In a recent post, I spoke at length with Rick Beyer. Rick is a managing partner of Miles Howland Education Partners, an investment firm focusing on the higher education sector. In that interview we discussed innovation relating to macro trends in education. In this second interview we are talking about innovation challenges and opportunities that are common to both private enterprise and institutions of higher education. Rick is uniquely qualified to speak to these challenges: In addition to his current role as an investment professional, he also happens to be a former college President and a former technology CEO. His current research is in the areas of “unbundling” the college degree, the high cost (price) of education, and the role of education — especially the humanities and liberal arts — in vocational staying power. Following are some highlights of our second conversation.
Henry: Over your career, you have worked in three large verticals, all of which experienced significant change. The similarities might be instructive, so talk to me about common challenges you see between higher education, transportation and telecommunication.
Rick: Well, it’s interesting and I think instructive to look at the macro challenges that all of those have in common. In all three, highly disruptive innovations emerged which changed these sectors in very dramatic ways, over very short time frames. Many organizations found it difficult to respond, and found it difficult to implement change; I think that usually this was driven by cultural factors. Resistance to change came primarily from those organizations who thought they had the most to lose. But over time disruptive innovations coupled with changing consumer behavior actually shaped the future of these industries. And that happened whether the organizations were willing participants in the change or not. The disruption came from new market entrants, and rarely from within organizations. This is definitely the consistent theme. New entrants could see more possibilities, and generally did not have the inertia of an existing economic model, or a rigid organizational culture, or major downside risks. And when I say that, I can’t help but think of the parallels to our existing system of higher education.
Henry: So, given these parallels you see, and the inevitability of disruptive change, what do you see happening with educational institutions, and what changes should they expect in the future?
Rick: Consumers of education are changing their purchasing habits. As we noted earlier, this is due to a combination of cost, and a growing concern about student’s and family’s return on investment, specifically related to skill sets, jobs, and debt. There is an imbalance between what a “college education” is sold as, and what it actually does — it’s a disconnect in the “college story,” if you will. That conflict or imbalance in the education value proposition, is tricky, so let’s try it this way: If non-profit colleges, who make up more than 80% of the market, want their value proposition to be sustainable, then by necessity, they are going to have to place an ever-increasing emphasis on both delivering and measuring their institution’s effectiveness in job placement.
Henry: And the problem with that would be?
Rick: It’s not a problem, but a disconnect. Many colleges have two unspoken or assumed goals in their cultures: 1) To educate and prepare students for a fulfilling and meaningful life, or 2) To prepare them for a job. These two goals are somehow seen as being in conflict, as being mutually exclusive, whether overtly stated, or just as a part of the cultural narrative in institutions. In fact, we need our educational system to do both. And I think as consumers increasingly compare alternative sources of learning and experience, as they experience more tuition sticker shock, more debt load, and less direct correlation between their degree and future income . . . well, inevitably they will place even more demands on colleges.
I think our non-profit colleges need to think about a scenario where they retool their basic paradigm, using a blended approach of leveraging the digital world for their students on campus, while implementing a curriculum directly related to job skill sets. Then they align these goals to the core human value sets of the traditional humanities. And — here’s the tricky part – as they do this, they will need to sell these programs at significantly lower costs than they do today.
Henry: This sounds difficult, challenging, and something that will be a hard sale to those institutions that are doing OK, that are seeing rising, or at least stable, enrollments, whose endowments are providing cushions for financial bumps, and who have had a long period of successfully raising prices without losing market share. So, how do you make the case for change?
Rick: The non-profits with large endowments will have a great advantage over others because of their resources, and will be better able to expand enrollment with alternative, low-cost delivery methods. The big will get bigger. These institutions will make the case for change by looking at growth opportunities. The case for change for the middle and lower part of the market is much more problematic; they are at the greatest risk. These include institutions with low endowments, high sticker prices, or rural markets. These institutions receive the brunt of the impact when consumers change their purchasing habits. So the difficulty of change for the middle and low-end of the market needs to be calculated against the risk of doing nothing. Many organizations will embrace rigidity and hunker down, hoping the storm passes without harm. History will show the risk of doing nothing is far greater than making informed and calculated decisions to create a prosperous future.
