By Ruchin Kansal and John H. Shannon
The 21st century brings an abundance of challenges and opportunities to higher education.
The impact of disruptive innovation and digital transformation is driving change in traditional employment markets and a rapidly evolving economy. The increasing influence of automation and new technologies once focused on blue-collar employment has migrated to white-collar jobs. Long-established employment opportunities have been, and are being, rendered obsolete. That said, those same developments are creating new employment options requiring students to develop a broader range of domain expertise to remain competitive. Higher education must adapt to these changes if it is to stay relevant.
The pandemic forced a dramatic acceleration in the adoption of online learning environments and the technologies to support them. Individual courses and full degree programs are now well established and forecast to be an ever more critical part of the higher education landscape. While a public health emergency was the catalyst for these innovations, the result is less expensive, good-enough alternatives to existing higher education paradigms. Remote learning allows for increased learning flexibility, the transformation of content development and organization, and the removal of time and place restrictions for delivery. Even though online education suffers from quality and credibility concerns compared to traditional learning experiences, further innovation should address many of its perceived shortcomings. Higher education has the opportunity to invest the resources necessary to establish and nurture online programs that match the quality of established programs so that prospective students and employers are willing to acknowledge them as valuable credentials. Other alternatives, including boot camps and apprenticeships, offer opportunities to acquire knowledge and experience quickly and, importantly, at a lower cost. In other words, these trends are classic examples of the application of Professor Clayton Christensen’s theory of disruptive innovation.
A difficult reality for many recent graduates is related to the substantial amount of education-related debt they have accrued. This economic burden limits many of the customary, essential life choices those students want to make — it will force many to delay buying a home or starting a business. Further, the continued cost escalation in higher education requires students to take on an increasing amount of debt. The increasing cost of education has already impacted access for many low-income students. It will continue to reduce the ability of colleges and universities to recruit and retain good students.
If the above recitation of higher education challenges is not sufficient motivation for change, we can add one more. Demographic change is a severe problem and declines in the traditional college-age student cohort mean declining enrollment. The pressure exerted by the above mentioned changes has, and will continue, to drive a flight to “perceived value.”
Today, institutional rankings have become a proxy for value, and a higher rank is associated with a perception of better outcomes. This perception results in many applicants and low acceptance rates at higher-ranked institutions. The colleges outside that category are either safety schools for high-performing students, tend to attract the less academically bright student, or must depend upon attractive scholarships to attract those who might not need them in the first place. It creates a self-fulfilling cycle of constant struggle with quality, enrollment, and financial health. Then there are colleges further down the list that tend to attract the most vulnerable and struggle to provide financially sound outcomes, feeding another self-fulfilling cycle of constant struggle.
It is no surprise that these trends have led to the creation of the haves and have-nots of colleges. Those at the top of the food chain with low acceptance rates, substantial endowments, and star faculty are doing great. These are the Ivy League, top liberal arts colleges, MIT, Caltech, mid-western and west coast-based elite schools, and the flagship public universities. Those offering specialized technical education, operating in a niche space, or innovating and transforming their business model are also doing great — Northeastern, Arizona State University, and Western Governor’s University. Others are struggling, and few have dared to acknowledge and examine how to address their troubles. We are convinced that the future will continue to mercilessly test the ability of these colleges to stay afloat, impacting their students, faculty, and employees. It is past time for them to acknowledge and embrace change.
The Strategic Imperative
In this age of flight to perceived value, it becomes critical for higher education institutions to examine their value proposition and reinvent it if needed. They must adapt to a rapidly changing environment and offer accessible, high-quality, affordable learning environments responsive to student needs. They must offer flexible, innovative programs that prepare students for the future of the 21st century. Because if they cannot, or will not, they will find themselves in the same place as businesses without a differentiating value proposition. They will fail in an increasingly competitive market where public funding and educational incentives continue to decline.
What, then, are the strategic imperatives for higher education institutions? At a macro level, we would say two:
- Value Outcomes: Higher education institutions are morally responsible for providing value that translates into measurable outcomes. That may mean employment opportunities; scientific, literary, and humanistic innovation and growth through research; or something else. A study by Salesforce tells us that “Almost half (47%) of students selected their institutions based on potential future career prospects, yet just 11% felt very prepared for the world of work. Almost half (48%) of students predicted their qualifications would only be relevant for their chosen career path for five years or less after graduation.”
