Competitive Strategies for Higher Education in the Information Age
by Richard N. Katz
Traditional revenue sources for U.S. higher education are, and will continue to be, under downward pressure. When faced with such pressure, colleges and universities have a limited set of responses. They can cut costs (with or without cutting quality), raise prices, exit existing markets, pursue new markets, create new products, or pursue any combination of these strategies.
A few institutions have pursued aggressively a set of academic strategies designed to extend the reach of their instructional offerings geographically or to offer for sale new or repackaged products in different markets. Many colleges and universities are only now engaging in structured dialogue about how emerging information technologies may be employed to enable such strategies.
This chapter identifies an important revenue opportunity for (or threat to) U.S. higher education, identifies strategies for exploiting this opportunity, and raises potential policy issues associated with it. The perspective offered here is unabashedly economic and entrepreneurial. At the same time, my premises honor the fact that colleges and universities are businesses in the ordinary sense, and I am mindful of the fact that important issues of public policy are overlooked in pursuing an economic perspective. Some of the ideas reflected in the discussion will cut against higher education's cultural grain. The corresponding hope is that the business case for action is sufficiently compelling to stimulate serious dialogue in the academy about an area of growing importance....
Information Technology at the End of the Twentieth Century
In a 1995 speech, Vice President Al Gore stated, "The new marketplace will no longer be divided along current sectoral lines. There may not be cable companies or phone companies or computer companies, as such. Everyone will be in the bit business. The functions provided will define the marketplace. There will be information conduits, information providers, information appliances, and information consumers." Gore's bold but widely accepted vision raises the question of what role, if any, U.S. higher education will choose to assume in this evolving marketplace. After all, universities are both important providers *and* consumers of information, and the evolution of the mass market for information technology will not leave such institutions unscathed.
To frame such a discussion, it is necessary first for colleges and universities to establish some general planning assumptions about information technology and to incorporate thinking about such assumptions into their missions and plans for delivering instruction. Information technology-intensive companies place the utmost importance on this kind of strategic thinking and, in many cases, have defined visions of the future that might surprise many in higher education. For example, according to Oracle chief executive Larry Ellison, "the goal of the great Library of Alexandria was nothing less than to collect all of the histories, all of the science, all of the philosophy that had ever been written -- the collective knowledge of mankind. That's what this is going to be: all of the text, all of the image data, all of the tabular information, all of the audio, all of the video . . . will be stored for you [electronically] to call up and review" (Allen, Ebeling, and Scott, 1995, p. 31). Such a vision has tremendous implications for higher education.
Convergence
The most important phenomenon in the evolving information technology marketplace is referred to as convergence. Convergence is the "accelerating trend of companies involved in broadcasting, cable television, computers, entertainment, and retailing businesses to form various combinations in order to gain competitive advantage in the huge new info-tainment market" (Allen, Ebeling, and Scott, 1995).
The demise of both anti-vertical integration consent decrees in the motion picture industry and financial syndication ("fin-syn") limitations on broadcast television -- and more recently the passage of the Telecommunications Act of 1996 -- has paved the way for the creation, by merger or alliance, of monolithic information conglomerates. These legal changes make it possible for information developers to also own elements of the information distribution channels or retail outlets delivering their product. The mergers and alliance-building activity taking place now is strategic in nature and is designed to align information creation (production), communications (distribution), and retail selling (the "set-top box"). Control of both production and distribution has, since the 1920s, been discouraged due to the risk of fostering monopolistic practices. This risk of monopoly underlies the Justice Department's recent concern with Microsoft's Web browser. In this kind of competitive environment, colleges, universities, and other suppliers of instructional "products" will have to view the choice of information distributors as a strategic one, just as motion picture production companies have been strategically selective about their distributors.
Assumptions About Technology
The rush to merge, join, or enter a variety of joint ventures is based on a number of shared assumptions about the nature of evolving information technologies and about the mass market for interactive multimedia. There is general support for these assumptions across a number of firms and industries that will compete in this marketplace. Some of the most important planning assumptions include the following:
- The "converged" forces arrayed to support the delivery of interactive multimedia to the home will approach $1 trillion (1993 constant dollars) in annual sales by the late 1990s.
- Organizations that produce "information content" will generate annual revenues of $550 to $600 billion, which will grow 15 to 20 percent annually. These organizations include film producers, software developers, publishers, and others.
- The most popular network service offerings will be movies on demand, home shopping, video games, instructional programs, participatory television, and remote banking.
- By the year 2000, switched broadband services will penetrate at least 40 percent of the residential and small business markets across the United States.
