1Center or American Progress | Rethinking Higher Education Business Models
Rethinking Higher EducationBusiness Models
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Steps Toward a Disruptive Innovation Approach toUnderstanding and Improving Higher Education Outcomes
By Robert Sheets, Stephen Crawford, and Louis Soares March 28, 2012
Introduction and Summary
Te cos o college has skyrockeed during he las wo decades, rising by 429 percen,a rae ha’s even higher han he rae or healh care. o cover hese coss sudens have borrowed ever-larger amouns resuling in an average deb a graduaion now exceeding$27,000. Ye only 50 percen o sudens pursuing a bachelor’s degree—and 21 perceno hose pursuing an associae’s degree—complee heir college programs.Clearly, he grea challenge acing higher educaion oday is o conain coss while a hesame ime improving oucomes—in shor, o increase produciviy.Inormaion echnology has long been seen as a major key o meeing his challenge, bu heresuls hus ar have been disappoining. In his brie we argue ha he aul is no wih heechnology bu raher in he ways i has been deployed. Drawing on he work o eminenHarvard Business School proessor Clayon Chrisensen and ohers, we explain he needor parallel innovaions in higher educaion’s business models and “value neworks.” We alsourge policymakers o aciliae such innovaions by unding more applied research in heseand relaed areas, including higher educaion’s regulaory and sandards environmens.Concerns abou college aordabiliy have grown so serious ha Presiden Barack Obama issued a warning abou he rising cos o higher educaion in his mos recenSae o he Union address. A he same ime his adminisraion is encouraging innova-ion in higher educaion hrough such iniiaives as Firs in he World and Race o heop: College Aordabiliy. While we applaud such iniiaives i is imporan o noe hahese iniiaives are ar more likely o succeed i hey are inormed by an undersandingo he dierences beween susaining and “disrupive” innovaion and he roles ha new business models and value neworks play.
2Center or American Progress | Rethinking Higher Education Business Models
Te heory o “disrupive innovaion”—he noion ha cerain innovaion can improvea produc or service in such a way ha i creaes new markes ha displace exis-ing ones—was developed and advanced by Chrisensen in he 1990s. According oChrisensen, who has sudied he evoluion o many indusries, disrupive innovaionoccurs when sophisicaed echnologies are used o creae more simplied and moreaccessible soluions o cusomers’ problems—soluions ha are oen less high perorm-ing han previous echnologies bu whose price and convenience atrac whole new caegories o consumers. Te rs generaions o ransisor radios, deskop compuers,and MP3 players are examples. Tese new soluions—innovaions o exising echnolo-gies deployed hrough new business models—gradually improved o he poin wherehey displaced he previously dominan soluions. Chrisensen’s key poin, however, isha new echnologies like hese canno achieve heir ransormaive poenial wihoucompaible changes in heir indusry’s business models and value neworks, which inurn may require shis in he sandards and regulaory environmen.
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Innovaions in business models have occurred in mos secors o our economy, rommanuacuring (Nucor Corp.) o music (iunes) and rom healh care (Minue Clinics)o reail (Amazon and eBay). In each, echnology drove new ways o doing business ocreae more value or cusomers. Recen repors have highlighed emerging businessmodels ha may have similar poenial in higher educaion, including hose represened by Wesern Governors Universiy, MIx, Carnegie Mellon’s Open Learning Iniiaive,and he leading or-pro insiuions.
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Tese business models exhibi many o heeaures o wha expers call mulisided, unbundled, and open business models.
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Someobservers believe hey have he poenial o dramaically change how insrucion andresearch are delivered o expand access, reduce coss, and aciliae degree compleion.Building on CAP’s previous work in “Disruping College and Guiding Innovaion inHigher Educaion,” his brie begins by explaining Chrisensen’s analyical ramework. Ihen ocuses on one componen o ha ramework, business models, and explains someimporan ypes o hem. We hen explore how new higher educaion business modelscould beter harness recen advances in inormaion echnology and hereby achievedramaic improvemens in learning and credenialing, research and developmen, and business managemen.
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Lasly, our brie examines he policy implicaions, especially orhe ederal governmen’s applied research budge, our objecive being o help policymak-ers undersand wha works well and wha has he poenial o be successully replicaed ona large scale—o “go o scale.” Specically, our policy recommendaions include:
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Using disrupive innovaion hinking as a guide or compeiive gran making inhigher educaion programs and research
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Surveying ederal agencies o ideniy all relevan programs and classiy hem accord-ing o he key caegories or innovaion in higher educaion—learning and credenial-ing, research and developmen, and general business services ha suppor he rs wo
3Center or American Progress | Rethinking Higher Education Business Models
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Creaing a primer on disrupive innovaion or gran making ha will be used acrossederal agencies
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Creaing a disrupive innovaion panel o help he Obama adminisraion evaluaenew echnologies and he business models hey enable or scalabiliy
Christensen’s analytical framework
In he early 2000s Chrisensen and his colleagues developed a useul analyical rame- work ha highlighs our key “drivers” o disrupive innovaion: echnological enablers, business model innovaions, value nework adjusmens, and he sandards and regula-ory environmen. Le’s examine each more closely, olding in ideas rom oher expers where hey are helpul.
Technological enablers
According o Chrisensen and his co-auhors, echnology enables disrupive innova-ion when sophisicaed echnologies creae more simplied and rouinized soluionso cusomer problems or needs. In educaion he auhors poin o online learningechnologies as well as more specic ypes o suden-cenric and adapive onlinelearning sysems based on advances in inormaion echnology as well as learning andassessmen.
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Oher examples are breakhroughs in inormaion echnology relaed opersonalizaion, conen managemen and social media, daa managemen and analy-ics, and he managemen o business processes.
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Gregory Jackson,
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vice presiden orpolicy and analysis a EDUCAUSE, summarizes he recen advances in inormaionechnology ha are mos relevan or higher educaion and oers an excellen assess-men o heir poenial o ransorm curren pracices.
Business model innovation
A business model describes how an organizaion creaes, delivers, and capures value.Mos business model deniions highligh our key elemens:
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Customer value proposition,
which explains how an organizaion will address acusomer need
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Value chain,
which organizes processes, parners, and resources o deliver he valueproposiion
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Profit formula,
which lays ou how an organizaion will make money
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Competitive strategy,
which describes how an organizaion will compee wih rivalsand deend is posiion in he value nework. We describe each o hese elemens in more deail laer in he brie.
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Rethinking Higher Education Business Models
Robert Sheets, Stephen Crawford, and Louis Soares explain the need for parallel innovations in higher education’s business models and “value networks.”
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