- Financial Viability: Higher education institutions must find the fiscal discipline to remain viable and relevant. The goal should be revenue and profitability optimization, and it requires a re-examination of their underlying business model. As enrollments decline, we see institutions “stealing” applicants from other institutions by offering better financial incentives, like businesses that spend money on customer acquisition. Increases in the costs related to customer acquisition, in the absence of substantial endowments, will require that they reduce investments in other areas — a strong faculty, innovative technology, innovation, and transformation. However, cost-cutting is not the answer, and we have not seen any organization thrive on cost-cutting as a primary strategy. At the same time, they have the moral responsibility to broaden access to education. Education is the lever that builds societies and lives. Institutions of higher education, more than anyone else, are expected to carry this responsibility on their shoulders.
A Growth & Innovation Framework
Higher education is a community of learning where teaching, research and scholarship, and structured and unstructured sharing of ideas across disciplines are all critical to success. The best learning happens by doing and failing and then doing it differently. To succeed in a world experiencing an exponential rate of change and global competition, we need to create learning-by-doing environments.
Environments where participants learn technical/functional skills, combined with an ability to constantly unlearn, relearn, invent, reinvent, think, collaborate, solve unstructured cross-disciplinary problems, deal with ambiguity, accept diversity, and develop emotional intelligence. A learning community can add significantly more value to future generations’ development than models where learning happens primarily through a structured delivery of required courses for students and highly individualized models of faculty research.
That is a core challenge and yet another example of the innovator’s dilemma. How do you steer a traditional model of higher education in this new direction? One could create a new model — as we see emerging in many parts of the world. Minerva University and the Indian School of Business come to mind. The task is more challenging when colleges have been successful in a historical model and are resistant to change. The primary hurdles come from short-term leadership tenures, short-term customers, i.e., the students, tenured faculty comfortable with the status quo, and many external stakeholders. It requires a deliberate approach that balances the strengthening of the Core for the near term while making strategic investments in the future.
In Professor Kansal’s book, Redefining Innovation, the authors lay out a core, adjacent, and Breakthrough framework. The Core’s focus is on maximizing the business value from the current business model. Adjacent focuses on finding opportunities that harness the core strengths and deploy them in a different market or way. And Breakthrough is the idea of making strategic investments in what is 10+ years into the horizon, so you are ready to be a viable player when the market shifts. For example, you may be in the restaurant business — a full-service restaurant with a Michelin star. However, as customer attitudes are shifting to favor take-outs, an adjacent innovation could be to open take-out satellites that offer the same quality but in a different delivery format. And Breakthrough might be experimenting with fully automated, robotized kitchens — because that may help you scale up and expand your business. It would require a disciplined investment strategy — a 70–80% investment in strengthening the Core, a 15–20% investment in building adjacencies, and a 5–10% investment in building Breakthrough capabilities is a good mix based on research.
Applying the framework to higher education institutions, the following model emerges:
- Strengthen the Core by focusing on Value Innovation and Fiscal Prudence;
- Monetize the Adjacent with a focus on Portfolio Diversification; and
- Shape the Breakthrough by imagining and shaping the future of learning with internal and external investments.
Strengthen the Core
The intent is to maximize the value of the current (past) business model till it lasts. Allocate 70–80% of your investment dollars here.
The outcome of value innovation should be a higher ability to attract and retain students and to create fiscally sound post-graduation outcomes. A few ideas come to mind:
- Curriculum Innovation: Most curricula have been designed to serve the industrial age — to produce workers that would be a widget in the industrial wheel. They produced cylinders, cubes, pyramids, and screws — functional specialists that fit the industrial wheel. Now we live in an age where we need amoebas that have a core skillset (the nucleus) but can flex, adapt, and re-adapt to their environment. Change at that level will require a critical evaluation of the curriculum at the school level to integrate learning that emphasizes an ability to unlearn and relearn, invent, reinvent, think, collaborate, solve unstructured cross-disciplinary problems, deal with ambiguity, accept diversity, and exhibit emotional intelligence. The ability to communicate in physical and virtual settings. The ability to develop and sustain a healthy mind and body. Integrating simple things like Question Formulation Techniques, as we did in the Stillman School of Business undergraduate curriculum, develops an ability to ask intelligent questions and prepare students for an ambiguous world of work.
- Disciplines of the Future: Align the portfolio of learning opportunities to future domains. Create learning environments for future professions, whether they relate to Data Analytics, Synthetic Biology, Robotics, A.I., Metaverse, or Life in Space. Integrate those learning environments into the curriculum broadly — they should not just be a minor but part of the broad-based learning curriculum.