- Information (that is, educational) applications may be at least as important as entertainment in this evolving market.
- The most formidable competitors are expected to be strategic partnerships -- especially between content providers and controllers of distribution channels. Among industry leaders, the key attributes for success are thought to be clear management vision, creative marketing, a risk-taking culture, and the right strategic relationships.
- Of the different stages of the infotainment value chain, control over information content has the highest relative importance.
- The requisite enabling technologies are available now. Therefore, the critical issues are business and regulatory issues, not technology issues. For U.S. higher education, the issues are predominately cultural, including those related to risk aversion, urgency, and the ability to assimilate change.
- Recent surveys confirm a strong interest in distance learning and related student services for residential use.
What prudent conclusions, then, can be drawn about this "convergence" from these planning assumptions?
First, it seems fair to conclude that both market forces and technology are converging to deliver many new capabilities in the very near future. Higher education, as both a major supplier and consumer of information resources, can neither sit this dance out nor wait to be asked. Inaction is making it possible, for example, for a variety of new and traditional educators to compete for students' time and allegiance in areas of high academic demand. The possible loss, to new competitors, of enrollments in areas like business or psychology will place new pressures on institutions with comprehensive curricula. In effect, new competition, enabled by information technology, will "cherry pick" those offerings that subsidize much of the academy.
Second, higher education -- as a content producer -- occupies the most potentially profitable niche in this convergence and is the producer of choice identified in many surveys of consumer preference.
Third, based on the potential for profit, newcomers are likely to be attracted to the business of selling courses electronically. The advantages that higher education enjoys both in accreditation and reputation may be tenuous (in some educational markets) when private industry suppliers weigh in with bigger budgets, better technology, more competitive institutional cultures, and more comfort with managing strategic alliances.
Competition in a Technology-Enriched Context
Although colleges and universities rarely express their policies, intentions, and practices in competitive terms, the pressure on traditional resources, coupled with the emergence of technology-based education delivery systems, will force competitive thinking. One particularly interesting case of the assimilation of certain business values in the higher education context is the University of Phoenix (UOP), which focuses on the educational needs of working adults. UOP is an accredited, degree-granting institution and is a subsidiary of the Apollo group, a publicly traded corporation. UOP's growth in revenues exceeds that of the higher education industry as a whole, by a considerable amount.
Several of the assumptions referred to previously will drive the need for competitive and strategic thinking in higher education. The primary drivers of a changed outlook include the following:
- Educational applications will be remunerative in the infotainment market.
- The size and growth attributes of this market are likely to attract new and nontraditional competitors.
- Innovative and entrepreneurial colleges and universities will enter into unusual alliances with nontraditional partners.
- The failure to innovate and invest relatively early will foreclose competitive options for many colleges and universities.
- Colleges and universities with the most intellectual capital will have a new and powerful source of competitive advantage.
The early signs of the changing rules of competition are already in evidence. An independent for-profit corporation called the Home Education Network has acquired the right to distribute the content of UCLA Extension's courses via CD-ROM, online services, and direct broadcast satellite. Motorola University contracts with colleges and universities around the world to develop and deliver a curriculum to Motorola Corporation employees. Elsevier Publishing is working with universities to deliver the full text of its materials science journals over the Internet. Microsoft Corporation is working with many colleges and universities to license the distribution and sale of these institutions' library holdings. Finally, as the price-performance ratio of important technologies, particularly network-based video, continues to improve, nearly every U.S. university will engage in offering "distance education." In such a context, competitive advantage will not follow simply because one delivers education this way. Importantly, competitive advantage will accrue to those who deliver such education cheaper, or in better, more targeted fashion (Porter, 1980, p. 39).
The Marketeer and the Academy
The very idea of marketing seems antithetical, to some, to the mission, values, and ideals of the academic community. The term, if not the concept, is avoided in favor of more noble ones such as development, recruitment, and outreach. Curriculum development, often the exclusive purview of the faculty, is an activity conducted with only secondary consideration given to market factors. Once students have matriculated, their choices are circumscribed by campus resource constraints, faculty schedules, and the underlying philosophy of *in loco parentis*. These forces are compounded by the fact that, at many of our institutions, faculty bereft of the gift of teaching are, for a variety of reasons, "sentenced" with their students to the classroom. This conspiracy of factors accounts for a portion of every campus's student attrition and is structurally unsuited to the likely competitive market for technology-enriched instruction.
A more likely structural and behavioral model is found in the context of university extension operations. Many university extension operations and other academic institutions that cater to the needs of the working adult student have developed values, business systems, and capabilities that will be required in this new context:
- Each class produces marginal revenue, at a marginal cost.
