The Sin of Higher Ed Business Models
Recently, I read Amit Mrig’s (President of Academic Impressions) white paper titled “The Other Higher-Ed Bubble,” in which he describes a “denial bubble” in academic leadership. Specifically, he outlines and describes four assumptions that are “rooted in past practices and experiences, that no longer hold true and that often hold leaders back from taking a new and different approach” to meet current challenges facing the industry. He makes the point that these are “false assumptions” now, in today’s environment, in addition to a popular understanding of a financial bubble for the middle tier of educational institutions. This is a truly excellent white paper, serving as a call to action for higher education leadership. Still, it doesn’t go far enough in opening eyes to the industry’s most harmful embedded assumption regarding why the market (i.e., the consumer) is interested in paying money to attend higher education institutions in the first place.
Additionally, I read an article by John Tamny in Forbes, in which he argues that there is no higher education financial bubble because parents and students have always and will continue to pay for the experience (e.g., career networking) that college provides. In fact, he writes that employers don’t really care about the knowledge learned by the student, at say Yale or Stanford, but instead use attendance at prestigious schools as a signal that the student “is smart, probably hard working for having been accepted, and in possession of [attributes], that the individual can likely learn the skills necessary to achieve on the job”. After reading this article, the reader is left to think about the motivations, quality of education, and price sensitivity of higher education market participants affiliated with non-prestigious schools.
Is it not obvious that a student’s greatest pain point relates to placing his/her ability at the best-fit and at the best price of the process? Is it not evident that education, career guidance, and life-design are merely key activities in support of placement at best-fit? And reducing friction is critical to achieving the best price in the placement process?
As a Global Career Development Facilitator and startup entrepreneur in this space, what is particularly interesting to me is that both authors can relate to the challenges facing higher ed today. Still, each misses the deeper critical problem in the industry. Amit sheds light on baked-in assumptions that he feels need to be questioned, and John sheds light on bottom-line motivation from the market’s perspective, albeit at the top end of the market. However, each author seems to miss the critical baked-in assumption and bottom-line motivation that applies to the mass market, the long-tail of the market.
Any business model that prioritizes viability and sustainability must align with the solution provider (or become the solution provider) who can effectively and efficiently address the market’s most significant pain point, outperforming competing alternatives. The sin of higher education business models is a failure to design for, or closely align with, the placement of ability at the best fit and at the best price within the process. I cannot identify one business model in higher education that even attempts, let alone succeeds, to design for such.
As a result, the disruption we are witnessing in higher education today is just the beginning. The disruption will destroy every higher education business model, including online education models that do not focus on placement at the best price for the mass market. The reason the prestigious school’s business model will eventually be destroyed is that the solution provider successfully serving the mass market will eventually have access to cheaper capital to create solutions that satisfy the top end of the market at a lower cost. I think that ALL (save for niche ability development) higher ed business models that do not reconstruct their value proposition to deliver placement at best-fit are going to fail because that is the most significant pain point in the mass market.
Frustratingly, most leaders don’t care enough to reconstruct the higher ed business model today. I believe it is because they are nearing the end of their careers, and they understand how slow change occurs in higher education. So, the vast majority of leaders are less inclined to support risks associated with reconstructing the value proposition. However, the disruption being leveled from the “outside” will continue in the interim, and the harm to younger higher ed stakeholders will be greater as a result of the lack of current leadership to reconstruct today.
Personally, I think that the higher education industry will be viewed twenty years from now as the most excellent mechanism ever to aggregate ability, but it failed at designing a viable and sustainable business model because it thought its core sustainable deliverable was academic credentials rather than placement at the best fit.
For further reading on how leadership in higher ed may be screwing up a great business opportunity, similar to how the music industry leadership screwed up in the face of innovation, read Clay Shirky’s prior blog post titled “Napster, Udacity, and the Academy“.
What do you think?
* Friction is everything that slows down the process of making better placement decisions faster. Examples of “hard” friction include voicemail, phone tag, text tag, and travel. And then there’s email, which is the worst collaboration tool ever used on a wide scale! Examples of “soft” friction include the lack of transparency, relevant content, knowledge, and intelligence. All friction inhibits getting through a placement process efficiently (speed/cost) and effectively (accuracy).
