rethinking higher education business models

8/2/2019 Rethinking Higher Education Business Models

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1 Center or American Progress | Rethinking Higher Education Business Models

Rethinking Higher EducationBusiness Models1

Steps Toward a Disruptive Innovation Approach to

Understanding and Improving Higher Education Outcomes

By Robert Sheets, Stephen Crawford, and Louis Soares March 28, 2012

Introduction and Summary

Te cos o college has skyrockeed during he las wo decades, rising by 429 percen,

a rae has even higher han he rae or healh care. o cover hese coss sudens have

borrowed ever-larger amouns resuling in an average deb a graduaion now exceeding

$27,000. Ye only 50 percen o sudens pursuing a bachelors degreeand 21 percen

o hose pursuing an associaes degreecomplee heir college programs.

Clearly, he grea challenge acing higher educaion oday is o conain coss while a he

same ime improving oucomesin shor, o increase produciviy.

Inormaion echnology has long been seen as a major key o meeing his challenge, bu he

resuls hus ar have been disappoining. In his brie we argue ha he aul is no wih he

echnology bu raher in he ways i has been deployed. Drawing on he work o eminen

Harvard Business School proessor Clayon Chrisensen and ohers, we explain he need

or parallel innovaions in higher educaions business models and value neworks. We also

urge policymakers o aciliae such innovaions by unding more applied research in hese

and relaed areas, including higher educaions regulaory and sandards environmens.

Concerns abou college aordabiliy have grown so serious ha Presiden Barack

Obama issued a warning abou he rising cos o higher educaion in his mos recen

Sae o he Union address. A he same ime his adminisraion is encouraging innova-

ion in higher educaion hrough such iniiaives as Firs in he World and Race o he

op: College Aordabiliy. While we applaud such iniiaives i is imporan o noe ha

hese iniiaives are ar more likely o succeed i hey are inormed by an undersanding

o he dierences beween susaining and disrupive innovaion and he roles ha new

business models and value neworks play.


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Te heory o disrupive innovaionhe noion ha cerain innovaion can improve

a produc or service in such a way ha i creaes new markes ha displace exis-

ing oneswas developed and advanced by Chrisensen in he 1990s. According o

Chrisensen, who has sudied he evoluion o many indusries, disrupive innovaion

occurs when sophisicaed echnologies are used o creae more simplied and more

accessible soluions o cusomers problemssoluions ha are oen less high perorm-

ing han previous echnologies bu whose price and convenience atrac whole newcaegories o consumers. Te rs generaions o ransisor radios, deskop compuers,

and MP3 players are examples. Tese new soluionsinnovaions o exising echnolo-

gies deployed hrough new business modelsgradually improved o he poin where

hey displaced he previously dominan soluions. Chrisensens key poin, however, is

ha new echnologies like hese canno achieve heir ransormaive poenial wihou

compaible changes in heir indusry s business models and value neworks, which in

urn may require shis in he sandards and regulaory environmen.2

Innovaions in business models have occurred in mos secors o our economy, rom

manuacuring (Nucor Corp.) o music (iunes) and rom healh care (Minue Clinics)o reail (Amazon and eBay). In each, echnology drove new ways o doing business o

creae more value or cusomers. Recen repors have highlighed emerging business

models ha may have similar poenial in higher educaion, including hose represened

by Wesern Governors Universiy, MIx, Carnegie Mellons Open Learning Iniiaive,

and he leading or-pro insiuions.3 Tese business models exhibi many o he

eaures o wha expers call mulisided, unbundled, and open business models.4 Some

observers believe hey have he poenial o dramaically change how insrucion and

research are delivered o expand access, reduce coss, and aciliae degree compleion.

Building on CAPs previous work in Disruping College and Guiding Innovaion inHigher Educaion, his brie begins by explaining Chrisensens analyical ramework. I

hen ocuses on one componen o ha ramework, business models, and explains some

imporan ypes o hem. We hen explore how new higher educaion business models

could beter harness recen advances in inormaion echnology and hereby achieve

dramaic improvemens in learning and credenialing, research and developmen, and

business managemen.5 Lasly, our brie examines he policy implicaions, especially or

he ederal governmens applied research budge, our objecive being o help policymak-

ers undersand wha works well and wha has he poenial o be successully replicaed on

a large scaleo go o scale. Specically, our policy recommendaions include:

Using disrupive innovaion hinking as a guide or compeiive gran making in

higher educaion programs and research Surveying ederal agencies o ideniy all relevan programs and classiy hem accord-

ing o he key caegories or innovaion in higher educaionlearning and credenial-

ing, research and developmen, and general business services ha suppor he rs wo


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Creaing a primer on disrupive innovaion or gran making ha will be used across

ederal agencies Creaing a disrupive innovaion panel o help he Obama adminisraion evaluae

new echnologies and he business models hey enable or scalabiliy

Christensens analytical framework

In he early 2000s Chrisensen and his colleagues developed a useul analyical rame-

work ha highlighs our key drivers o disrupive innovaion: echnological enablers,

business model innovaions, value nework adjusmens, and he sandards and regula-

ory environmen. Les examine each more closely, olding in ideas rom oher expers

where hey are helpul.

Technological enablers

According o Chrisensen and his co-auhors, echnology enables disrupive innova-

ion when sophisicaed echnologies creae more simplied and rouinized soluions

o cusomer problems or needs. In educaion he auhors poin o online learning

echnologies as well as more specic ypes o suden-cenric and adapive online

learning sysems based on advances in inormaion echnology as well as learning and

assessmen.6 Oher examples are breakhroughs in inormaion echnology relaed o

personalizaion, conen managemen and social media, daa managemen and analy-

ics, and he managemen o business processes.7 Gregory Jackson,8 vice presiden or

policy and analysis a EDUCAUSE, summarizes he recen advances in inormaion

echnology ha are mos relevan or higher educaion and oers an excellen assess-men o heir poenial o ransorm curren pracices.