- Instructional contribution can be (and usually is) a variable cost.
- Different courses have different appeal in different markets.
- Advertising can influence student choice.
- Close study of market demand allows the development of curricula that can either maximize earnings or fulfill noneconomic policy objectives.
- Unsuitable instructors are not "invited" back.
- Big name faculty attract students.
- Location and scheduling decisions have revenue implications and are treated as market factors for curriculum and program planning purposes.
I offer this characterization of the cultural, behavioral, and business attributes of a "market-sensitive" academic institution not for the purpose of advocacy but to accent the fact that the needs of resident students and distant students are likely to be markedly different. Further, it is almost axiomatic that the network-based consumer of higher education intellectual content will be peripatetic in the extreme and, eventually, will have unprecedented choice in course offerings and institutional affiliations. In the network-mediated context, physical location, student events, or other traditional factors will not likely influence loyalty to an institution. In this context, capabilities like market-influenced curricular planning, technical sophistication, advertising, and instructional quality control will be necessary elements of the instructional delivery system. Institutions that choose to follow this path must assess the compatibility of such value systems, competencies, and business systems with their existing academic cultures and business systems.
Of all the competencies and values that must accompany an institutional decision to pursue opportunities in the delivery of technologically enriched instruction, probably none is as important as the ability to differentiate among the size, dimensions, and other attributes of various academic market niches. For example, many analysts suggest that the market for lifelong learning is larger (and is growing faster) than the degree-granting segment (Davis and Botkin, 1994). If, following this example, much of the market growth (that is, public demand) for postsecondary education is to occur outside the traditional residential undergraduate context, institutions must be prepared to assess what serving such different markets might mean for the faculty as well as for the residential student body, and what requirements such service will place on the business systems of the campus. For example, business systems that assume that students will stand in line to register for classes are unlikely to meet the needs of the distant learner.
These needs are not likely to be met, in the long term, by a traditional course catalog, a traditional registrar, and a traditional admissions process. The consumer of geography-independent instructional offerings and information resources may -- in his or her worst manifestation -- be an educational "channel surfer," scouring the Internet and World Wide Web for timely, relevant, and well-priced courses. Such an individual will likely expect more than a short narrative description, will assume that registration and payment can occur online, and will expect online digital library privileges and a host of other services mediated over the network. Colleges and universities will want this individual to know about ancillary products that are available: related video and audio programs, online tutorials and books, and so forth. In all, the support environment for a college or university curriculum delivered over a network will require much greater integration and sophistication than does the counterpart support environment offered on campus. Raising the integration standard for off-campus offerings will, in turn, raise the expectations of resident students and the campus's capacity to meet these expectations.
A market-sensitive, planning-based approach will be important to the campus's decisions about whether to pursue certain opportunities and will consider what the possible financial implications of such decisions are likely to be. The market plan will be at least three-dimensional and should address
- The product (both the discipline and the delivery medium)
- The market (resident learners? distant learners? degree-program learners? non-degree program learners?)
- The geographical focus (campus? local? regional? national? global?)
Although this three-dimensional model greatly oversimplifies the market planning process that information-age educators should consider, it does introduce the choice of instructional technology into curricular planning and decision making. Curriculum planning in a place-bound (that is, campus) context is framed by the questions of curricular need, faculty availability, enrollment size, enrollment demand, and classroom size and availability. In the context of technology-enriched teaching and learning, the number of planning variables expands to include choices of instructional technology, market geography, customer attributes, and time. Asynchronous-learning technologies such as instruction via CD or broadcast or taped video or audio can actually mitigate the constraint of faculty availability, whereas synchronous-learning technologies (such as online "global" office hours) offer possibilities for customizing and personalizing instruction in ways that will likely increase the demand for faculty.
As Figure 1 indicates, campuses that choose to extend their instructional reach with the use of technology have many competitive options. For example, what is the demand for a technology-enriched Ivy League MBA curriculum in Russia? What might be the market for university-developed practical agricultural course material on cassette? What elements of U.S. corporations' training needs can be met by U.S. higher education and by any campus in particular -- and in what format or medium? What is the educational role of credentialing and certification in this environment?