Henry: When you talk about significantly lower consumer prices for tuition,these are not tweaks or minor changes to operations and strategy. We are talking about major, radical changes — the hardest kind to implement.
Rick: Change, yes. Radical? It depends on your perspective. Again, let’s be clear — I think the changes we are talking about are inevitable. As an example, let’s start with general education requirements. The technology and innovation exists today to deliver competency based education at a cost that is reduced by 80% or more from existing norms. I would argue that a Freshmen English class should not cost $1,500 to $4,000 per course when consumers can purchase this content for $250 or less . If there is an opportunity in the marketplace for a student to buy their Freshmen English credits for $250, rather than $2,000 or $3,000, where do you think they will start going? This is where unbundling of the degree is going to make an impact. And let me say this again: Innovations like unbundling the degree are here today, right now. Students are taking classes from sources outside of their institution for transfer credit, and this is causing price competition as we speak. So, while it may appear to be radical to an institution charging $3000 for the class, it is completely natural for the innovator to address learning outcomes and competency with new delivery methods which lead to a new low-cost structure.
Henry: How can existing institutions, which have a cost basis supported at $3,000 per class, compete with a cost basis of $250 or less? That almost sounds impossible.
Rick: Here lies the tension of two conflicting alternatives. A campus-based institution may have a cost basis of $3,000 per class when they amortize fixed and variable expenses, plus debt service; essentially, students have to buy the “whole college” to get a particular class. Under this campus-based model, there is no amount of cost cutting that can be done to compete with lower price alternatives; so institutions can either fight this trend or look at developing completely new and alternative economic models for delivering blended learning.
There is an explosion of educational content being developed where the creators are in fact established faculty who are in a position to certify their learning outcomes for college credit and then license their content. We see this happening right now and there will more to come in the future.
Henry: OK. These are big issues, they are inevitable, and they have to be addressed. So let’s shift to the people element of higher education and what you see changing at colleges and universities?
Rick: We are moving on into the digital age, and some strategists have suggested that really we are just now at the beginning of innovation in the digital world — that the real disruptive digital innovations are yet to come. As we progress further into the digital age, the skill set requirements at our campuses will be different. Really different. The role of the faculty will change, moving from lecturing and teaching to mentoring and coaching. Enrollment management for campus-based students is vastly different from management of online enrollment, and requires different skill sets. Institutions will need to create new policies and governance structures to address online and digital learning. The rhythm of the internal operations at institutions will be vastly different in a digital world. Just think about non-profit institutions having to respond in minutes or seconds, rather than weeks, to student inquiries. In this new world, I think colleges will find it difficult — very difficult — to successfully apply past policies and operational procedures to the digital market. The people challenge will be both skill sets and the depth of available talent. This will drive institutions to look at partnerships to outsource services with companies who have the depth of core competencies required to sustain an acceptable service level for students and results for the colleges.
Henry: Well . . . In some ways, this future seems a bit grim, to say the least, for some incumbent institutions. Do you think we are going to wake up one day and see colleges go out of business?
Rick: I am optimistic about the future of higher education. Innovative organizations who can leverage new approaches to learning, while meeting consumer needs in a lower cost manner, will do well. And most incumbent institutions have the ability to meet this soon-to-be future state successfully, if they couple this ability with institutional will. The “will” part of it is probably the biggest challenge. On the other hand we may look back seven to ten years from now and ask where did all the colleges go? I guess one way to think about this is that for sure there will be winners and losers.
Henry: I think the angst this conversation produces will be about the seeming conflict between these rather mundane considerations of cost, pricing, technology, innovation, disruption and so on, and the more idealistic, noble aims of professional educators. I feel a bit of that angst myself just talking about it! What do you say to the idealists in the room who are turned off by some of these potential changes?
Rick: To idealists, I say that you are the glue, the foundation, the core value of what it means to be educated. Without you, we lose the soul of higher education. It is probably true that it’s the practical skill sets that will prepare students for their job, as a rule. But it will be the Humanities, the arts, the ability to think deeply about a subject that will make you who you are. Colleges and universities will need to rely upon their best creativity, critical thinking and wisdom to develop new economic models, to prosper in this new digital age and – let’s emphasize the “and” here — preserve all the idealism and depth of learning that makes for a profound and meaningful education. You don’t have to choose one or the other, you know.
