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This article is copyrighted by Jossey-Bass Publishers, Inc. and reprinted with permission from a book recently published by Jossey-Bass in cooperation with EDUCAUSE and PricewaterhouseCoopers--Dancing with the Devil: Information Technology and the New Competition in Higher Education, by Richard N. Katz and Associates. A complimentary copy of the book will be sent to the primary representative at each EDUCAUSE member institution or organization; additional copies may be purchased from Jossey-Bass (http://www.josseybass.com/ or 1-800-956-7739) or from EDUCAUSE ([email protected] or 303-449-4430).

Assessing the New Competitive Landscape
by Harvey Blustain, Philip Goldstein, and Gregory Lozier

A complex array of forces--new delivery technologies, changing demographics, the emergence of corporate universities, and a global economy--is creating a new competitive landscape, and institutions must think methodically about how they want to respond. This article presents a framework for beginning to do just that.

Higher education institutions are voicing concern over new competition in their industry. But does "new competition" denote colleges� and universities� moving into new geographical markets and encountering established local institutions? Does it mean new delivery mechanisms (for example, Web-based virtual education) that threaten to supplant traditional pedagogical techniques? Does it refer to the development of corporate universities? Or does it refer to the fact that for-profit educational institutions are now a $3.5-billion-a-year business and growing at more than 10 percent a year?

The short answer is yes.

Colleges and universities are being assaulted from several directions with new competitors, new technologies, and new approaches to education. Many have chosen to ignore the warning signs, hoping it will all just go away. Others have rolled out a few online courses or have encouraged deans to develop new programs. Few institutions have developed a coherent strategy for ensuring success in the new environment.

Our fundamental contention here is that fainthearted attempts to test the waters will not hold back the tide of nontraditional competition. A complex array of forces--new delivery technologies, changing demographics, the emergence of corporate universities, and a complex global economy--is creating a new competitive landscape, and institutions must think methodically about how they want to respond. In this chapter, we present a framework for beginning to do just that.

After reviewing the drivers and trends within higher education, we turn to the sources of competitive advantage in the new marketplace and relate them to specific market segments. Following a brief case study, we discuss how to develop an institutional strategy to capitalize on the new marketplace opportunities.

The Drivers of Education

A good place to begin the analytical framework is with the learner. Why do people seek educational opportunities? What are they looking for? What drives their desire for education?

For much of this century, higher education was an opportunity for a privileged minority of eighteen- to twenty-two-year-olds to gain some knowledge and acquire skills. Today, the motivations are more complex. In addition to providing young people with a venue for growing up, colleges and universities are increasingly providing services to adult learners and corporations, creating additional factors driving the market for advanced education. Consequently, higher education�s mission has expanded to include the following goals:

Provide knowledge to the workforce. Capitalism's "creative destruction" produces an unending stream of new markets, products, services, and technologies, all of which demand training. Businesses spend untold billions of dollars on educating their workforce, and many corporations have established their own universities, often in partnership with traditional colleges and universities.

Retool people for new careers. Conventional wisdom suggests that people will change careers several times in their lifetime. Some of the retooling will come through on-the-job training, but an increasing amount is coming through targeted programs that meet the needs of selective adult consumers. Education has often been described as recession-proof since people out of work frequently go back to school to reboot their careers.

Cater to the need for mental stimulation. The desire for self-improvement has deep roots in American culture. From matchbook courses to self-help books, from motivational seminars to elder hostels, technology and leisure have enabled a burgeoning market for education for education�s sake.

Even among the traditional college set, expectations about the value of education have changed. A recent survey of 350,000 students at 665 institutions, sponsored by the American Council on Education, showed that 75 percent considered financial success to be a very important goal of education, compared with 41 percent who believed education could provide them with a meaningful philosophy of life. This was a reversal of the motivations found among students thirty years earlier. If worldly success is an important driver for education, colleges and universities in a competitive environment may need to pay attention to what their customers want, rather than to what others think they need.

