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Rethinking Higher Education Business Models

Rethinking Higher Education Business Models

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Robert Sheets, Stephen Crawford, and Louis Soares explain the need for parallel innovations in higher education’s business models and “value networks.”
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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Published by: Center for American Progress on Mar 28, 2012
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1Center or American Progress | Rethinking Higher Education Business Models
Rethinking Higher EducationBusiness Models
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 skyrockeed during he las wo decades, rising by 429 percen,a rae ha’s even higher han he rae or healh care. o cover hese coss sudens have borrowed ever-larger amouns resuling in an average deb a graduaion now exceeding$27,000. Ye only 50 percen o sudens pursuing a bachelor’s degree—and 21 perceno hose pursuing an associae’s degree—complee heir college programs.Clearly, he grea challenge acing higher educaion oday is o conain coss while a hesame ime improving oucomes—in shor, o increase produciviy.Inormaion echnology has long been seen as a major key o meeing his challenge, bu heresuls hus ar have been disappoining. In his brie we argue ha he aul is no wih heechnology bu raher in he ways i has been deployed. Drawing on he work o eminenHarvard Business School proessor Clayon Chrisensen and ohers, we explain he needor parallel innovaions in higher educaion’s business models and “value neworks.” We alsourge policymakers o aciliae such innovaions by unding more applied research in heseand relaed areas, including higher educaion’s regulaory and sandards environmens.Concerns abou college aordabiliy have grown so serious ha Presiden BaracObama issued a warning abou he rising cos o higher educaion in his mos recenSae o he Union address. A he same ime his adminisraion is encouraging innova-ion in higher educaion hrough such iniiaives as Firs in he World and Race o heop: College Aordabiliy. While we applaud such iniiaives i is imporan o noe hahese iniiaives are ar more likely o succeed i hey are inormed by an undersandingo he dierences beween susaining and “disrupive” innovaion and he roles ha new  business models and value neworks play.
2Center or American Progress | Rethinking Higher Education Business Models
Te heory o “disrupive innovaion”—he noion ha cerain innovaion can improvea produc or service in such a way ha i creaes new markes ha displace exis-ing ones—was developed and advanced by Chrisensen in he 1990s. According oChrisensen, who has sudied he evoluion o many indusries, disrupive innovaionoccurs when sophisicaed echnologies are used o creae more simplied and moreaccessible soluions o cusomers’ problems—soluions ha are oen less high perorm-ing han previous echnologies bu whose price and convenience atrac whole new caegories o consumers. Te rs generaions o ransisor radios, deskop compuers,and MP3 players are examples. Tese new soluions—innovaions o exising echnolo-gies deployed hrough new business models—gradually improved o he poin wherehey displaced he previously dominan soluions. Chrisensen’s key poin, however, isha new echnologies like hese canno achieve heir ransormaive poenial wihoucompaible changes in heir indusrys business models and value neworks, which inurn may require shis in he sandards and regulaory environmen.
 Innovaions in business models have occurred in mos secors o our economy, rommanuacuring (Nucor Corp.) o music (iunes) and rom healh care (Minue Clinics)o reail (Amazon and eBay). In each, echnology drove new ways o doing business ocreae more value or cusomers. Recen repors have highlighed emerging businessmodels ha may have similar poenial in higher educaion, including hose represened by Wesern Governors Universiy, MIx, Carnegie Mellon’s Open Learning Iniiaive,and he leading or-pro insiuions.
Tese business models exhibi many o heeaures o wha expers call mulisided, unbundled, and open business models.
Someobservers believe hey have he poenial o dramaically change how insrucion andresearch are delivered o expand access, reduce coss, and aciliae degree compleion.Building on CAP’s previous work in “Disruping College and Guiding Innovaion inHigher Educaion,” his brie begins by explaining Chrisensen’s analyical ramework. Ihen ocuses on one componen o ha ramework, business models, and explains someimporan ypes o hem. We hen explore how new higher educaion business modelscould beter harness recen advances in inormaion echnology and hereby achievedramaic improvemens in learning and credenialing, research and developmen, and business managemen.
Lasly, our brie examines he policy implicaions, especially orhe ederal governmen’s applied research budge, our objecive being o help policymak-ers undersand wha works well and wha has he poenial o be successully replicaed ona large scale—o “go o scale.” Specically, our policy recommendaions include:
Using disrupive innovaion hinking as a guide or compeiive gran making inhigher educaion programs and research
Surveying ederal agencies o ideniy all relevan programs and classiy hem accord-ing o he key caegories or innovaion in higher educaion—learning and credenial-ing, research and developmen, and general business services ha suppor he rs wo
3Center or American Progress | Rethinking Higher Education Business Models
Creaing a primer on disrupive innovaion or gran making ha will be used acrossederal agencies
Creaing a disrupive innovaion panel o help he Obama adminisraion evaluaenew echnologies and he business models hey enable or scalabiliy 
Christensen’s analytical framework
In he early 2000s Chrisensen and his colleagues developed a useul analyical rame- work ha highlighs our key drivers” o disrupive innovaion: echnological enablers, business model innovaions, value nework adjusmens, and he sandards and regula-ory environmen. Le’s examine each more closely, olding in ideas rom oher expers where hey are helpul.
 Technological enablers
 According o Chrisensen and his co-auhors, echnology enables disrupive innova-ion when sophisicaed echnologies creae more simplied and rouinized soluionso cusomer problems or needs. In educaion he auhors poin o online learningechnologies as well as more specic ypes o suden-cenric and adapive onlinelearning sysems based on advances in inormaion echnology as well as learning andassessmen.
Oher examples are breakhroughs in inormaion echnology relaed opersonalizaion, conen managemen and social media, daa managemen and analy-ics, and he managemen o business processes.
Gregory Jackson,
vice presiden orpolicy and analysis a EDUCAUSE, summarizes he recen advances in inormaionechnology ha are mos relevan or higher educaion and oers an excellen assess-men o heir poenial o ransorm curren pracices.
Business model innovation
 A business model describes how an organizaion creaes, delivers, and capures value.Mos business model deniions highligh our key elemens:
Customer value proposition,
which explains how an organizaion will address acusomer need
Value chain,
which organizes processes, parners, and resources o deliver he valueproposiion
Profit formula,
which lays ou how an organizaion will make money 
Competitive strategy,
which describes how an organizaion will compee wih rivalsand deend is posiion in he value nework. We describe each o hese elemens in more deail laer in he brie.

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