Business model innovation

A business model describes how an organizaion creaes, delivers, and capures value.

Mos business model deniions highligh our key elemens:

Customer value proposition, which explains how an organizaion will address a

cusomer need Value chain, which organizes processes, parners, and resources o deliver he value

proposiion Profit formula, which lays ou how an organizaion will make money Competitive strategy, which describes how an organizaion will compee wih rivals

and deend is posiion in he value nework.

We describe each o hese elemens in more deail laer in he brie.


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Value networks

In he words o Chrisensen and his colleagues, a value nework is he conex wihin

which a rm esablishes is business model and how i works wih suppliers and chan-

nel parners or disribuors so ha ogeher hey can respond proably o he common

needs o a class o cusomers.9 Te overall design o he dominan value proposiions,

value chains, pro ormulae, and sraegies mus ogeher wihin a consisen andreinorcing economic logic so ha hey uncion well as a larger organizaional ecosys-

em. Consequenly disrupive innovaions are no easily plugged ino exising business

models and heir value neworks. Tey require new business models and he replace-

men or resrucuring o exising value neworks o ruly go o scale.

We build on and exend Chrisensens concep o value neworks by arguing ha

dominan business models and value neworks help esablish he overall shape and

compeiive srucure o an indusry, which isel consrains or enables disrupive inno-

vaion. According o Michael Porer, a disinguished Harvard Business School exper

on business sraegy,10

compeiive srucure involves hreas no only rom direc r ivalsand compeiors, bu rom he bargaining power o buyers and suppliers, new enrans,

and adjacen producs and services ha could be used in place o core indusry ones.

Tereore, business models, value neworks, and he compeiive srucure o indusries

mus be considered ogeher in examining opporuniies or disrupive innovaion.

Standards and regulatory environment

Te emergence and spread o new business models and heir value neworks is more

likely i he sandards and conormiy assessmen siuaion and he policy and regulaoryenvironmen are supporive.

Standards and conformity assessment environment

Te Unied Saes and oher counries promoe he developmen and implemenaion

o naional and global sandards and conormiy assessmen sysems or a wide variey

o purposes, including aciliaing global rade, improving he perormance o indusries,

increasing compeiion, and proecing consumers.11 Sandards are agreed-upon deni-

ions o he undamenal characerisics and ineraces o all ypes o eniies in hemarkeplace, including producs, services, sysems, organizaions, and even people.Tey can be used o promoe compeiion and collaboraion by aciliaing rans-parency and osering ineroperabiliyhe abiliy o uncion eecively wihoher sysemshereby reducing inormaion complexiy and swiching coss.

Conormiy assessmen sysems dene he approaches or ceriying ha an eniy con-

orms o he sandards used o describe i in he markeplace. Conormiy assessmen

can be used o promoe condence and rus in he markeplace among consumers and


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businesses.Like oher indusries,higher educaion has an acive public-privae san-dards and conormiy assessmen communiy in key areas such as compeency deni-

ion; assessmen and credenialing; digiized learning conen and learning managemen

sysems; daa inrasrucure managemen; insiuional and program accrediaion; and

insiuional and program comparisons and raings. Te acions o his communiy can

serve eiher o suppor or inhibi disrupive innovaion in higher educaion.

Regulatory and public policy environment

An indusrys regulaory and public policy environmen reecs governmens role in

promoing indusry perormance and proecing he indusrys consumers and oher

sakeholders as well as he general public ineres. Key areas o he regulaory and policy

environmen or higher educaions learning and credenialing services are suden

grans and loans, insiuional and program capaciy, insiuional accrediaion and

approval, perormance accounabiliy, and consumer inormaion and proecion.

Governmen agencies and legislaive bodies work wih esablished sakeholder and

ineres groups o improve he perormance o he dominan business models and value

neworks and o proec incumbens rom new and poenially disrupive enransbasically, mainaining he saus quo. A good illusraion o his ype o approach are su-

den loan policies ha assume ha higher educaion services will be delivered hrough

sandardized semeser-based schedules dened in erms o credi hours.

In Chrisensens ramework he mos imporan drivers o disrupive innovaion are no

he echnological innovaions hemselves, hough hey usually receive he mos aten-

ion. Insead hey are he innovaive business models ha can harness he power o

hese new echnologies and he value neworks ha suppor hem in he conex o he

sandards and regulaory environmen. For he purpose o policymakers who seek o

provide access o qualiy and aordable higher educaion or all Americans, undersand-ing he inerplay o hese our elemens o disrupive innovaion is a key o opimizing

he use o public unds. Since business models play a criical ye negleced role in disrup-

ive innovaion, we examine hem in greaer deail.

Business models

A business model is an organizaions blueprin or creaing, delivering, and capuring

value and or generaing he revenue i needs o cover coss, reward sakeholders, and

reinves in order o remain compeiive. All organizaions, wheher or-pro or non-

pro, have a business model, wheher or no is explici.

As menioned above, business models involve our core elemens:

A cusomer value proposiion, which explains how an organizaion will address cus-

omers needs hrough a produc or service i oers


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A value chain, which organizes processes, parners, and resources o deliver he value

proposiion A pro ormula, which lays ou how an organizaion will generae enough revenue o

more han cover coss A compeiive sraegy, which deails how an organizaion will compee wih rivals

and deend is posiion in he value nework12

Given he many possible combinaions o hese our elemens, i migh be hough ha any

paricular indusry would exhibi a wide variey o business models. In pracice, however,

mos maure indusries, including higher educaion, eaure only a ew, which are normally

reerred o as he indusrys dominan business model(s). Tese provide he main rajec-

ory or business growh and developmen wihin an indusryor example, he pah o

becoming a op-ier research universiy in he higher educaion indusry.