Henry Doss is a venture capitalist, a volunteer in higher education, a student and a musician.
Henry: Over your career, you have worked in three large verticals, all of which experienced significant change. The similarities might be instructive, so talk to me about common challenges you see between higher education, transportation and telecommunication.
Rick: Well, it’s interesting and I think instructive to look at the macro challenges that all of those have in common. In all three, highly disruptive innovations emerged which changed these sectors in very dramatic ways, over very short time frames. Many organizations found it difficult to respond, and found it difficult to implement change; I think that usually this was driven by cultural factors. Resistance to change came primarily from those organizations who thought they had the most to lose. But over time disruptive innovations coupled with changing consumer behavior actually shaped the future of these industries. And that happened whether the organizations were willing participants in the change or not. The disruption came from new market entrants, and rarely from within organizations. This is definitely the consistent theme. New entrants could see more possibilities, and generally did not have the inertia of an existing economic model, or a rigid organizational culture, or major downside risks. And when I say that, I can’t help but think of the parallels to our existing system of higher education.
Henry: So, given these parallels you see, and the inevitability of disruptive change, what do you see happening with educational institutions, and what changes should they expect in the future?
Rick: Consumers of education are changing their purchasing habits. As we noted earlier, this is due to a combination of cost, and a growing concern about student’s and family’s return on investment, specifically related to skill sets, jobs, and debt. There is an imbalance between what a “college education” is sold as, and what it actually does — it’s a disconnect in the “college story,” if you will. That conflict or imbalance in the education value proposition, is tricky, so let’s try it this way: If non-profit colleges, who make up more than 80% of the market, want their value proposition to be sustainable, then by necessity, they are going to have to place an ever-increasing emphasis on both delivering and measuring their institution’s effectiveness in job placement.
Henry: And the problem with that would be?
Rick: It’s not a problem, but a disconnect. Many colleges have two unspoken or assumed goals in their cultures: 1) To educate and prepare students for a fulfilling and meaningful life, or 2) To prepare them for a job. These two goals are somehow seen as being in conflict, as being mutually exclusive, whether overtly stated, or just as a part of the cultural narrative in institutions. In fact, we need our educational system to do both. And I think as consumers increasingly compare alternative sources of learning and experience, as they experience more tuition sticker shock, more debt load, and less direct correlation between their degree and future income . . . well, inevitably they will place even more demands on colleges.
I think our non-profit colleges need to think about a scenario where they retool their basic paradigm, using a blended approach of leveraging the digital world for their students on campus, while implementing a curriculum directly related to job skill sets. Then they align these goals to the core human value sets of the traditional humanities. And — here’s the tricky part – as they do this, they will need to sell these programs at significantly lower costs than they do today.
Henry: This sounds difficult, challenging, and something that will be a hard sale to those institutions that are doing OK, that are seeing rising, or at least stable, enrollments, whose endowments are providing cushions for financial bumps, and who have had a long period of successfully raising prices without losing market share. So, how do you make the case for change?
Rick: The non-profits with large endowments will have a great advantage over others because of their resources, and will be better able to expand enrollment with alternative, low-cost delivery methods. The big will get bigger. These institutions will make the case for change by looking at growth opportunities. The case for change for the middle and lower part of the market is much more problematic; they are at the greatest risk. These include institutions with low endowments, high sticker prices, or rural markets. These institutions receive the brunt of the impact when consumers change their purchasing habits. So the difficulty of change for the middle and low-end of the market needs to be calculated against the risk of doing nothing. Many organizations will embrace rigidity and hunker down, hoping the storm passes without harm. History will show the risk of doing nothing is far greater than making informed and calculated decisions to create a prosperous future.
Henry: When you talk about significantly lower consumer prices for tuition,these are not tweaks or minor changes to operations and strategy. We are talking about major, radical changes — the hardest kind to implement.
