government to attempt to replicate products that already exist?” Sure, Allen is an interested party here, but that doesn’t make the observation any less true.
If the administration is concerned about cost, cost-cutting new providers like StraighterLine illustrate that the efficiencies created by new technologies and delivery systems are already allowing some providers to start offering dramatically cheaper instruction.
Today, the chokepoint is often not the lack of existing online courses or materials but the fact that colleges and universities offer them at prices that approximate those charged to students enrolled in more costly traditional instruction. Of course, this stickiness in price has been due to credentialing and regulatory practices that impede the emergence of low-cost entrants; state-funded institutions that use new e-learning students to cross-subsidize other units; and proprietary operators that have happily responded to this cozy arrangement by competing on convenience rather than price.
Rather than addressing the anti-competitive arrangements and cross-subsidies that have led colleges to profiteer at the expense of students, the administration is pushing to spend half a billion dollars to procure online courses that will be offered free of charge to all comers, both in the U.S. and overseas. The proposal would hide true program costs from both student and taxpayer.
This is sensible only if one assumes that federal contracting and oversight ensure better outcomes than market transactions. But this is the same administration that explains that the “public option” is desirable in health care precisely because it believes in market competition. Moreover, if experience with online education during the past decade is any guide, there is little reason to believe that colleges and universities would actually pass cost savings produced by taxpayer-funded courses on to students.
The measure also manages to raise concerns about academic freedom and stifling critical research and development.
Federal law has long buttressed academic freedom and intellectual pluralism by prohibiting the U.S. Department of Education from exercising control over “curriculum, program of instruction … text books, or other educational materials by any educational institution.” The administration would suddenly have the department funding the creation and dissemination of entire courses. Once the U.S. Department of Education is sponsoring a freely available course financed with taxpayer funds, it will be difficult for all but the most expensive or distinctive institutions or providers to justify paying for an alternative offering. For the huge swath of the curriculum represented by general and introductory courses, it is not a stretch to imagine that federally-sponsored courses would become a de facto national college curriculum.
As for R&D and market innovation, Duncan’s proposal is a profoundly short-term solution. If the federal government started freely offering large swaths of cell phone service, it would be difficult for providers to retain customers. The result would be the gradual erosion of the market place and reduced investment in new products or services. Short-term savings would be gained at the cost of gutting the sector’s ability to keep innovating and improving.
The administration and Congress might want to think twice about undercutting publishing and computer software when the copyright sector, which employs more than five million people, is already wrestling with intellectual piracy and declining print sales.
For those who think that the U.S. Department of Education can develop instructional programs and identify promising innovations and opportunities more effectively and efficiently than the messy market place, the “Online Skills Laboratory” must sound like a swell idea. For those who believe that functioning markets generally yield better outcomes than state-directed enterprises, it is a very troubling development.
Even as his administration has become the majority shareholder in General Motors, appointed a “pay czar” to oversee compensation at the nation’s major banks, and endorsed a “public option” to ensure “competition” in a health care market already populated by more than 2,000 insurers, President Obama has taken pains to explain that he is acting reluctantly and only under duress -- and that, as he told Fortune magazine last year, he continues to be the same “pro-market guy … I always have been.”
The president explained at the time, “I still believe that the business of America is business. But what I also think is that with all that power … comes some responsibilities -- to not game the system, to not oppose increased transparency in the market place, to not oppose fiscally prudent measures to balance our budget.” If the president meant what he said, it is hard to fathom why his administration is moving to undermine productive enterprises, obscure price mechanisms, and spending a half-billion dollars to replicate existing products.
If the president is a “pro-market guy,” this would be a good time to show it. Does he really want to add chief of the national “Online Skills Laboratory” to his list of burdens?
Frederick M. Hess
Frederick M. Hess is director of education policy studies at the American Enterprise Institute.