New business models arise and even displace he currenly dominan ones when innovaive

organizaions develop dieren value proposiions, value chains, pro ormulas, and/or

compeiive sraegies ha enable hem o provide greaer value o more cusomersoenby aking beter advanage o new echnologies. O special ineres here are business models

ha are open, mulisided, and unbundled and ha involve aciliaed neworks.

Open business models

As dened by Henry Chesbrough, a leading exper on open innovaion, open business

models involve he use o exernal as well as inernal ideas and resources, along wih exernal

as well as inernal pahways or deploying hem o creae and capure value or an organiza-

ion. Ouside-in sraegies exploi exernal ideas and resources wihin an organizaion,whereas inside-ou sraegies creae addiional value rom inernal ideas and resources by

moving hem hrough exernal pahways. In Chesbroughs view he mos advanced ype o

open business model is he open plaorm model. Tis model leverages cusomer co-

creaion and inerdependencies beween cusomer groups and atracs oher businesses o

inves ideas, ime, and money in ways ha increase he value o he plaorm or he organi-

zaion. Te use o such plaorms by Amazon and Apple are prime examples.13

Multisided models

Many open business models, especially open plaorm models, involve some eaures o

wha Alexander Oserwalder and Yves Pigneur, co-auhors o he 2010 bessellerBusiness

Model Generaion, call mulisided models. Tese creae value by aciliaing ineracions

beween inerdependen groups o cusomers, such as applicaions developers and users

on he plaorms.14 Higher educaion insiuions have a mulisided business model o

he exen ha hey leverage he inerdependencies beween employers and sudens in


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providing learning and credenialing services. Some also leverage he inerdependencies

beween businesses ineresed in commercializing universiy research and governmen

unders ineresed in acceleraing echnology and economic developmen.

Unbundled models

Many open business models, especially open plaorm models, also include key eaures o

wha Oserwalder and Pigneur call unbundled business models. Unbundled models sep-

arae hree core business uncions ha require dieren ypes o organizaional experise:

cusomer-relaionship managemen, produc innovaion, and inrasrucure managemen.

Cusomer-relaionship managemen businesses ocus on cusomer acquisiion and reen-

ion and seek o be a one-sop connecion or cusomers. Te hope is o realize signican

economies o scope by oering a comprehensive se o compeiive producs and services

ha can be provided in cooperaion wih inernal or exernal produc innovaion unis.

In conras, produc innovaion businesses ocus on he consan developmen o producs

and services ha can be promoed, disribued, and suppored hrough cusomer-relaion-

ship managemen businesses. Tey seek o harness economies o scale by disribuing heir

producs and services hrough large inernal or exernal disribuion channels managed by

cusomer-relaionship managemen parners.

Finally, inrasrucure managemen businesses also seek economies o scale, bu do so

by providing boh inernal and exernal cusomer-relaionship managemen and produc

innovaion businesses wih an inrasrucure plaorm ha can suppor large volumes

o ransacions. Te mos widely cied examples o unbundled business models arein elecommunicaions. Wireless providers build plaorms supporing producs and

services ha are oered by hardware and soware produc innovaors and are delivered

hrough cusomer-relaionship managemen businesseseiher he wireless providers

hemselves or exernal reail parners.

Facilitated network models

Chrisensen and his colleagues ideniy an addiional ype o business model ha could

prove highly relevan o higher educaionhe aciliaed nework model.15 Faciliaed

nework models can be used o enable cusomers o beter access and use he mos appro-

priae mixure o producs and services oered by muliple organizaions. In he healh care

indusry, or example, paien-cenered neworks provide suppor o paiens in accessing

and managing he services o muliple healh care providers. Similarly, in higher educaion

here are now organizaions ha provide career and educaional planning services direcly

o sudens who are searching or and applying o higher educaion programs. Tese models


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change he compeiive srucure o he indusry by increasing buyer power16 as a resul

o reducing inormaional complexiy and asymmery. o pu i more simply, sudens gain

some consumer leverage wih higher educaion insiuions ha radiionally have had more

inormaion abou he sudens han he sudens have had abou hem.

The promise

Business model rameworks have become a cornersone o business sraegy develop-

men and analysis across a wide variey o indusries and secors, and have more recenly

enered he discussion relaed o higher educaion. Mulisided and unbundled open

business modelsespecially when combined wih aciliaed nework modelshold

grea promise or improving he perormance o higher educaion. Ta promise ows

rom heir poenial o achieve enormous economies o scale and scope, and in he

process, enable genuine personalizaion in learning and credenialing along wih com-

parable improvemens in research and developmen and in business managemen. Te

ollowing secions examine ha poenial in each o hese hree areas.

Learning and credentialing

Chrisensen and his colleagues argue ha higher educaion insiuions incur major

coss and inefciencies by adminisering wo dieren ypes o business under one

rooresearch, which operaes as a soluions shop, and learning and credenialing,

which is a value-adding process.17 Ye learning and credenialing can isel be unbun-

dled o unlock even greaer economies o scale and scope.

In addressing sudens concern wih launching a successul career, colleges. and univer-

siies usually oer a value proposiion ha involves he ollowing elemens:

Deermining wha a suden needs o know and be able o do or a successul career

launch in a chosen eld Developing a sequence o learning experiences and relaed services or achieving hese

skills hrough a curriculum, including learning unis such as courses, modules, and

objecs, wih he necessary learning and assessmen resources Providing learning services based on he design and curriculumAssessing sudens skills and providing various ypes o credenialing, including

grades, porolios, cericaes, and degrees ha have marke value Connecing sudens wih employers, or example, hrough inernships, and helping

sudens nd and ransiion o employmen and advance in heir careers

Mos higher educaion insiuions ake a decenralized and bundled approach o

insrucion, meaning ha aculy deparmens, commitees, and/or individual aculy


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members develop he curriculumproduc innovaionand deliver he insruc-

ioncusomer-relaionship managemenhrough heir own processes. Mos aculy

members are conen expers who have no ormal raining in curriculum developmen

and insrucion. Ye hey are expeced o selec or develop mos o he learning and

assessmen maerials used in heir courses. Complicaing maters, hese processes may

be dieren or dieren delivery channels, such as credi versus noncredi programs.

