The Imminent Shakeout? Disruptive Innovation And Higher Education

One can hardly go a day without seeing an article touting the end of the University as we know it as the rise of online education, and in particular Massively Open Online Courses (MOOCs), promises to unleash a wave of creative destruction in higher education.  I read these with great interest both as a teacher – one who is currently teaching a MOOC with over 90,000 students on the Coursera platform – and as a researcher – one who studies industry dynamics with a particular interest in technology disruption and competitive shakeouts.

As a teacher, I have been thrilled to see the reach and impact of my MOOC, Foundations of Business Strategy.  Students from over 50 countries are participating including students from the Philippines, Australia, Rwanda, Croatia, UAE, Mexico, Egypt and Argentina among many others.   I will have taught more than 5x as many students in a six week period than have graduated from the Darden School over its entire 50-year plus existence.  Every day, I receive thanks from students for the opportunity to take the course – many who are applying the concepts in their working lives as they take the course and who otherwise would not have access to such material.

At the same time, we must recognize that my MOOC does not replicate the Darden classroom experience.  It doesn’t even come close.  Much has been made of “flipping the classroom” with MOOCs, but at a Socratic case-based school like Darden, we have been flipping the classroom for over 50 years.  The learning that emerges from an engaged, real-time discussion cannot be replicated on an online forum.  The fear, and triumph, of presenting your ideas for scrutiny often at the bequest of the faculty member (what we refer to as a “cold call”) is a powerful learning experience.  This type of engagement cannot be conducted asynchronously and it cannot be scaled.

So what does this all mean for the potential for a disruptive shakeout in higher education?  On one hand, we should recognize that many an industry have been disrupted by technological advances.  From the horse-drawn carriage, to the typewriter, to the mechanical watch, to film-based cameras, there is nothing new about the phenomena of innovation upsetting the competitive order and leading to a shakeout where established players fall to the wayside.  The change can be sudden and swift, and often unexpected.

On the other hand, Universities have proven incredibly resilient.  They are one of the most stable institutions ever devised by human kind.  Second perhaps only to religion, Universities have stood the test of time outliving many governments and most commercial enterprises.  Some of the leading universities in America were founded well before the establishment of the United States (e.g. Harvard and William & Mary).  Oxford and Cambridge date back centuries. My home, the University of Virginia, will be celebrating its bicentennial in the next few years.

Of course, that doesn’t mean that a shakeout isn’t possible.  So how will this likely play out?  A few observations

  • First, there is surprisingly little variance in strategy among universities, in the U.S. in particular.  Among four-year undergraduate institutions, there is wide-spread adherence to tenure, basic research, residential experiences, and a liberal arts foundation.  My hypothesis is that the prominence of rankings and the importance of accreditation are driving universities to adopt a one-size fits all approach.
  • Second, there is shockingly little concentration in higher education.  Even the largest universities command a minuscule share of the market.  Unlike most industries, we see few universities aiming to be cost leaders or even large differentiated players.   Everyone seems to be pursuing a narrow differentiated niche position in the market.
  • Third, any disruption will likely evolve slowly.  There is no active market for university exits.  Non-profit universities with their endowments and dedicated alumni are not going down without a fight.  The worst performers will likely face declining enrollments and budget pressures, but I suspect that their governing boards will be slow to recommend dissolution.

I predict that we will see a bifurcation in the higher education market.  A cost leader (or leaders) will emerge catering to the mass market.  They will leverage technology to provide an effective and efficient education.  They will cater to the population who may not have had access to higher education thirty years ago.  The emergence of the cost leader position will be bad news for the many for-profit online universities that have arisen in recent years and for numerous non-selective residential universities.  This is where the shakeout will be most disruptive. The entry of high reputation universities into the MOOC space where they (currently) provide courses for free could be a game changer for this tier of players if someone figures out accreditation and degree granting.  This disruption will play out over years, if not decades, as struggling colleges fight to stay alive and student attitudes towards online education evolve.

The higher education market will likely support more than one competitive position, however.  I suspect that will we see the retrenchment and growth of a group of elite differentiated players who compete globally for the best students.  They will emphasize the benefits of a residential education and they will charge significant tuition premiums.  They will be highly selective and highly sought after.  Some will adopt niche positions catering to elite students of one type or another.  They will leverage technology, but as a way to improve the efficacy of their residential programs.   They will dabble in MOOCs, not as a source of significant revenue generation, but as a way to enhance their global brand and reach.

The real question for a traditional university will be which of these worlds it will sort.  Assuming we see reputable online degrees emerge at a price point significantly lower than what traditional four-year colleges can provide, at what point in the hierarchy of higher education will people figure that the price premium for a residential experience is simply not worthwhile?  Will the market support 200 residential universities or 20?  Will there be a race to the top, continuing the trend of increasing expenses in an attempt to further differentiate oneself from the masses?  What will happen to those universities stuck in the middle?  Will they eventually dissolve, or will they be able to evolve to occupy sustainable competitive niches?

The great disruption in higher education may finally be upon us, but the path it will take remains uncertain.  The disruption will likely play out over many years if not decades.  There will be winners and losers, successful new entrants and failed entrepreneurial ventures, established players who thrive and established players who die.  The residential university is not going away but the shakeout is beginning.


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