Rethinking the Higher Ed Business Model


I received quite a bit of email after my post about the American Higher Education business model. One reader, and friend of mine, suggested that I put some effort into thinking about new business model alternatives. So, I’ve done a little more research and put some thought into the topic.

One thing that we’ve been stressing at Babson College is the importance of using the Babson Business Model Wheel with existing business, as well as startups, to turn long-held beliefs on their heads. Recently, there has been a lot of talk about making public college free in the U.S., or at least as inexpensive as it is in other western countries. (Something tells me that there probably won’t be any Make Education Free Again hats being sold anytime soon).

Belief: Higher Education too Expensive and Should be Free

Can free public education in America work? Sure, but are American’s willing to deal with some of the unintended consequences of this shift? First, let’s look at who goes to college in other countries. In Australia only 36% of college age students attend university. In the UK the number hit a peak recently at 49% and in Germany a mere 30% attend university. According to the Bureau of Labor Statistics 69% of U.S. college age students are enrolled in college! Why does this matter? Well, if you are going to maintain, or even grow, that percentage thats a lot of tax payer money that will go to fund the current business model. You see, in other countries the process to attend universities is more selective. Some might even say classist in a way. Many are universities are non-residential, which in U.S. terms translates into “commuter school.” None have sports teams, huge stadiums, buildings honoring wealthy alumni(ae), or gymnasiums that rival LifeFitness. In other countries school is about education. Oxford and Cambridge are the farm team for Parliament and science, not major league soccer. No one I know in Europe travels every weekend to watch their kid play D3 soccer. America are you ready for this?

Belief: Does Everyone Need to Go to College?

Let’s take a look at some other long-held beliefs starting with “everyone needs to go to college.” Personally, I don’t think so. What everyone needs and should have is a great high school education that helps them decide what they want to do and provides the necessary skills to find work, manage their financial lives, and understand how our form of democracy works. In a recent story on NPR, Principal Akbar Cook of West Side High School in Newark, N.J. states that his job is to prepare his students for 4 possibilities: 2 and 4 year college, the military, trade school, and those going straight into the workforce. This is a philosophy that shouldn’t be limited to urban schools with a demographic profile similar to Principal Cook’s school.

Where I grew up, which was just a stone’s throw from Principal Cook’s school,  there once were several trade schools that students could opt to attend. Where have they all gone? Why aren’t we encouraging more young people to go into both the old trades and the new trades like programming and various types of IT services? I don’t know too many unemployed or starving plumbers, electricians, first responders, or IT professionals.

Perhaps larger businesses, that just received a tax break should play a greater role in educating workers. When I started my first job out of college with IBM they invested a boat load of money to train me first as a systems engineer and then as a sales representative. Who does that anymore? Some tech companies are once again ramping up their educational offerings, but I don’t know of any that have created the equivalent of a college education, yet.

Now for the fun part of changing the higher education model. There are a few long-held beliefs that I’d like to turn on their heads and challenge. One is that college needs to be 4 years. Another is that a certain number of engaged learning hours are required to master a topic. This is perpetuated by accreditors. There are others, but this is enough fodder for now.

Belief: Does College Need to Be Four Years?

Where did the idea that college should be 4 years come from? When was it established and how did it become the rule? When and how were the rules established that determined how many “engaged learning hours” per credit a student should take to achieve mastery of a topic? I’m sure I could find something on the Internet, but what I do know is this: if I do an image search of education in 1919, I get pictures of a classroom, desks, and chalkboards. If I do the same for 2019, I get pictures of a classroom, desks, and whiteboards. What other industry has changed so little in 100 years?

What if the business model shifted from admitting a new cohort of freshman in residence each year to one that offered a variety of ways to learn and, if desired, earn a certificate or a degree where, when, and how you wanted? If you have taken a class in high school and passed the Advanced Placement Test with a 4 or 5, then you don’t have to retake that class in college. In other words, give the student that credit.

Increasing revenue, while reducing or holding costs steady is a pretty basic way to build a successful business model. But as we have seen with higher education, the costs have steadily increased, and their answer has been to increase the price to the consumer. The consumer has amassed loans topping $1 trillion to defray the cost. However, even though the price is being discounted, the cost is beginning to make parents and students wonder if the future return is worth the investment. Add to this the declining population of college-age students and companies loosening their requirements for bachelor degrees, and you have a perfect storm making a direct hit on higher ed. What to do?

Some ideas on how to weather the storm:

Expand the supply:

o   Admit a cohort of students without increasing beds, buildings and facilities. This can be accomplished by adding both a mandatory summer semester and a semester abroad.

o   Expand the definition of student. Not all students need to matriculate. If you have the brand and course offerings why not offer them online to anyone who wants to pay for one or several courses at their own pace?

o   Treat alumni as lifelong learners and market courses and certificate programs to them. These will become increasingly important given the pace of change in business brought about through technology innovations.

o   Expand your online offerings to community colleges and businesses that are struggling to offer courses in certain disciplines where there exists a shortage of knowledgeable instructors

Expand the offerings:

o   Find your area of differentiation and build a beachhead.

o   Innovate curricular offerings to allow more students to gain real world experience while getting a degree through a blended offering. This can even be done in partnership with businesses that have loosened the bachelor degree requirement, or simply want to allow workers to update their skills.

These are just a few ideas that I came up with over the past few days of thinking about ways to increase revenue without increasing costs. I’m not sure how many institutions are actively working on ways to change the higher education business model. My guess is that like many problems, there are those who are actively thinking ahead, those we are thinking about thinking ahead, and those who will never get ahead.

Have some ideas? I’d like to hear them.

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