Te radiional models also give grea laiude o aculy in how hey incorporae learn-ing echnologies, resuling in very uneven use in learning and credenialing.18

Furher, many higher educaion insiuions are under considerable pressure o oer

a large menu o programs and courses. Ye hese insiuions nd i difcul o acquire

he aculy experise and organizaional resources needed o ensure high qualiy

across such a broad range o specialies. One resul o his shorcoming is a com-

binaion o srong and weak programs. Given heir curren business models, hese

insiuions ace a real dilemmahey can achieve greaer economies o scale only

by sacricing economies o scope. Ta is, hey nd i almos impossible o oer as

wide an array o programs as desired by sudens (and someimes employers) and sillmainain high qualiy across he insiuion a aordable coss.

Insiuions using more innovaive business models are achieving greaer economies o scale

by increasing he cenralizaion o he produc innovaion uncion, including he design,

developmen, assessmen, and credenialing componens o he value proposiionha is

o say, he curriculum developmen. Tese insiuions also adminiser ewer programs and

minimize he number o pahways hrough hese programs wih ewer elecives.19

Wesern Governors Universiy in Sal Lake Ciy, Uah and many or-pro insiuions

have gone even urher, achieving signican economies o scale by cenralizing moreo he curriculum developmen uncion, oen in parnership wih ouside expers and

organizaions in heir value neworks. Tey organize he delivery o insrucion sepa-

raely, hrough sandardized processes using specially rained insrucors and menors.

Tey suppor boh uncions hrough cenralized inrasrucure managemen sysems

ha provide addiional economies o scale.

Tese innovaive business models can be expanded even more by urher ousourcing

curriculum developmen hrough parnerships wih oher universiies and colleges,

conen aggregaors, and academic and proessional publishers who are moving

o provide curriculum as a service. Tis ousourcing could draw rom public and

privae learning exchanges similar o he Learning Regisry, launched by he U.S.

Deparmens o Educaion and Deense in November 2011. Ousourcing could

provide insiuions wih naionally branded curricula (using he brand o a leading

universiy) or insiuionally branded curriculum (using a privae label) ha could

be delivered hrough he insiuions own delivery channels.


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Te parners providing insrucional delivery services could work wih inernal or exer-

nal curriculum developersouside-in modelso provide a wide array o personal-

ized programs and courses, including ones cusomized o mee he needs o specic

employers. Sudens could also sar and progress a heir own pace, choose he learning

ormas ha bes address heir learning syles and preerences, and selec and use men-

ors and uors as well as oher resources in heir learner-cenered neworks.20 Many o

he insrucional delivery ser vices, such as menoring and uoring, could be providedby ouside parners. All o hese opions provide new opporuniies or higher educaion

insiuions o achieve greaer economies o scope by oering more sudens a muliude

o high-qualiy opions a compeiive prices.

Under his unbundled model, inrasrucure-managemen services could also be ou-

sourced o provide a mulisided open plaorm or insiuions o work cooperaively wih

boh inernal and exernal curriculum developers and a wide variey o learning-delivery

parners. Tese inrasrucure-managemen services could provide auhoring soware

conaining learning-design emplaes and guidelines including universal design or accom-

modaing muliple learning syles, as well as learning objec reposiories and regisries orboh ree open-source and proprieary-conen resources. In addiion, hey could provide

learning managemen sysems ha resemble more exible and open virual learning

environmens,21 which in urn could suppor ully bundled radiional courses or more

unbundled sel-sudy and menor-suppor services. Tese shared inrasrucure-manage-

men services could be suppored by global and naional eLearning sandards.22

Faciliaed neworks could empower and suppor learners aced wih he added com-

plexiy o hese new learning and credenialing sysems. Tey would do so by providing

sudens wih career and learning managemen services and group- purchasing opions

ha help sudens selec, access, and opimize he use o hese sysems. Te aciliaednework could be suppored by exising career and educaional planning sysem provid-

ers or by new marke enrans. Tese players could change he compeiive srucure o

higher educaion hrough he increased buyer power creaed by reducing inormaional

complexiy and asymmery and by providing opporuniies o secure higher-qualiy

services, wih more convenience, a beter prices.

Such mulisided, unbundled, and aciliaed nework business models oer promising

opions or providing low-cos and eecive learning and credenialing sysems, ones

ha can be personalized o mee he needs o individual learners. Tese sysems can

also be cusomized or employers seeking dieren ypes and combinaions o employee

compeencies and/or dieren levels o assurance ha employees have hese compeen-

ciesassurances ranging rom sel-evaluaed learning porolios o insrucor assess-

mens and grades o hird-pary assessmen and cericaion.


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Gateway learning and credentialing

Te poenial o such business models o capialize on boh economies o scale and econo-

mies o scope and o ransorm he compeiive srucure o higher educaion is especially

high in he case o gaeway learning and credenialing. Gaeway courses are he major

general educaion and prerequisie courses required or wo-year and our-year degree and

cericae programs. Tey represen a large share o he possecondary credis awarded byhigh schools, communiy colleges, and universiies. Tis marke space has been he ocus

o many o he mos widely cied reorm eors, including hose o he Naional Cener or

Academic ransormaion, or NCA, and o naional and sae atemps o simpliy credi

ranser in order o reduce coss and accelerae ime o degree.

