Disruptive Innovation Hits the University

Trends Magazine

The U.S. higher education system is ripe for disruption.  As Harvard Business School professor Clayton Christensen has explained in many books, articles, and lectures, disruption occurs in an industry when a product or service, through many incremental innovations, becomes bloated with many features that add expense without adding value.  Competitors enter the low end of the market with a disruptive innovation—typically a low-frills offering that attracts customers that the industry incumbents don't want to serve.  Over time, the new offering attracts more and more of the mainstream market, until the upstart competitors dominate the industry.

This pattern has played out countless times in all types of industries, from computer disk drives to steel, from televisions to automobiles—and now, it is just beginning to unfold in the higher education system.

Consider the following facts about the price-performance of traditional colleges and universities:

 

1. The average cost to earn a bachelor's degree now exceeds $100,000, and education costs are rising faster than healthcare costs.¹
2. The high costs of tuition are creating an obstacle to higher education:  In 2010, the Organization for Economic Cooperation and Development ranked the United States 14^th in the world in the percentage of 25-34 year-olds with college degrees.  As recently as 1990, the U.S. ranked first.²
3. The emphasis on research rather than teaching at many universities contributes to high tuition costs and subpar learning:  As Christensen points out, the vast majority of colleges give a large portion of their faculties' salaries to fund research that doesn't benefit anyone.³
4. Grade-point averages have been on the rise because of grade inflation, rendering them meaningless as a way to judge a job candidate's readiness for a job.  A 2012 study revealed that the percentage of A's given by college teachers nearly tripled between 1940 and 2008.⁴ 
5. The failure of college education to meet the needs of employers has created a skills gap:  Only one in four employers think that two- and four-year colleges are doing a good job preparing students for the global economy, according to a 2010 survey conducted for the Association of American Colleges and Universities.⁵
6. A college degree is no longer a guarantee of employment.  According to Future Jobs:  Solving the Employment and Skills Crisis, by Edward E. Gordon, half of recent college graduates were either jobless or underemployed in 2012.  This was the fifth consecutive year that graduates faced such a tough labor market.^{6, 7} 
7. As a result of the previous factors, a college education provides a poor ROI.  According to a 2011 Pew Research Center survey of Americans, nearly 60 percent responded that institutions of higher learning were not delivering good value for the tuition that students and their families were spending.⁸ 

Because traditional colleges and universities are not preparing most graduates for the workforce, many employers in need of workers with creative skills are now actually assigning a low weight to having a college degree in the hiring process.  For example, Google selects job candidates based on their abilities, not their academic credentials, and as a result a significant number of its employees are not college graduates.⁹

At the same time, the high costs of tuition and other barriers to higher education are keeping millions of people who are interested in gaining the knowledge taught in universities from accessing it.  That unmet demand among people who are currently nonconsumers of higher education opens the way for disruption at the low end of the market.

That disruption has begun with widespread enrollment in MOOCs (massive open online courses).  Offered by providers such as Coursera, Udacity, edX, Knewton, Khan Academy, and others, MOOCs are typically free courses that are open to hundreds of thousands of students. 

To understand how fast this field is growing, consider that, as of 2000, only 45,000 students had taken an online course.  Today, about 6.7 million students have now taken at least one online class, according to the Sloan Survey of Online Learning.¹⁰ 

MOOCs aren't just an alternative to traditional classroom education.  They are already replacing college courses for students enrolled at top universities.  Christensen points out that Harvard Business School no longer offers entry-level accounting courses because a professor at Brigham Young University has developed an online course that is far superior to any instruction Harvard's faculty could provide.  Harvard students are required to take the class online before starting school.

By next summer, Harvard Business School also plans to offer online courses for MBA candidates and post-grads.

This fits the classic pattern of disruption.  Established competitors in disrupted industries don't disappear overnight; there's often a period in which hybrids flourish. 

For example, 200 years ago, steamships didn't replace sailing ships immediately; sailing ship companies simply built hybrid ships that could be powered by steam or by wind.  Eventually, however, every transoceanic sailing ship company failed to convert completely to the new technology and all of them went bankrupt.

More recently, cars that run on electricity haven't displaced vehicles that burn gas; instead, hybrids like the Prius have emerged as the industry transitions from one technology to the next.

How is the disruption of the higher-education system likely to unfold?  Here are our forecasts:

First, the dominant paradigm in the next decade or two is likely to be a hybrid of classroom instruction combined with online courses from third-party providers such as Coursera. 

If, however, all these institutions do is add online courses to their traditional model, they won't make it to the middle of the century.  Essentially, they are like the sailing ship companies that added a steam engine while new entrants were building ships that ran on steam alone.  Unless universities use MOOCs to lower the cost of education and save time for students, they will suffer the same fate as the shipbuilders that were designing obsolete boats for a market that no longer existed.  Christensen predicts that about 25 percent of colleges and universities will either close or merge in the next 10 to 15 years.

Second, the widespread enrollment of students in MOOCs will lead to several other changes. 