- Learning by Doing: We learn best by doing, failing, and doing it again. That is the core tenet of the apprenticeship model. That is how tradespeople learn their art. That is how medical residents become physicians and surgeons. That is how graduate teaching assistants become good Professors. Colleges represent a safe environment that must encourage doing and failing and even reward it. Architects learn in a studio format — where you learn by doing. There was a place for lectures, but much learning happened in designing, creating, building, reflecting, and presenting. We cannot teach all subjects this way, but we must adapt our teaching approach for more immersive learning experiences.
- Technology: Moving learning and communication to digital platforms and integrating future technology into learning studios is critical. It would not only create a future-ready workforce but enable learning environments not possible in the constraints of the physical world. That includes global learning communities, immersive learning, asynchronous learning, robotics-based learning, and much more.
- Multi-disciplinary Studios: Problems are multi-faceted and require cross-functional teams to solve. Effective cross-functional teams comprise team members comfortable working beyond their domain expertise and embracing the idea that teams provide better outcomes. There is much commentary on how people need to work more effectively in teams. Multi-disciplinary work expands the range of experiences for the students and the faculty alike and the range of problems they can tackle. How can you expect them to do so if you have not trained them to do so? Integrate business education in the physician and nursing curriculum, the history of the rise and fall of empires in the business curriculum, fine arts in the engineering curriculum, or robotics in the liberal arts curriculum.
- Differentiated Offerings: The Buccino Leadership Institute at Seton Hall University is a university-wide, multi-disciplinary leadership program that acts as a significant differentiator, attracting talented applicants that would not necessarily consider the University. While the program is not for credit, its value in terms of community, exposure to industry executives, employment opportunities, leadership assessments, coaching, mentoring, and experiential learning adds significant value to the broader University.
- Collaborations: Many models exist — partnerships with community colleges to feed into universities for degree completion or multiple universities creating exchange programs to enrich the educational experience. Pooling resources to develop programs that an individual university either would not be able to create on its own — as the Keck Science Department shared among Claremont McKenna, Pitzer, and Scripps; or partnering on activities such as faculty development, study abroad, and many others. The list is potentially endless.
- Industry and Community Partnerships: Establishing industry and community partnerships to bring the outside in and the inside out can expand the learning potential exponentially. It could take the form of semester-long internships, clinical rotations, part-time teaching by executives, sponsored learning programs focused on areas of unmet needs and curricula co-development, supported and collaborative research, adult learning opportunities, or case competitions. These partnerships also create employment opportunities and pipelines for the long term and strengthen the communities.
- Value-based Pricing: Tying the tuition one pays to the economic outcome is another innovation gaining coverage. Multiple models are being tested: freezing cost for the duration of a student’s matriculation; differential pricing for different learning modalities, in-person, virtual synchronous, asynchronous; tiered pricing by major based on average industry salaries; deferred payment models based on income. However, this strategy is the most difficult to implement in a business structure where fixed costs are high and established (tenured faculty and facility costs in the case of higher education institutions). The life sciences and healthcare industry have experimented with the value-based pricing model for over a decade. However, it is challenging to implement given the multitude of factors that determine the outcome and the difficulty of measuring them. Nonetheless, value-based pricing is an area where we will see multiple innovations in the future.
- Branding and Marketing: We feel that many universities have under-invested in branding and marketing. Humans tend to make decisions based on perceptions, whether investing, voting, purchasing or anything else. The same is true for higher education. While teaching math is teaching math, people feel that going to a better brand-name institution will magically teach them better math. Invest in building brand value. It is a chicken and egg situation — one needs the ingredients that determine brand value, but ingredients may not exist without brand value. What one can control is the investment in increasing brand value.
Money is critical to sustaining, innovating, and growing any institution. We must pay faculty and employees, maintain and upgrade infrastructure, pay the bills, and invest for the future. In a situation where the target market is shrinking or flat at best and public funding is declining, the ability to pay is reaching its limit. For many institutions, tuition has become the primary source of revenue, and effectively a slow march to the death of the traditional, high fixed cost academic model. Fiscal prudence is the need of the day, and the goal is to keep the bank intact today while having money available to invest in the future.
Fortunately, there are multiple levers available:
- Portfolio Optimization: Are all my schools and programs making money? If not, can they? Are there any very profitable programs? Are there loss leaders — even though they don’t make money, do they bring applicants to the door? These are tough questions to ask and even tougher to act upon. But they are necessary for survival — unless the institution benefits from a healthy endowment.
- Investment Management: Many colleges are blessed with an endowment. The first question to ask is: has the institution applied best-in-class, risk-adjusted investment practices to grow the endowment over time? If the answer is not an emphatic yes, then significant money has been left on the table, and the time to reset is now.