A secondary school iniiaivehe Shared Learning Collaboraive, or SLC, coordinaed

hrough he Council o Chie Sae School Ofcers, or CCSSO, and unded by he Bill

& Melinda Gaes Foundaion and he Carnegie Corporaion o New Yorkprovides an

example. Te SLC is working wih a consorium o saes o es a new, shared learning

environmen ha provides ully open and ransparen learning maps or he naionalcommon core academic sandards. Tese maps can be linked o naional, sae, or local

summaive and ormaive assessmen daa, as well as o curriculum maerials, hrough

naional meadaa agging sandards. Tis shared learning environmen will creae an

open markeplace or disribued conen developmen and aggregaion hrough inra-

srucure managemen sysems. Tis will include learning managemen and reposiory

and regisry sysems ha have he poenial or inegraion wih sae and local suden

daa sysems and learner-managed accouns o suppor personalized learning and he

use o inelligen agens and smar learning-ware.

I he SLC is successul, hese learning sandards, maps, and relaed learning and assess-men resources could easily be exended ino a shared markeplace or possecond-

ary gaeway courses, especially in general educaion and he lower-level prerequisie

subjecs relaed o he naional common core sandards in language ars, mahemaics,

and science. Te maps and assessmen resources could provide he basis or new econo-

mies o scale or specialized global curriculum developers in he more commodiized

conen areas, or example, mah. Developers could produce and disribue high-qualiy

and low-cos curricula ha can be cusomized or muliple channels and personalized

o he needs o learners. Tis could also resul in signican economies o scope or

smaller regional or local channel parners, such as communiy colleges, which could

provide high-qualiy, low-cos, and personalized learning services or heir sudens and

evenually oer even more gaeway courses. Tey could also aord o make use o wha

Oserwalder and Pigneur call long-ail business modelsor example, low-enrollmen

programs and course opionso mee specialized employer and suden needs.


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Barriers

Alhough innovaive business models o he kind discussed above promise enormous

produciviy gains, hey also ace several barriers o widespread adopion. One barrier is

he implicaion o a undamenal shi in he role o aculy in curriculum developmen

and delivery, and in he shared governance arrangemens ha exis on many campuses.

Second, hese models hreaen higher educaions radiional pro ormula, whichdepends on low-cos gaeway courses augh by par-ime aculy o generae enough

revenues o cover he unme coss o he insiuions more expensive courses and acivi-

ies. Tird, hese models are inconsisen wih accrediaion sysems ha assume ha

core learning and credenialing services will be managed wihin he insiuion hrough

radiional business models. A shi oward more open archiecure accrediaion and

relaed accrediaion reorms would allow he accrediaion o all inernal and exernal

parners in he insiuions value chain.23

In addiion, he gaeway markeplace sill aces a signican problem wih credi rans-

er, due o he high swiching coss boh wihin he radiional educaion secor andbeween he radiional and nonradiional secors, including or-pro insiuions and

specialized service providers like SraigherLine oering online college courses. Furher,

ederal and sae suden loan policies have many legacy assumpions ha impede he

use o more exible suden nancing opions.

Lasly, hese open models, especially aciliaed nework models, require ull daa

inegraion wihin he higher educaion value nework or ecosysem, similar o wha

is now being done hrough elecronic healh care daa exchanges. Tis would require

eors by ederal and sae agencies o work wih naional sandards bodies and higher

educaion sakeholders o esablish shared daa inrasrucures ha go well beyondcurren sae daa inrasrucures.

Research and development

Te Unied Saes has he larges public-privae research and developmen secor in

he world. Higher educaions share o his secor, alhough smallapproximaely 15

percenis noneheless criical since research universiies conduc he bulk o govern-

men-unded basic research. Ta research is o special ineres because enrepreneurs

use i o develop innovaive producs and services ha in urn spur economic develop-

men.24 As a resul, ederal and sae governmens promoe a wide variey o sraegies

o improve echnology ranser beween universiies and heir indusry counerpars,

including he creaion o echnology-ranser ofces suppored hrough universiy pa-

ens and licensing. Te mos eecive approach o echnology ranser, however, remains

he radiional pracice o open science, in which echnology is ranserred hrough

publicaions, conerences and meeings, consuling, personnel exchanges, inormal


13/18


ineracions among bench scieniss and engineers, and he movemen o graduae

sudens ino privae employmen.25 Tis is mos eviden in he caalys roles played by

many leading universiies in sae and regional economic developmen hrough open

public-privae innovaion neworks.26

Chesbrough rs developed he concep o open innovaion as a new way o improve

indusrial research and developmen hrough he leveraging o ouside ideas and markeopporuniies. His book Open Innovaion, published in 2003, showcases several open

business approaches.27 I also highlighs he role o innovaion inermediaries, such as

InnoCenive, an organizaion ha provides a plaorm or companies o solve key prob-

lems by connecing hem o diverse sources o soluions, including employees, cusomers,

and ouside paries, in creaing global value neworks hrough boh inside-ou and ouside-

in sraegies. As Chesbrough noes, his open approach o research and developmen is

even more imporan now, as hese innovaion aciviies are becoming widely dispersed

hroughou he world and a growing share is being carried ou by more agile mid-sized

and small businesses. Increasingly, large research and developmen enerprises will have

o build more open global plaorms ha suppor a larger public-privae value nework orecosysem o parners i hey are o succeed. Tis applies o insiuions o higher educa-

ion as well as o privae rms ha depend on research and developmen.28

Over he las ew decades, many universiies and heir unders in he Unied Saes and

Europe have aken major seps o harness he power o open innovaion hrough public-

privae research parnerships, research parks, and shared research inrasrucures. Tese

eors can be exended by urher unbundling research and developmen aciviies

produc innovaion businessesrom he inrasrucure servicesinrasrucure-man-

agemen businessesha suppor hem. Tis would allow he developmen o global

inrasrucure-managemen organizaions ha are able o provide greaer economies oscale and scope and make uller use o research aciliies, research suppor eams, and

relaed inormaion echnology ools and resources.