Environmental Trends

The expansion in drivers of education has been accompanied by changes in the social environment, all of which, cumulatively, signal increased competition for colleges and universities. The major changes include

Demographics. Many people in higher education look comfortingly at the "baby boom echo" that began to inject a surge of college-age students into the pipeline in 1994 and will continue for some thirty years. However, the second half of this era will also be the period when baby boomers retire and will place greater demands on public funds for Social Security and Medicare. Can institutions (especially public institutions) count on resources being available for expansion during this period? Or will private colleges--and for-profit providers--have to pick up the slack?

Technology. Considerable ink and blood have already been shed about the application of technology to education. Those who still question its appropriateness, however, should recall President Rutherford B. Hayes�s comment on seeing a demonstration of the telephone in 1876: "That�s an amazing invention, but who would ever want to use one of them?"

The overcoming of time and space. In a world of twenty-four-hour financial markets, real-time global video games, telecommuting, and instant images from Mars, there is no reason why pedagogy must depend on rounding up students into one room for fifty minutes, three times a week.

An 800 number/ATM mentality. When students can get cash at 2 a.m., download library materials at 3 a.m., and order shoes from L. L. Bean at 4 a.m., it is only educational inertia that keeps them convinced that they must learn calculus by sitting in the same classroom for fifty minutes, three times a week.

Blurring of industry boundaries. The health care and insurance industries, once distinct, have merged. The computer, consumer electronics, telecommunications, and entertainment industries have evolved into an amalgamated digital industry. Colleges and universities cannot continue to draw boundaries around themselves and say, "We are the only legitimate players in the higher education business."

Proliferation of authority figures. Professors used to be the accepted authority on virtually any subject. But in America today, journalists, think tank gurus, movie stars, and businesspeople speak with equal authority. Whatever pre-eminence the professoriate once enjoyed in public debate has been eroded by the omnipresence of anyone with an opinion and a talk show.

The individual as the business unit. The social contract between employers and employees has changed, and there is no longer an expectation of lifetime (or even long-term) employment. Savvy employees keep their skills current, and this has turned many people into discriminating buyers of educational services.

All of these trends have served to alter the competitive landscape within higher education. Consumers of education have new motivations and expectations, technology is challenging medieval pedagogical methods, public perceptions of education have become more democratic, and for-profit corporations have realized the wealth of a new market opportunity. The ivory tower is under siege.

Sources of Competitive Advantage

One element that frames any institution�s marketing strategy is the needs of buyers. When the "customer" is an eighteen-year-old freshman seeking a good education, the sources of competitive advantage are relatively easy to define:

Reputation. Is this a good school? Will potential employers want to see this school on my resume? What does my neighbor who goes there say about it?

Curriculum and educational standards. Does it offer the program I want in electrical engineering? Will it prepare me for my career? Can I get in?

Cost. Can I afford to go there? Can I get a scholarship or a loan? What kind of discount can I negotiate?

Location. Is it near my home? Is it far away from my parents? Will it give me the urban (or rural or suburban) experience I want?

Student activities. Does the school have a good athletic program? a debate team? fraternities?

Adult learners and corporations bring different sets of expectations to the marketplace, and therefore create new sources of competitive advantage for colleges and universities:

Access. Because adults and businesspeople are not looking for a residential experience, convenient schedules and proximity to work and home become prime differentiators.

Partnerships. Corporations are looking for partners with whom it is easy to do business. Having to go through numerous faculty committees before new courses are developed or instructors are appointed may diminish an institution�s perceived responsiveness and value.

Customized curriculum. Corporations often outsource education so that they can receive the latest training in skills, technology, or practices. For example, in response to external pressures, a financial services business might ask for the rapid development of an "Ethical Considerations in Derivatives Trading" course.

Flexible delivery. A corporation might ask for instruction to be delivered in New York, Frankfurt, Hong Kong, and Sao Paolo within two months. The institution that says, "Yeah, we can do that" will win in the new marketplace.