If this wealth of capabilities, markets, and intellectual capital represents an untapped opportunity for U.S. colleges and universities in the emerging marketplace, the realization of this opportunity depends on: faculty vision and business execution; the creation of, and investment in, new academic and business strategies; creative marketing; risk taking; and the development of strategic relationships. Absent early institutional intervention in establishing a framework for exploiting this opportunity, colleges and universities run the risk of
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- Diluting our intellectual resources through the willy-nilly application of network technologies to the instructional delivery system
- Dissipating our intellectual resources through unregulated deal making between individual faculty and their "electronic" publishers
- Cheapening our intellectual resources by failing to ensure that technology-enriched course offerings are, in fact, enriched relative to traditional offerings
- Draining our intellectual resources by trying to cover every product market niche in the absence of an overall strategy
- Abdicating a potential leadership role in this emerging market to new competitors such as Times-Mirror, Microsoft, or Oracle
It should be noted that those who do not produce course content in this marketplace are likely to become consumers of others' content.
Expanding U.S. Higher Education's Instructional Franchise
The objective of this chapter is to organize information about the environmental context in which highereducation may operate in the near future and to raise questions about how such contextual observations may be translated by the higher education industry and individual institutions into new strategic directions and programs. For this reason, this discussion is long on themes and short on recommendations. If the underlying premise that the convergence of technologies will enable new ways to fulfill higher education's teaching mission is true, then leading institutions have a range of strategic options that can expand both their geographical instructional reach and their sources of revenues. This range of options extends from achieving cost efficiencies by leveraging course offerings among existing university students to seeking new, potentially global, markets by franchising courses and information assets to students not currently served by higher education.
The first and primary recommendation is for our educational leadership to develop strategic frameworks for addressing the changing environment that is described here. Any institution's ability to exploit new instructional opportunities effectively depends on its establishing an *institutional* context for program development and institutional investments to "jump start" such development. Although U.S. colleges and universities are prepared, for example, to create the data communications networks that will carry instructional content and information resources, is it appropriate (to their missions) for these institutions to "seed" the development of best-in-their-class technology-enriched instructional offerings? Many of our institutions have achieved academic recognition and excellence by localizing the responsibilities for curriculum development and execution as deeply as possible. The development of truly enriched, technology-intensive course offerings -- worthy of the reputation of U.S. higher education -- will be costly and risky. The governance and organizational infrastructures for making such investment decisions are not well developed currently.
A strategic framework must also address the very sensitive issue of who owns the rights -- for distribution and sale purposes -- to institutions' instructional materials and collections. In this area, the nature of the new technologies and the need for unprecedented investments will change or challenge the traditional model wherein faculty course notes belong exclusively to their authors. In the extreme case of fully franchised multimedia course productions, course notes may become more analogous to theatrical scripts, and faculty roles may become more analogous, variously, to those of scriptwriters, producers, directors, and "stars." The evolving roles created by the new potential to "export" course materials beyond the campus suggest the need for new thinking about property rights, risk sharing, royalties, residuals, and other cost-sharing and compensation strategies. What might it mean, for example, in cultural, ethical, and legal terms, for one institution's faculty member to contract with another party to produce a multi-media course (including electronic office hours) for distribution -- for use in credit-granting courses -- to other universities? Many of the possibilities created by new approaches to delivering instruction are not natural extensions of the traditional relationships between faculty, their home campuses, and their publishers.
The implementation of distance education within U.S. higher education should force us to rethink the issues surrounding the awarding of campus credit. The deployment of instruction beyond the borders of a campus should foster (or force) a national dialogue about the interchangeability of credits among participating institutions. If, for example, a student enrolled at one institution enrolls in an electronic course "produced" by another and completes successfully the exams and papers necessary for the award of course credit at the producing campus, can this student be awarded course credit at the "home" institution? If the answer is no, then the speed of adoption of new delivery approaches is likely to be retarded, and instructional innovations are likely to occur first in private industry, where increasing numbers of unusual providers will seek and receive degree-granting accreditation. If the answer is yes, then many approaches to offering technology-enriched instruction have the potential to alter fundamentally the nature and meaning of our student bodies and faculties, to each other and to our institutions.
A strategic framework should focus simultaneously on the issues of public policy, institutional priorities and identity, and business. Beginning with a product-market segmentation, as represented in Figure 1, the nation's higher education leadership should address the issues of how technologically enriched course offerings affect institutional image, access, quality, and cost as well as the question of whether or not (and how big!) a market exists for new instructional offerings. For example, the creation of courses under the auspices of many universities' schools of business and engineering may have significant revenue potential in the executive education and staff training markets. Clearly, the potential geographical market for such courses is global. (For example, one top-twenty graduate school of management is considering a corporate technology partnership to deliver the MBA curriculum via distance learning technologies to a major Third World nation.) On the one hand, in this market segment the revenue potentials are high, whereas negative public policy impacts are likely to be negligible. On the other hand, a decision to develop a best-in-its-class multimedia course on world civilization may have lower revenue potentials but significant potential in the public policy arena. Such course programming -- and the associated investments -- could raise the standard of instruction in key areas, but it also carries with it the risks of "homogenizing" course content and reducing instructional and intellectual diversity.