Tese inrasrucure-managemen services could also improve he use o he underuilized

insrucional asses and resources o nonresearch universiies and communiy colleges and

make hem available or use by public and privae researchers and enrepreneurssimilar

o communiy-based design ceners and innovaion hubs. Tis unbundling o research and

developmen aciviies rom inrasrucure managemen could also provide advanages

o large research universiies by lowering coss and enabling scieniss o ocus on heir

research and developmen. Tis in urn could provide a more level playing eld or he

small and mid-sized businesses compeing on innovaion in he global economy.


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Business management

Te concep o mulisided and unbundled open business models can also be applied

o some insrucional and research suppor uncions ha are no currenly being

ousourced by higher educaion insiuions. Enrollmen managemen is one example.

Enrollmen managemen involves he oureach, recruimen, selecion, enrollmen, and

on-boarding o sudens so ha higher educaion insiuions have he appropriaenumbers and ypes o qualied sudens o ensure high levels o nancial and opera-

ional perormance and o mainain he insiuional brand.

Many insiuions o higher educaion and heir suppliers, including secondary schools,

have parnered wih inermediaries, such as ConnecEDU, a rm ha provides web-

based inormaion and educaion search and social media ools or connecing sudens,

colleges, and employers. Such inermediaries creae shared mulisided plaorms ha

provide ools and inormaion o universiy admissions ofcers and enrollmen man-

agers, as well as o high school guidance counselors, sudens, and parens.29 Tese

plaorms show grea promise or improving he perormance o higher educaion aswell as empowering cusomers by removing he inormaion asymmery and complexiy

in he markeplacea major aspec o he compeiive srucure o he higher educaion

indusry, as discussed earlier.

Such innovaion could be exended urher by unbundling he applicaions, ools,

and resources and he inrasrucure managemen services o inermediaries, hereby

creaing an applicaions markeplace or enrollmen managemen, including analyical

services. Tese analyical services include rms such as SAS, he global research and

analyics gian; Career Cruising, which provides career and educaion guidance and

counseling services; and Parchmen, a web-based provider o credenial warehousingand disribuion services, suppored by mulisided inrasrucure-managemen services.

Tese inrasrucure-managemen services could provide ull daa inegraion wih sae

preschool hrough college (P-20) daa inrasrucures o maximize he eeciveness o

applicaions services in oering value o boh insiuions and learners and improving

P-20 ransiions, which are criical o ederal and sae governmen unders.

Policy recommendations

Disrupive innovaion oers an analyical ramework ha can grealy help policymakers do

heir par in improving higher educaion. In his secion we briey discuss he implicaions

or he ederal governmens role and recommend some specic ederal policy iniiaives.

Te ederal governmen already encourages innovaion in educaion, as evidenced by he

Obama adminisraions Race o he op program and he porion o is 2013 budge aply

iled Promoing Innovaion in Educaion. Te adminisraion also unds a consider-


15/18


able amoun o applied research on educaion hrough he Deparmen o Educaion, he

Naional Science Foundaion, or NSF, and oher agencies. Te NSF sponsors relevan

research no only hrough is Direcorae or Educaion and Human Resources bu also

hrough is Direcorae or Compuer and Inormaion Science and Engineering.

Te later includes a Cyberlearning: ransorming Educaion program ha seeks o

inegrae advances in echnology wih advances in wha is known abou how peoplelearn. Tis program gives special atenion o echnological advances ha allow more

personalized learning experiences, draw in and promoe learning among hose in

populaions no served well by curren educaional pracices, allow access o learning

resources anyime and anywhere, and provide new ways o assessing capabiliies. Ye

he ocus is enirely on he echnology and is impac on individual learning. Neiher

here nor elsewhere is ederally sponsored research ocusing on he business models,

value neworks, or sandards and policy environmens ha may be needed o harness

echnological advances and apply hem broadly.

o correc or his neglec, we recommend he ollowing:

First, he Obama adminisraion should adop a disrupive innovaion ramework in

awarding grans hrough is innovaion-promoing programs, including R ace o he op,

i3, Firs in he World, and Race o he op College Aordabiliy. Tis would allow

gran applicaions o be evaluaed according o heir poenial or, among oher hings,

shedding ligh on he business models and value neworks ha are bes suied o deploy

produciviy-enhancing improvemens in echnology.

Second, he Obama adminisraion should conduc a cross-agency census o ideniy all

compeiive gran iniiaives ha und programs or research ha can expand our under-sanding o produciviy and innovaion in higher educaion. Tese iniiaives should be

classied as ollows:

Learning and credenialing Research and developmen General business services ha suppor learning and research

Tis classicaion will aciliae he aligning o unding wih he major educaional unc-

ions in which disrupive innovaion could improve produciviy. I should be applied

across he board, rom signaure iniiaives such as he proposed $55 million Firs in he

World gran program o Naional Science Foundaion grans o individual researchers

sudying eecs o echnology in higher educaion. I will be imporan ha his census

ake in all relevan programs. Some NSF-unded programs in neuroscience research and

even U.S. Deparmen o Labor grans o communiy colleges may seem obvious. Ye

ohers are no, a good example being he NSF Ofce o Cyber Inrasrucure, which has

an ineres in how echnology changes he way organizaions operae.


16/18


Third, ARPA-ED, he research agency or educaion proposed by he adminisraion,

should be ully unded and should include an advisory panel on disrupive innova-

ion in higher educaion. Tis panels orm and uncion should be a hybrid o exising

Deparmen o Educaion advisory commitees (suden success, nancial aid) and he

commitees ha advise he Federal Drug Adminisraion on clinical rial resuls and

drug readiness or he marke.