Use of technology. Adults have limited patience with a "talking head" instructional style. Accustomed to a higher standard of technology usage, corporate customers see technological sophistication as an important differentiator among providers.

The issue, therefore, goes beyond questions such as "Do we want to enter the market and if so what do we offer?" To be effective in this market may require a fundamental reorientation in how the institution does business: how it relates to students, works with partners, and manages its internal processes.

Market Segment Characteristics

Traditional and nontraditional markets have different growth potential and profitability characteristics. They offer various opportunities for nontraditional players, and similarly, current players are threatened differentially.

The traditional market segment includes undergraduate students, graduate professionals, and graduate arts and sciences students.

Undergraduate market. Tied closely to demography, the traditional undergraduate market will experience some growth over the ensuing decades. However, competition for the more highly qualified students and staggering increases in tuition at both public and private institutions have resulted in students� "trading down," and most institutions have resorted to tuition discounting, some to the point of fiscal crisis. As a result of this price sensitivity, profitability is low. For the immediate future, the threat from the entry of nontraditional competition is relatively low for the full-time undergraduate institution. Competition is considerably greater for the part-time adult captured by colleges and universities during the demographical downturn of the late 1970s and the 1980s.

Graduate professional market. Enrollments in professional graduate programs are relatively flat nationally, with the exception of executive programs. The latter, especially those with prestigious reputations, are highly profitable. However, location-bound programs are likely to receive moderate challenges from new entrants to the executive education market that offer a release from the time and place constraints of traditional executive programs.

Graduate arts and sciences market. Also experiencing relatively flat enrollments are graduate programs in the arts and sciences, which are closely tied to academic hiring. Institutional profitability is quite low for arts and sciences graduate programs, and colleges and universities rely on both external research funding and the demand for undergraduate instruction for fiscal support. The low profitability of these programs means that the threat from nontraditional providers is minimal.

Nontraditional-market students are typically part-time, employed part- or full-time, and older than twenty-five (and increasingly older than forty). They are a mixture of people seeking credentials in the form of a degree, certification, or licensure and others taking individual courses for career upgrade, career transition, or self-renewal and enrichment. In contrast to the traditional markets, programs for the nontraditional student have high growth potential and high profitability margins if costs are managed and technology costs are built into the structure from the outset. As more and more institutions seek new sources of revenues, niche programs are becoming increasingly important. This may favor the more entrepreneurial new entrants who are more successful in identifying and targeting needs of nontraditional and corporate students.

Mistakes Many Schools Make

Increasingly, institutions are seeking to find new markets and to develop new sources of revenue. As they move forward, however, they often fall prey to a common set of pitfalls:

Failure to provide adequate guidance. Senior administrators often fail to provide guidelines for and parameters of an acceptable plan. For example, a private university seeking to increase nontraditional revenues asked its deans to develop business plans. Each of the deans was given wide latitude in how to approach the issue, and the resulting plans, not surprisingly, varied widely in their quality and specificity.

"If we build it, they will come." There is no point in developing a new program unless prospective students recognize its value and are willing to pay to enroll. One private university offered a program that would allow students to take courses on a nondegree basis, provided they paid full tuition. Although twenty such students were budgeted for annually, the school never attracted more than two during the three years the program was in operation. The university had failed to recognize that students would not pay full tuition if their coursework would not count toward a degree or credential.

Supply-side focus. A related problem is the lack of attention to what potential customers really want. To move quickly, institutions tend to build on existing capacity and strengths. Faculty tend to identify new programs that leverage their interests. Too little attention is paid to the basic market research that identifies market needs, targets specific clienteles, defines marketing approaches, and determines pricing strategies.

Program cannibalization. Institutions often fail to ask whether the projected enrollments for new programs will reflect students who would not otherwise have enrolled at that institution or whether the program will siphon off students who would otherwise have enrolled in an existing program. New programs that increase retention are to be highly valued, but moving students around who would be there anyway provides no new net revenue.