Whatever the institutional and public policy implications, it is clear that demand for remote instruction in a variety of postsecondary disciplines exists. The key questions for policymakers are
- Whether or not to get involved.
- What it may mean -- pedagogically, culturally, and economically -- to get involved.
- Whether or not noninvolvement is sustainable. (Deciding to be a consumer of others' intellectual content is as consequential as deciding to become a supplier of content.)
The strategic planning exercise should also address the issue of technology risk. This discussion has been long on optimism concerning the potential of new educational technologies and short on assessment of the risks of such technologies. Those who were involved in higher education's early euphoria over the transformational potential of educational television are especially mindful of the risks of overselling new technology. It is clear that the full potential for registering students electronically, receiving funds electronically, exchanging transcript information electronically, delivering enriching multimedia courses, transmitting test scores and grade reports electronically, and keeping electronic records of all registered students cannot be realized with today's technology. If an institution's strategy in this area embraces this kind of target environment, the development of the strategic framework should include an assessment of the underlying technology requirements of such an environment and a forecast of when needed technology will be available commercially.
Finally, a strategic framework should address the institutional policy concerning the formation of new strategic partnerships and acknowledge their operational and economic implications. A discussion of strategy should include an assessment of the institution's capabilities across the media production value chain and should identify the kinds of partners that will be needed to maximize the opportunity and minimize the risks of early adoption of a technological approach. Grant opportunities for early test cases should be explored.
Summary
In sum, technology will, in the intermediate term, be the least important determinant of success in the new delivery of postsecondary instructional offerings. The determinant of market success in this arena will continue to be the quality of the intellectual content. Although intellectual content will be king as this market evolves, short-term advantages will accrue to those who move first into this market, as there are many consumers who will sacrifice perceived quality in favor of course offerings that address their lifestyle needs (time and distance) more closely. This likelihood, in concert with the fact that elite institutions may view themselves as having more to lose in reputational terms than they have to gain, may allow the more visionary and less conservative institutions to dominate certain instructional niches. The conservatism and consensual governance model characteristic of higher education institutions, collectively, may make it possible for the earliest adopters to come from private industry. The public policy ramifications of the private industry alternative are enormous.
U.S. higher education is the envy of the world. Our faculty, facilities, and holdings are sought after beyond the traditional reaches of our campuses. New information technologies will make it possible for this reach to extend well beyond the ivory tower. Significant demand for higher education -- on an anytime, anyplace basis -- exists and will grow as the creative application of these technologies to teaching and learning matures. The application of new technologies to postsecondary education creates a significant likelihood that new players -- those without fixed investments in physical plants or tenured professors -- will obtain accreditation and will compete with traditional colleges and universities in a number of markets. In particular, technology firms will likely attempt to leverage their networks and technology bases to produce highly sophisticated courses at lower costs than can colleges and universities that need to amortize "bricks and mortar" across their offerings. In many cases, instructional offerings from private firms will be produced, prepared, and delivered by our faculty -- who may be paid royalties based on the size of the "gate." This possibility has the potential to change U.S. higher education in profound ways.
For these reasons, U.S. colleges and universities must overcome the natural conservatism of their faculties regarding this opportunity. The potential exists to produce new revenues through technology-enriched extensions of our instructional programs. These new revenues can reinforce the traditional, campus-based instructional environments we have created with much success. The role of the college or university as a center of culture, a community of scholars, and a physical place is secure. The mission of the college or university is also secure. The global need and demand for higher learning is growing. Thoughtfully applied, new information technologies will make economically possible a new level of investment in collegiate instruction. Such investment can sustain our collective vigor and excellence -- if we can rise to the challenge.
References
Allen, D., Ebeling, H. W., and Scott, L. "Perspectives on the Convergence of Communications, Information, Retailing, and Entertainment: Speeding Toward the Interactive Multimedia Age." Unpublished company report, Deloitte & Touche, 1995.
Davis, S., and Botkin, J. The Monster Under the Bed: How Business Is Mastering the Opportunity of Knowledge for Profit. New York: Simon & Schuster, 1994.
Porter, M. Competitive Strategy. Old Tappan, N.J.: Macmillan, 1980.
