Higher Ed as a Business vs. the Business of Higher Ed

As the millennium pushes forward there remains a nagging drag on developing a future focus for higher education. In order to build such a focus there needs to be a better understanding of the difference between Higher Education as a Business and the Business of Higher Education. Few fail to recognize the basic differences between a pure product or service based business and an educational institution. Fewer still understand the variables involved in making current models sustainable. We must all accept that having a sustainable business model doesn’t make one a widget vendor.

It is essential that academic leaders move quickly to understand that the existing business model has strained sustainability to the breaking point. One only needs to follow the money trends such as, a trillion dollars in consumer’s education debt, downgrading bond ratings for the higher education sector, state budgets straining under the burden of competing social needs, rising deferred maintenance, and out of control discounting, to see the fractures in the current model.

On January 16, 2013 Moody’s Investment Services announced:

Moody’s: 2013 outlook for entire US Higher Education sector changed to negative

The 2013 outlook for the entire US higher education sector is negative, including the market-leading, research-driven colleges and universities, says Moody’s Investors Service in its annual industry outlook. Previously Moody’s had a stable outlook for these leading institutions and a negative outlook for the rest of the sector since 2009. Moody’s perceives mounting fiscal pressure on all key university revenue sources. “The US higher education sector has hit a critical juncture in the evolution of its business model,” says Eva Bogaty, the Moody’s Assistant Vice President — Analyst who is the lead author on the report “US Higher Education Outlook Negative in 2013.” “Even market-leading universities with diversified revenue streams are facing diminished prospects for revenue growth.”

In February 2013 Standard & Poor’s Ratings Services citing operating performance, deferred maintenance, and issues of balancing affordability with revenue demands advised:

The constrained operating margins is forcing many institutions to re-evaluate their business models.

What do you think?

Higher Ed as a Business vs. the Business of Higher Ed

These comments are not about Higher Educations becoming a business but about the Business of Higher Education. These bond rating actions expose more than an acknowledgment of the financial conditions of Higher Education. A condition characterized by inflation that consistently exceeds the consumer price index. A condition that is characterized by extreme client (student) debt. They expose a critical turning point in higher education and the need for the rapid evolution of new business models and new credentialing models.

So how’s that working?

The University of New England, in Australia, has discontinued its MOOC program, which let students take online classes free but charged them to take examinations and receive online tutoring. “While MOOCs will continue to be offered I am sure by some of the very big providers around the world, it’s not something that a university like UNE would go at alone,” —  Annabelle Duncan, the university’s vice chancellor, told The Australian Financial Review. (reported in the Chronicle of Higher Education, August 26, 2014)

Another example of a new business model is Georgia Tech’s new Online Master of Science in Computer Science degree (OMS CS) in partnership with Udacity, and AT&T delivered through a MOOC platform. The first fully accredited massive online MS in Computer Science structured around a total tuition for the program expected to be below $7,000. Enrollment for Spring cohort opened September 8, 2014.

Zvi Galil, the dean of the university’s College of Computing, expects that in the coming years, the program could attract up to 10,000 students annually, many from outside the United States and some who would not complete the full master’s degree. “Online, there’s no visa problem,” he said. — NY Times

Just because a concept fails in one implementation doesn’t mean it is a failure. Conversely just because another model works for an institution doesn’t mean everyone can just clone it. New models don’t just fall out of the sky they are carefully crafted. Last fall EDUCAUSE published Higher Education: New Models, New Rules, September/October 2013, EDUCAUSE Review, pages 69-97. This cluster of three articles explores issues and options as the authors see them.

  • Creating an Environment for Learning Technologies: Toward a Generative Model of State Policy and Institutional Practice by Louis Soares, Vice President for Policy Research and Strategy at the American Council on Education (ACE);
  • A Quality Platform for Non-Institutional Higher Education by Judith S. Eaton President of the Council for Higher Education Accreditation (CHEA); and,
  • The “Perfect Market” Challenge to the Subsidy Structure of Higher Education by Burck Smith CEO and founder of StraighterLine.

Another resource for those new to the business of higher education is NACUBO’s, Strategic Review of Academic Portfolios, by Rick Staisloff. A succinct introduction to the interface between academic planning and fiscal sustainability.

A short list of immediate challenges include:

  1. Managing the academic enterprise with particular attention paid to margin
    (See “Curriculum drives enrollment, enrollment drives revenue, revenues drive everything else!”)
  2. Balancing services and constraining growth in expenditures,
  3. Curriculum revitalization and renewal resulting in Competitive Differentiated Curriculum requiring investments in academics, and
  4. Strategic improvements to learning performance.

The long term however is driven by current and future experiments in scalability of curricular and learning experiences (such as MOOCs), the promises and challenges of network learning and digital learning environments (Kahn Academy, Knewton + many more), the resilience of the economics of higher education models as indicated in Moody’s and Standard and Poor’s outlooks, and new and emerging visions outlining new structures and new models to forge a healthy future for both higher education as formal academic entities and learners seeking to optimize their own learning performance.

It is time to move beyond the knee jerk reactionary objection that higher education is not a business (I think this is better understood than is thought) and get to the deeper conversation of the business of higher education and how do we craft a healthy, sustainable economic future for colleges and universities.