Rick: Change, yes. Radical? It depends on your perspective. Again, let’s be clear — I think the changes we are talking about are inevitable. As an example, let’s start with general education requirements. The technology and innovation exists today to deliver competency based education at a cost that is reduced by 80% or more from existing norms. I would argue that a Freshmen English class should not cost $1,500 to $4,000 per course when consumers can purchase this content for $250 or less . If there is an opportunity in the marketplace for a student to buy their Freshmen English credits for $250, rather than $2,000 or $3,000, where do you think they will start going? This is where unbundling of the degree is going to make an impact. And let me say this again: Innovations like unbundling the degree are here today, right now. Students are taking classes from sources outside of their institution for transfer credit, and this is causing price competition as we speak. So, while it may appear to be radical to an institution charging $3000 for the class, it is completely natural for the innovator to address learning outcomes and competency with new delivery methods which lead to a new low-cost structure.
Henry: How can existing institutions, which have a cost basis supported at $3,000 per class, compete with a cost basis of $250 or less? That almost sounds impossible.
Rick: Here lies the tension of two conflicting alternatives. A campus-based institution may have a cost basis of $3,000 per class when they amortize fixed and variable expenses, plus debt service; essentially, students have to buy the “whole college” to get a particular class. Under this campus-based model, there is no amount of cost cutting that can be done to compete with lower price alternatives; so institutions can either fight this trend or look at developing completely new and alternative economic models for delivering blended learning.
There is an explosion of educational content being developed where the creators are in fact established faculty who are in a position to certify their learning outcomes for college credit and then license their content. We see this happening right now and there will more to come in the future.
Henry: OK. These are big issues, they are inevitable, and they have to be addressed. So let’s shift to the people element of higher education and what you see changing at colleges and universities?
Rick: We are moving on into the digital age, and some strategists have suggested that really we are just now at the beginning of innovation in the digital world — that the real disruptive digital innovations are yet to come. As we progress further into the digital age, the skill set requirements at our campuses will be different. Really different. The role of the faculty will change, moving from lecturing and teaching to mentoring and coaching. Enrollment management for campus-based students is vastly different from management of online enrollment, and requires different skill sets. Institutions will need to create new policies and governance structures to address online and digital learning. The rhythm of the internal operations at institutions will be vastly different in a digital world. Just think about non-profit institutions having to respond in minutes or seconds, rather than weeks, to student inquiries. In this new world, I think colleges will find it difficult — very difficult — to successfully apply past policies and operational procedures to the digital market. The people challenge will be both skill sets and the depth of available talent. This will drive institutions to look at partnerships to outsource services with companies who have the depth of core competencies required to sustain an acceptable service level for students and results for the colleges.
Henry: Well . . . In some ways, this future seems a bit grim, to say the least, for some incumbent institutions. Do you think we are going to wake up one day and see colleges go out of business?
Rick: I am optimistic about the future of higher education. Innovative organizations who can leverage new approaches to learning, while meeting consumer needs in a lower cost manner, will do well. And most incumbent institutions have the ability to meet this soon-to-be future state successfully, if they couple this ability with institutional will. The “will” part of it is probably the biggest challenge. On the other hand we may look back seven to ten years from now and ask where did all the colleges go? I guess one way to think about this is that for sure there will be winners and losers.
Henry: I think the angst this conversation produces will be about the seeming conflict between these rather mundane considerations of cost, pricing, technology, innovation, disruption and so on, and the more idealistic, noble aims of professional educators. I feel a bit of that angst myself just talking about it! What do you say to the idealists in the room who are turned off by some of these potential changes?
Rick: To idealists, I say that you are the glue, the foundation, the core value of what it means to be educated. Without you, we lose the soul of higher education. It is probably true that it’s the practical skill sets that will prepare students for their job, as a rule. But it will be the Humanities, the arts, the ability to think deeply about a subject that will make you who you are. Colleges and universities will need to rely upon their best creativity, critical thinking and wisdom to develop new economic models, to prosper in this new digital age and – let’s emphasize the “and” here — preserve all the idealism and depth of learning that makes for a profound and meaningful education. You don’t have to choose one or the other, you know.
Henry Doss is a venture capitalist, a volunteer in higher education, a student and a musician.
8/03/2014 @ 2:44PM
http://www.forbes.com/sites/henrydoss/2014/08/03/the-education-revolution-is-here-right-now-dont-miss-it/
http://www.forbes.com/sites/henrydoss/2014/08/03/the-education-revolution-is-here-right-now-dont-miss-it/
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