Te panel should include members o he Commitee on Measures o Suden Success and

Te Fund or he Improvemen o Possecondary Educaion as well as expers in disrupive

innovaion. Te panel would advise ARPA-ED on how o arge invesmens made hrough

signaure programs o areas ha show poenial or disrupive innovaion. I would also

provide guidance on how o evaluae he emerging business models or scalabiliy.

Fourth, he Whie House Ofce o Science and echnology Policy should work wih

disrupive innovaion expers o creae a primer on how o inegrae disrupive innova-

ion heory as an analyical ramework and evaluaion ool ino ederal granmaking. Te

primer mus include:

An overview o disrupive innovaion heoryA descripion o is core elemensechnology enablers, business models, value ne-

works, sandards, and regulaory environmen Examples o indusries in which echnological innovaions achieved heir poenial

only aer creaive leaders developed new business models o harness and deploy hem

Tis primer would be used by ederal agencies o incorporae appropriae evaluaion

language ino grans hey make going orward wih regards analyzing he impac cos

and eeciveness.

Conclusion

In his paper we have argued ha inormaion echnologys poenial o dramaically

improve he perormance o higher educaionwillbe realized only when new business

models arise o harness i. Especially promising are open, mulisided, and unbundled

models ha involve aciliaed neworks. Applied o learning and credenialing services,

hese approaches could improve perormance by achieving greaer economies o scale

and scope and providing he basis or increasing personalizaion, access, and choice

a aordable prices. Tey could also enhance research and developmen by improving

access o and uilizaion o shared research inrasrucures. Finally, hey could assis

insiuions, sudens, and ederal and sae unders in he area o enrollmen manage-

men and P-20 ransiions. Tere are probably many acions policymakers could ake

o encourage he emergence and adopion o eecive new business models, bu a good

saring poin would be o embrace he recommendaions we advance in his repor.


17/18


Rober Shees is he direcor of research, Business Innovaion Services a he Universiy of

Illinois a Urbana-Champaign.

Sephen Crawford is a research professor a he George Washingon Insiue of Public Policy

a he George Washingon Universiy.

Louis Soares is a Senior Fellow wih he Cener for American Progress and provides sraegicguidance and policy experise on higher educaion reform.

Cener for American Progress and EDUCAUSE share a common ineres in he advancemen

of higher educaion for he greaer social good. We agree ha innovaion in higher educaion

is necessary for fuure progress. Terefore, we bring ogeher our organizaional srenghs o

beter undersand he issues and opporuniies a he inersecion of public policy, informa-

ion echnology, and poenial new models for educaion delivery. We promoe public policy

innovaion by collaboraively convening hough leaders o creae inerdisciplinary dialogue on

innovaion in higher educaion, producing whie papers o se he sage for policy acion, and

producing issue briefs ha promoe policies conducive o innovaion in higher educaion.


18/18

1 This policy brie was developed rom a convening paperprepared or the Center or American Progress and EDU-CAUSE; convening held in January 2012.

2 See Erik Brynjolsson and Adam Saunders, Wired or In-novation: How Inormation Technology Is Reshaping theEconomy (Cambridge: MIT Press, 2010); Andrew McAee andErik Brynjolsson, Investing in the IT That Makes a Competi-tive Dierence, Harvard Business Review July-August 2008;

Howard Smith and Peter Fingar, IT Doesnt MatterBusi-ness Processes Do: A Critical Analysis o Nicholas Carrs I.T.Article in the Harvard Business Review (Tampa: Meghan-Kier Press, 2003); Nria Ferran Ferrer and Juli MinguillnAlonso, eds., Content Management or E-Learning (NewYork: Springer, 2011); Sotware and Inormation IndustryAssociation, SIIA Trends Report or Education Technology(2010); and U.S. Department o Education, National Educa-tion Technology Plan: Transorming American Education(2010). Gregory A. Jackson summarizes the recent advancesin inormation technology that are most relevant or highereducation and oers an excellent assessment o theirpotential to transorm current practices: Gregory A. Jackson,IT-Based Transormation in Higher Educ ation: Possibilitiesand Prospects unpublished convening paper, workshophosted by EDUCAUSE and the Center or American Progress,(Washington: 2012).

3 Clayton M. Christensen and others, Disrupting College: HowDisruptive Innovation Can Deliver Quality and Aordabil-

ity to Postsecondary Education (Washington: Center orAmerican Progress and Innosight I nstitute, 2011); Ben Wi-davsky, Andrew Kelly, and Kevin Carey, Reinventing HigherEducation: The Promise o Innovation (Cambridge: HarvardEducation Press, 2011).

Institute or Competitive Workorce, College 2.0: Transorm-ing Higher Education through Greater Innovation andSmarter Regulation (2010).

Clayton M. Christensen and Henry Eyring, The InnovativeUniversity: Changing the DNA o Higher Education (SanFrancisco: Jossey-Bass, 2011).

4 Henry Chesbrough, Open Services Innovation: RethinkingYour Business to Grow and Compete in a New Era (SanFrancisco: Jossey-Bass, 2011).

Alexander Osterwalder,and Yves Pigneur, Business ModelGeneration: A Handbook or Visionaries, Game Changersand Challengers (New York: John Wiley and Sons, I nc., 2010)

5 Christensen, Horn, Caldera, and Soares, Disrupting College;Ben Wildavsky, Andrew Kelly, and Kevin Carey, ReinventingHigher Education: The Promise o Innovation (Cambridge:Harvard Education Press, 2011); Institute or a CompetitiveWorkorce, College 2.0: Transorming Higher Educationthrough Greater Innovation and Smarter Regulation;Christensen and Eyring, The Innovative University.

