Disruptive Innovation in Higher Education

Many companies target customers that will pay more for their products, and to sustain a competitive advantage they continue to improve the products. This is referred to as “sustaining innovation.” There are firms, on the other hand, that ask the question, “is there another way we can meet the customer need?” They then create a new way or technology to meet the need.

When digital cameras were first developed, they were clunky and not a good alternative to the existing cameras. They weren’t seen as being a threat worth worrying about. However, as digital cameras were refined, they quickly began to replace existing traditional cameras, especially as they became more affordable. Digital cameras enabled us to take, view, and delete pictures we didn’t want, without the need to have them developed.

There are essentially two types of disruptive innovations:

• Low end disruptive innovation: The digital camera was an example of low end disruptive innovation. When it was first developed, the focus was on basic features, and its performance was poor. This is typical with new technologies. As the digital camera became more refined and additional features added, it quickly began to replace typical cameras.
• New market disruptive innovation, on the other hand, targets market segments that are not served by existing innovations. Typically companies focus on higher end market segments, so the lower end market segments are often the target entry points. Sony’s portable transistor radio is an example. Originally the sound quality was inferior to competing radios. However, most of the radios were large, non-portable and expensive. So Sony’s entry into the radio products industry was not seen as a challenge.

In their new book Innovative University, Henry J. Eyring and Clay Christensen and outline the benefits of higher education within the United States. In 2010, the Academic Ranking of World Universities, which measures achievements such as Nobel Prize awards and scholarly publications, listed seventeen U.S. institutions among the top twenty globally; of the top fifty universities, thirty-six were American.

According to the CollegeBoard Advocacy & Policy Center:

Over the decade from 2000 to 2010, published tuition and fees at public four year colleges and universities increased at an average rate of 5.6% per year beyond the rate of general inflation. This growth rate led the price to increase from 22% of the average tuition and fees at private nonprofit four-year institutions to 28% over the decade.

We all look up to Harvard. Its reputation is stellar. However, the total cost to produce one graduate is staggering. Steve Denning with Forbes writes:

Harvard of course excels in its reputation, faculty, wealth, and alumni network. Its few significant weaknesses include organizational complexity and high operating cost. The high cost derives from traits of the traditional research university, such as faculty who spend a relatively small percentage of their time in the classroom and a campus that sits largely idle during the summer.

Also, Harvard has invested heavily in a system of residential housing and high-quality tutoring. This means that even students who pay the tuition sticker price aren’t covering the full cost of their education. Thus, growing the size of its “customer” base, which is how businesses achieve scale economies and greater profitability, is financially problematic for Harvard and for other universities with similar operating models. The number of students they can serve is limited, not because they don’t have enough qualified applicants, but because they can’t afford to subsidize additional students.

The challenge is everyone wants to enjoy the reputation that Harvard has. Can we really afford that? Is there a better way?

We know that the world if focused more than ever before on knowledge. Traditional manufacturing jobs will disappear as smarter products and ways of creating products evolve. America’s economic well-being will hinge on its ability to produce qualified, educated workers.

In 2010, the Bill and Melinda Gates Foundation sponsored a study carried out by McKinsey & Company. The objective was simple: to determine how to produce more graduates at lower costs.

McKinsey reported:

Through an in-depth study of detailed data on performance, costs and practices shared by eight highly productive schools, we identified five winning strategies, focusing on raising the rate at which students complete their degrees and improving cost efficiency. Together these strategies can result in over 60 percent higher degree productivity. (“Winning by Degrees: The strategies of highly productive higher-education institutions”)

McKinsey believes that the United States will “need additional one million each year by 2020 to sustain its economic health. That would mean increasing today’s annual total-2.5 million-by 40 percent.” If that were the goal, our educational institutions would need to produce 3.5% additional graduates a year over the next ten years. The price tag to do this would be an additional $52 billion a year. The problem with this math is that it assumes that all students would graduate. Today only 40% of students make it to graduation. So, the annual price tag could end up being as high as $83 billion.