Lack of specific action plans. Having identified a new program, many plans fail to outline next steps. Defining a logical sequence of activities, milestones, and resource requirements provides the management framework necessary to translate good ideas into tangible programs.

A Public Research University That Did It Right

In the spring of 1997, the president of a leading public research university appointed a committee to determine the universitys potential position in the distance education marketplace and to propose a university action plan. The committee began its assignment by preparing three working papers: a summary of the distance education context and of relevant trends and assumptions; an internal audit of the universitys current offerings in distance education; and an analysis of the cable TV industry in the state, to provide an understanding of delivery options.

With this information in hand, the committee addressed the question, "How prepared is the university to pursue a distance education strategy, and where should it invest?" To answer this question, they needed to:

Eager to move from planning to action, the university was most anxious to develop the business plans. However, to ensure that the plans would be developed for opportunities with the prospect of market and financial viability, it was crucial to drive toward a vision with multiple pathways. The initial analysis unveiled dozens of alternative directions, of which ten were considered viable for financial investments based on the criteria of brand recognition, institutional strengths and weaknesses, and positioning relative to competitors. Examples of the directions considered included "innovate existing curriculum content," "build from brand-name opportunities," and "provide personal enrichment opportunities."

Ultimately, guided by three preferred strategic directions, the university selected three distance education program opportunities for business plan development. The plans they developed included

Armed with a concrete description of each program, knowledge of the potential and future market, the readiness of the academic unit to deliver, an understanding of the required support infrastructure, and a sense of the potential financial profits or losses, the university was positioned to make strategic investments in distance education.

Institutional Strategy: Charting a Course to Compete

Most institutions have had the same strategy for decades, with little variation in their range of program offerings or target student population. With few exceptions, the geographical boundaries that framed their strategy were the walls that defined the campus perimeter. Institutions have competed with a stable set of peer institutions with predictable patterns of competitive behavior. Under such a relatively stable set of competitive conditions, there has been little need for the rigorous business planning and competitor and market analyses frequently undertaken by corporations. Rather, colleges and universities have focused on where they can make incremental investments to raise the quality of their programs and student body through their faculty recruiting and tuition discounting strategies.

The rise of nontraditional competition significantly alters the challenges and questions that institutions now face. Today, institutions must devise strategies and tactics not only to find new sources of revenue but also to preserve the traditional sources they have enjoyed. Decision makers must consider not only their range of program offerings but also where they will compete, what programs they will compete with, how they will deliver their programs, and who is likely to compete with them.

The rapid growth of nontraditional markets for education and the expanded delivery mechanisms (for example, the Internet, distance learning, satellite campuses) create a multitude of entrepreneurial opportunities for an institutions schools, departments, and faculty. The scope and benefits of new ventures will be enormous, but so will the risks.

Deans, provosts, and presidents must view their responsibility in setting strategy as that of managing a broad portfolio of programs and opportunities in a highly dynamic market. Higher educations leadership will routinely be asked to sift through numerous proposals each year to invest in new programs. Like a venture capitalist, they must determine which programs offer the greatest potential for benefit and the greatest likelihood of success. They must have structured means for evaluating the revenue potential, investment requirements, level of quality, and level of risk associated with each new venture. As investors of scarce institutional resources, they must be able to evaluate the many opportunities laid before them, as they can fund only a relatively small group of programs. The choices that deans, provosts, and presidents make must be consistent with a broader set of institutional strategies and directions.

To evaluate and manage these new opportunities for growth effectively, institutions must put in place three critical planning components:

Strategic guidelines and program development parameters

Before individual schools or faculty are asked to develop proposals for new ventures, the institution as a whole needs to define its broad strategy for competing in new markets. This will enable the institution to establish and communicate the range of new ventures they will support. For faculty, this institutional strategy provides initial criteria that they can use to self-screen their own entrepreneurial ideas for new ventures.