Fewer teachers will be needed, and fewer campus facilities will be used.  This will drive down the cost of education and make it much more accessible.  The remaining teachers won't have to teach the basics, which will be covered in online courses.  Therefore, they will be free to coach students individually and to apply the material to real-world applications.  Students will also be able to take classes at any time, anywhere, at their own pace, and will be able to customize their course load to work on specific competencies that are valued by employers.

Third, colleges will no longer be responsible for determining whether a student is ready to enter the workforce. 

Professional organizations will administer standardized tests for proficiency in liberal arts fields, the sciences, and business, just as bar associations, medical boards, and engineering certification boards already certify the skills of lawyers, physicians, and certain types of engineers.

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In addition, new types of tests that measure crucial workplace skills will be used by employers to evaluate candidates for jobs.  For example, according to the Wall Street Journal, "A new test for college seniors that aims to be the SAT for prospective employers is the latest blow to the monopoly long-held by colleges and universities on what it means to be well-educated."¹¹  Graduating students at 200 U.S. colleges will take a new test next spring that is designed to give employers a better measure of their readiness for the workforce than their grade-point average.  Called the Collegiate Learning Assessment (CLA+), it measures critical thinking skills, analytical reasoning, document literacy, and writing, instead of focusing on the individual's knowledge of a specific subject area.  In response, traditional testing firms are introducing new tests of their own.  Educational Testing Service, creators of the Graduate Record Exam, awards certificates for high marks on its Proficiency Profile, which measures critical thinking, reading, writing, and math.  And the developers of the ACT college-admission exam now issues a National Career Readiness Certificate, which assesses skills such as synthesizing and applying information presented graphically.

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Fourth, the final step in the disruption of the education industry will come when MOOCs are woven into affordable programs that are designed with students and employers in mind. 

The hybrid model will enable traditional universities to survive for a decade or so, but if they simply add online courses to their existing curriculum they won't last longer than that.  Alternative models are already ramping up.  In 2014, Georgia Institute of Technology will offer an online master's degree program through an alliance with AT&T and MOOC provider Udacity.¹²  The cost will be just $6,600, which is 83 percent less than the cost of its traditional MBA.

Fifth, even as online learning replaces much of classroom instruction, the social interaction that defines the traditional college experience will not disappear completely. 

Conventional residence halls on university campuses will not be needed when students are attending lectures on their phones or laptops, but students will have opportunities to meet in virtual study groups or to move into shared living spaces for students taking the same online programs in cities around the country.

Resource List:

 

1. MIT Technology Review, November/December 2012, “The Crisis in Higher Education by Nicholas Carr.  © 2012 by MIT Technology.  All rights reserved.  
   http://www.technologyreview.com/featuredstory/429376/the-crisis-in-higher-education/
2. To access the report “Education at a Glance 2013,” visit the Organization for Economic Cooperation and Development website at:   
   http://www.oecd.org/education/eag.htm
3. The Economist, June 13, 2013, “Clayton Christensen: Still Disruptive.”  © 2013 by The Economist Newspaper Limited.  All rights reserved.         
   http://www.economist.com/whichmba/clayton-christensen-still-disruptive
4. The Wall Street Journal, August 25, 2013, “Are You Ready for the Post-College SAT?” by Douglas Belkin.  © 2013 by Dow Jones & Company, Inc.  All rights reserved.         
   http://online.wsj.com/news/articles/SB10001424127887323980604579029143959843818
5. Ibid.
6. Future Jobs: Solving the Employment and Skills Crisis by Edward E. Gordon is published by Praeger, an Imprint of ABC-CLIO LLC.  © 2013 by Edward E. Gordon.  All rights reserved.
7. A summary of “Where the Jobs Are” in digital or CD format is available from AudioTech Inc.  © 2013 by AudioTech Business Book Summaries.  All rights reserved.          
   http://www.audiotech.com/business-summaries/jobs-entrepreneurship-soul-american-economy
8. To access the Pew Research Center survey about education, visit their website at:
   http://www.pewresearch.org/2012/05/17/college-graduation-weighing-the-cost-and-the-payoff/
9. The New York Times, June 19, 2013, “In Head-Hunting, Big Data May Not Be Such a Big Deal,” by Adam Bryant.  © 2013 by The New York Times Company.  All rights reserved.    
   http://www.nytimes.com/2013/06/20/business/in-head-hunting-big-data-may-not-be-such-a-big-deal.html?pagewanted=1&_r=0
10. To access the Sloan survey of online learning, visit the Sloan Consortium website at:     
    http://sloanconsortium.org/publications/survey/changing_course_2012
11. The Wall Street Journal, August 25, 2013, “Are You Ready for the Post-College SAT?” by Douglas Belkin.  © 2013 by Dow Jones & Company, Inc.  All rights reserved.         
    http://online.wsj.com/news/articles/SB10001424127887323980604579029143959843818
12. The New York Times, November 1, 2013, “Innovation Imperative: Change Everything,” by Clayton M. Christensen and Michael B. Horn.  © 2013 by The New York Times Company.  All rights reserved.    
    http://www.nytimes.com/2013/11/03/education/edlife/online-education-as-an-agent-of-transformation.html

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