- Capital Campaigns: Capital campaigns allow for endowment growth, which in turn provides for investments. Alumni support for development efforts depends to a large degree on the positive and negative outcomes that the institution has created. The success of those outcomes will also affect the support of other non-affiliated support, e.g., corporations, foundations, and government. At the same time, a sound vision and a good strategic plan will provide a platform to raise capital. Institutions should understand the latest fundraising landscape — are deep-pocketed donors donating more, or are grassroots campaigns driving a higher ROI? It is vital to be responsive to those trends when shaping capital campaigns. Finally, institutions must remember that endowment funds are not generally available to support ongoing operating needs.
- Research & Grants: Public and private grants are available for innovations and industries of the future. Assess if your institutional infrastructure is sufficiently robust to seek these grants or if the ROI is worth the investment. It may require an examination of your academic portfolio and faculty competencies. And it may require an investment to develop that capability. But as they say, you only get money once you spend money.
- Talent Mix: This brings us to the talent mix. Are we monetizing our talent at the top of their license? Are we unlocking the potential value of our faculty? Not all Ph.D.’s are great teachers, nor do all great teachers require a Ph.D. At the same time, grant-based research involves a set of faculties that can attract grants. Is the faculty versus administrative positions ratio yielding the maximum return? Do we understand the breakdown of our revenue-generating resources versus cost centers and manage them well? Tenure is vital as it provides an ability to monetize the long-term productivity of the faculty. Is that being measured, and are there performance measures in place? What is the performance management system in Higher Ed?
- Athletics: Are you a viable player in the world of student athletics? If yes, are you ethically maximizing the value for your athletes and your institution? And if you are not a viable player, can you become one?
- Mergers & Acquisitions: When all else fails, mergers & acquisitions pave the pathway for sustenance and growth. In highly fragmented industries, mergers & acquisitions provide the opportunity to scale while managing costs. Higher Ed is experiencing an early wave of M&A. Every institution should have a deliberate M&A strategy — to acquire or be acquired.
Fiscal prudence means saying yes based on strategic and financial return on investment and continually measuring the return. It means there are no sacred cows, and it also means that the right talent is available to help make fiscally sound decisions. It does not, however, mean that all the above levers are appropriate or available to all.
Monetize the Adjacent
The intent is to monetize the emerging opportunities (now) faster than your competition, as this would become the next Core. Allocate 15%-25% of your investment dollars here. Be aware this requires a shift in mindset and, in many cases, a significant culture shift. This effort will only succeed if one is prepared to embrace that notion.
- Non-traditional Students: As we live longer, we, as individuals, need to reinvent ourselves to remain a going concern. To reinvent, we need to become continuous learners. And the industry that has the expertise to assist in accomplishing that transition is higher education. However, just because we are higher education institutions and have the faculty does not mean people will come. We need to become adept at developing new learning products and services based on market needs and demands. We need to build expertise in branding, marketing, and selling these products and services. The target customers and the business models required to attract them differ from traditional undergraduate and graduate education models. This shift is not easy and requires an investment and a new business development mindset.
- Industry Partnerships: High-growth companies need talent that is either not readily available or an expert in how they do things. Professor Kansal’s experience is informative here as to how companies solve for this. Deloitte University was established to train consultants on skills needed to succeed in consulting when he was with Deloitte. Siemens University supported key learning environments for Siemens employees. Boehringer Ingelheim had a sales training facility but partnered with Duke and Kunshan University to develop and deliver quite a few of the company’s talent development programs. Becoming an exclusive partner to a company or an industry to develop corporate talent across multiple areas helps diversify a college’s revenue base. Again, this takes work. It takes work to repurpose current faculty resources to develop and deliver industry-specific learning environments. That effort will require investments in custom program development and delivery. It will also need a shift in mindset — to that of customer service.
- A Start-Up Factory: Higher education institutions are a hub of creativity and innovation. They use technology transfer offices to monetize their research. How about becoming incubators that have a financial stake in the innovations they spur? It would mean reallocating faculty and students with that intent, but those resources are already there. Again, not easy. It would require a deliberate decision to commit to an evolved setup, process, governance model, talent, and investment. One could partner with the local innovation system and key players to minimize risk. Recently, BITS Pilani, a premier institute in India, announced a program where all students and faculty can take a year off to work on a start-up. Imagine the possibilities.
- Digital Offerings: Who would have thought that Harvard and NYU would offer an online MBA? However, if you have a successful product, offering it through multiple channels is a path to incremental revenue. Given the possibility of scale, the online offering may one day outperform the revenues generated by the in-person model, potentially making it obsolete. Can that cause brand dilution? Yes. Can it be managed? Again, yes. Does it require an investment in digital technology and human skillsets? Again, yes.