The average cost across all institutions for a student to receive a bachelor’s degree was $74,268 dollars. McKinsey targeted five most productive universities that produced students with Bachelor degrees ranging in costs from $27,495 to $52,285. These Universities included:

• Southern New Hampshire University
• Indiana Wesleyan University
• BYU-Idaho
• Western Governors University
• DeVry University

Southern New Hampshire University (SNHU) is a private institution founded in 1932. It is a nonprofit university that depends on tuition. It is located in the beautiful city of Manchester. The forecast of incoming college freshman coming from New Hampshire, shows a decline trend. And, although Manchester is a beautiful town, it isn’t an economic powerhouse. Nonetheless, instead of abandoning optimism, SNHU has focused on hope, innovation, and hard work.

SNHU has around 1,900 full-time undergraduate day students, and 9,400 undergraduate and graduate students in part-time programs (e.g., evening, weekend, and online classes.) To improve quality and reduce costs, SNHU is focused on standardizing its courses.

Disruptive Change

Indiana Wesleyan University (IWU) is the largest private University in Indiana and was founded in 1920. IWU is an evangelical institution that strives to integrate religion and academics, and offers more than 80 majors. It is ranked 25, in the 2012 edition of Best Colleges is Regional Universities (Midwest). US News and World Report also stated that is “one of the best Mater’s universities in the Midwest.” It has 3,200 students who its campus in Marion, Indiana. IWU has another 12,000 adult learners who participate in classes at regional Educational Centers in Indiana, Kentucky and Ohio, and online.

IWU’s mission states: “Indiana Wesleyan University is a Christ-centered academic community committed to changing the world by developing students in character, scholarship, and leadership.”

In 1983 the University began offering courses and degrees to working adults during evening hours and Saturdays. Eventually the College of Adult and Professional Studies (CAPS) was established. The CAPS program eventually eliminating the huge debt of the then college. The CAPS program provides most of the funding for the University.

The University currently employs more than 200 full-time faculty, over 1,000 full-time administrative and staff members, and more than 1,000 adjunct faculty members.

Disruptive Change

BYU-Idaho is owned and operated by The Church of Jesus Christ of Latter-Day Saints. Its objective is to help to develop Christ disciples who are prepared to bless their families and the communities where they will reside. The University is focused on how to best to leverage the significant investment in its physical campus and staff, so that more students have access to higher quality education at a lower cost. To this end it has:

• Focused on blended learned (combined online content and face-to-face instruction)
• Augmented faculty teaching with peer-to-peer assistance
• Concentrated on building into courses more learning experiences and case studies
• Strengthened its internship programs
• Created modular majors and general education courses
• Developed more options for students to customize their education
• Added a new trimester schedule
• Dropped its inter-collegiate sports programs
• Established extensions in several cities where online content is coupled with face-to-face mentoring

Disruptive Change

Western Governors University (WGU) is the fast growing, accredited, fully on line university. It was established by 19 Western governors who were determined to provide quality higher education at affordable costs. WGU is now serving over 25,000 students from all 50 states.

What makes WGU unique is it is the only accredited university that offers what they call “competency-based” degree programs. Credit is given for a course as soon as the student has mastered the content and mastery is determined by testing. And, there is no limit on the number of courses students can take in a semester.

To ensure high quality education and manage costs it develops “master courses” centrally instead of requiring professors to develop their own content.

The average cost for students over one academic year is under $6,000. Additionally, the average time it takes students to get an accredited degree is two and half years. This is facilitated in part by the one-on-one mentoring and counseling assistance program it provides its students. Their goal is to help ensure that students ultimately earn their college degree.

Disruptive Change

DeVry University was founded in 1931 under the name of DeForest Training School. In 2002, it was officially named DeVry University in 2002. The university has 80,000+ undergraduate and graduate students, and has more than 90 campuses in North America. The University now offers most of its classed-based programs to online students.

Highlights by David Willden