6 See also Christensen and others, Disrupting Class (2008)and Disrupting College (2011), and the U.S. Departmento Educations 2010 National Education Technology Plan,which emphasizes the power o personalization andlearner-centered, open collaborative networks.

7 Ferrer and Alonso eds., Content Management or E-Learn-ing; SIIA, SIIA Trends Report or Education Technology; U.S.Department o Education, National Education TechnologyPlan: Transorming American Education.; Brynjolsson andSaunders, Wired or Innovation: How I normation Technol-

ogy Is Reshaping the Economy.;McAee and Brynjolsson,Investing in the IT that Makes a Competitive Dierence.;Howard and Fingar, IT Doesnt Matter: Business ProcessesDo; Sotware and Inormation Industry Association, SIIATrends Report or Education Technology.

8 Gregory Jackson, IT Based Transormation o Higher Educa-tion: Possibilities and Prospects.

9 Clayton M. Christensen, Jerome H. Grossman, Jason Hwang,The Innovators Prescription: A Disruptive Solution orHealth Care (New York: McGraw-Hill, 2009), p. 184.

10 Michael Porter, Competitive Advantage: Creating andSustaining Superior Perormance (New York: The FreePress, 1985); Michael Porter, On Competition, Updated andExpanded Edition (Boston, MA: Harvard Business SchoolPublishing, 2008)

11 National Research Council, Standards, Conormity As-sessment and Trade into the 21st Century (Washington:National Academy Press, 1995)

12 These core elements reect the authors synthesis o thework o leading experts on business models: Christensen,The Innovators Dilemma; Mark W. Johnson, Seizing theWhite Space: Business Model Innovation or Growthand Renewal (Boston: Harvard Business Press, 2010);Alexander Osterwalder and Yves Pigneur, Business ModelGeneration: A Handbook or Visionaries, Game Changersand Challengers (New York: John Wiley and Sons, 2010);Michael Porter, On Competition, updated and expanded ed.(Boston: Harvard Business School Publishing, 2008); HenryChesbrough, Open Business Models: How to Thrive in theNew Innovation Landscape (Boston: Harvard Business Press,2006); and Henry Chesbrough, Open Services Innovation:Rethinking Your Business to Grow and Compete in a NewEra (San Francisco: Jossey-Bass, 2011). This integratedramework contains more undamental elementsor whatOsterwalder and Pigneur call building blocksbut thatlevel o detail is beyond the scope o this article.

13 Chesbrough, Open Business Models; Chesbrough, OpenServices Innovation.

14 Osterwalder and Pigneur, Business Model Generation.

15 Clayton M. Christensen, Jerome H. Grossman, and JasonHwang, The Innovators Prescription: A Disruptive Solutionor Health Care (New York: McGraw-Hill, 2009).

16 Porter, On Competition.

17 Christensen and others, Disrupting College.

18 Sotware and Inormation Industry Association, SIIA TrendsReport.

19 Christensen and Eyring, The Innovative University.

20 U.S. Department o Education, National Education Technol-ogy Plan: Transorming American Education.

21 Sotware and Inormation Industry Association, SIIA TrendsReport.

22 Ferrer and Alonso eds., Content Management or E-Learning.

23 Robert Sheets, Meeting GlobalCompetitiveness Challeng-es: The Next Generation o Workorce Policy (Washington:National Governors Association, Center or Best Practices,2003); Institute or a Competitive Workorce, College 2.0.

24 David D. Dill, The United States, in David D. Dill and FransA. van Vught, eds., National Innovation and the AcademicResearch Enterprise: Public Policy in Global Perspective(Baltimore: Johns Hopkins University Press, 2010).

25 Ibid.

26 Richard K. Lester, Universities, Innovation, and the Competi-tiveness o Local Economies, Working Paper 05-010, (MIT

Industrial Perormance Center, 2005).

27 Henry W. Chesbrough, Open Innovation: The New Impera-tive or Creating and Profting rom Technology (Boston:Harvard Business School Press, 2003).

28 Chesbrough, Open Business Models; Chesbrough, OpenServices Innovation.

29 Kevin Carey, The End o College Admissions As We Know It,Washington Monthly 43 (9/10) (2011): 2232.

Endnotes
http://www.amazon.com/s/ref=ntt_athr_dp_sr_1?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=N%C3%BAria%20Ferran%20Ferrerhttp://www.amazon.com/s/ref=ntt_athr_dp_sr_2?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=Juli%C3%A0%20Minguill%C3%B3n%20Alfonsohttp://www.amazon.com/s/ref=ntt_athr_dp_sr_2?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=Juli%C3%A0%20Minguill%C3%B3n%20Alfonsohttp://www.amazon.com/s/ref=ntt_athr_dp_sr_1?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=N%C3%BAria%20Ferran%20Ferrerhttp://www.amazon.com/s/ref=ntt_athr_dp_sr_2?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=Juli%C3%A0%20Minguill%C3%B3n%20Alfonsohttp://www.amazon.com/s/ref=ntt_athr_dp_sr_2?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=Juli%C3%A0%20Minguill%C3%B3n%20Alfonsohttp://www.amazon.com/s/ref=ntt_athr_dp_sr_1?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=N%C3%BAria%20Ferran%20Ferrerhttp://www.amazon.com/s/ref=ntt_athr_dp_sr_2?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=Juli%C3%A0%20Minguill%C3%B3n%20Alfonsohttp://www.amazon.com/s/ref=ntt_athr_dp_sr_2?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=Juli%C3%A0%20Minguill%C3%B3n%20Alfonsohttp://www.amazon.com/s/ref=ntt_athr_dp_sr_1?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=N%C3%BAria%20Ferran%20Ferrer

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