- New Locations: While the college-age population is declining in the U.S. and the western world, it is increasing exponentially in Asia and Africa. Conventional wisdom says to go where the market is, and we have seen some western institutions establish campuses in the Middle East and Asia to serve these populations. Is this within the realm of possibility for your institution? Can you establish a new campus, partner to create a new presence, or offer online degrees focused on the growing market segment where tuition dollars on an individual basis may be lower, but the volumes much higher?
- New Revenue Models: A few come to mind. The first is a subscription model. For a monthly or annual fee, the “student” has access to unlimited classroom-based or digital programs. The second is pay-per-use, where you can take just the class you want. Or a semester-long course. These revenue models require shifting the institutional mindset on how we view our product offerings. The third is licensing. Can we license our coursework to institutions that need help to add new programs, especially in the growing parts of the world? And fourth is data monetization. Universities have developed capabilities for tech transfer. But are there datasets within a university that can be monetized within ethical and regulatory frameworks? Fifth, can the institution get into the business of providing student loans, as Macy’s has a credit card? Sixth, can the institution monetize its real estate in different ways? A few more models are possible, depending on the institution.
Shape the Breakthrough
The intent is to imagine and shape the future of learning (15–25 years away) with internal and external investments. Allocate 5–10% of your investment dollars here. To succeed, investment in Breakthrough requires a higher appetite for risk and insulation from the core business.
Future of Learning
Let us extrapolate three trends in EdTech.
- It is projected that the world population will grow by another 2 billion people over the next 50 years before it starts to decline. This population growth will occur in Asia and Africa.
- Digital consumption methods are mainstream in these geographies, as they never built the infrastructure common to the industrial age.
- Metaverse and the internet of the future will allow the creation of digital environments that are equally as effective as physical environments regarding communication, collaboration, teamwork, and learning.
The trends discussed here create new opportunities. For example, a fully digital university that makes education accessible to many based on a different delivery and revenue model. If one agrees with this disruptive probability, it would be wise to make investments to learn and grow in the space.
Many such disruptive ideas emerge when we put bright minds in a room. The art and the science lie in assigning probabilities of success and making informed bets. And be willing to lose it all from the money perspective. But we can guarantee that the learning and the human skill development that will happen along the way will pay many times forward as the institution would now have built the innate capability to think differently.
Ultimately, we must create learning environments that help our students develop into the most flexible, adaptable, imaginative, and resilient persons possible. In other words, in addition to any subject matter expertise or substantive experience they will master, they must also add a different perspective to their learning. Professor Shannon has developed the FAIR Framework to support that perspective and help students build their portfolios in college and after. What does mastering the FAIR Frameworkrequire?
Flexibility requires individuals to remain open to new ideas, open to those alternatives that challenge the status quo, quite frequently in ways that seem ridiculous, frivolous, or just impossible. A FAIR person must diligently exercise foresight to identify trends in advance to the extent possible.
Adaptability will demand that the influences described above, those that require flexibility, are driving change so rapidly that failure to adapt means falling behind. The future described here will require developing the ability to adapt quickly to changed circumstances.
Imagination is arguably the first among equals in the FAIR Framework. We are all aware of the value of creativity in our society. If we cannot imagine a solution, we cannot successfully implement one. The importance of imagination cannot be understated.
Resilience demands its due. Those who actively engage will experience failure. Many argue that if one never fails, one has not tried hard enough or taken sufficient risk. Engaging with the intensity required by flexibility, adaptability, and imagination will undoubtedly result in occasional failure. Learning from failure and resilience will help you to recover effectively and move on to the next challenge.
The FAIR Framework recognizes attributes essential for everyone if we are to be prepared for the disruptive possibilities that the trends discussed above represent.
A Path Forward
Our thoughts above reflect the situation that many higher education institutions face — the diversity of those challenges and their implication demand that each institution develop strategies that reflect their circumstances. The decision framework below is one approach to identifying your unique situation and may be a good starting point. Other assessment approaches are undoubtedly available and may be more appropriate to your needs.
Is it necessary to follow what is proposed here? No. Many institutions will not have the resources or capabilities to do so. However, if they do not address the above challenges, extinction over time is inevitable.
As always, situational awareness and deliberate approaches result in positive outcomes. We write this with the view that fully recognizes the value that higher education provides, and our efforts here are with that in mind. Our growth framework would allow higher education to continue delivering the immense value they have traditionally extended to society.
N.B. These thoughts represent the authors’ thinking and in no way express the views of our employer.
Also posted by Ruchin Kansal and John H. Shannon at Medium on February 16, 2023.
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