This institutional strategy should not be overly defined. In fact, there is a risk that a strategy that is too rigorous will be too rigid and limiting and will cause the institution to miss opportunities. Instead, the strategy should provide general definitions as to the types of new ventures that would be consistent with the institutions mission, existing strengths, and available resources.

Guidance for new program development should consider five elements:

Program offerings

Market segments

Geographical boundaries

Delivery methods

Investment

Given the almost limitless potential for generating ideas for new ventures and the very real constraints of available resources, how an institution answers these questions will bring important focus to the development effort. Just as maintaining the status quo is not an acceptable option in the face of new competition, neither is doing everything.

Structured business planning

To optimize decisions about opportunities for new ventures, the institution must be able to consider and evaluate structured business plans. Adopting a standard approach to business planning will provide decision makers with a systematic method for evaluating and comparing individual proposals for new programs. A well-developed business plan should answer the following questions:

Market questions

Program questions

Financial questions

Risk questions

Rapid evaluation and decision making

The process of answering these questions will not only produce a business plan that can be used to explain and evaluate the new proposal, it will also refine the idea itself. The rigorous nature of the process will help further the development of the concept of a new program before it reaches any institution-wide review process. It will also cause the idea generator to perform a self-evaluation of his or her proposal and voluntarily screen out those ideas that do not appear to hold up under the scrutiny of the business planning questions.

To make the planning process effective, all plans should work through a discussion of these questions in a standard manner. Common templates for financial planning should be provided, and the format and appearance of plans should be standardized. This will provide for a more fair and efficient decision-making process. Proposals requiring larger investments should include original market research data to further validate assumptions about market demand and pricing.

Finally, institutions need to be prepared to decide quickly which programs to pursue and which to decline. In a competitive market, an opportunity identified at the beginning of a planning process might not be viable within one or two years. Traditional multiyear planning and decision-making timetables will not be sustainable. Institutions must also be prepared to continuously reevaluate and adapt programs as new competitors emerge with new offerings and as the needs of students change. In approving a new venture, an institution must also identify what factors or warning signals it will look for to decide when the program should change or be shut down.

Barriers to Entry

The development of an institutional strategy for nontraditional markets must also be framed by an acknowledgment of current barriers within higher education generally and, more specifically, within each institution. Of course, not all colleges and universities share these in equal measure, and at some institutions these considerations are insignificant. But together these factors do inhibit, to one degree or another, an institutions ability to be proactive (and sometimes even its ability to be reactive). Barriers to entry include the following.

Fixed costs in faculty. Faculty are often resistant to moving in new areas, and opportunities to develop new programs may result either in a commitment to new faculty lines or to the use of adjuncts that have little institutional commitment.

Fixed costs in the physical plant. Colleges and universities have an incentive to fill up existing on-campus classroom space and facilities. This can inhibit their flexibility in bringing educational services out to the market.

Pre-Gutenberg pedagogical methodology. As practitioners of medieval modes of teaching, the faculty (individually or collectively) are sometimes resistant to technical innovations. The recent decision by a Canadian university that professors will not be forced to use technology is a case in point.

Professional paradigms. The use of sophisticated technology often demands that the instructor team with curriculum designers and technical specialists. Similarly, corporate partnerships require that curricula be developed in concert with the customer. For many professors, such collaboration constitutes an intrusion into and a threat to their professional autonomy.

Little leverage in professorial models. Despite its obvious virtues, face-to-face classroom interaction limits the reach of each instructor. Where institutions are unwilling or unable to leverage technology and alternative delivery methods, the economics of education will be limited by how many people can fit into the classroom.

Potentially large investments in technology. Virtual education and distance learning do not come cheap. And where the corporate partnership involves technical or scientific education, there may need to be considerable investment in facilities and equipment. One university has spent over $1 million in a state-of-the-art facility for providing Novell, Microsoft, and other types of technical certification to the financial services community.

Non- or anti-business orientation. There is a strong ethos within many universities that any involvement in corporate or sponsored education is a deal with the devil. In some cases, even overt discussions of new programs as revenue generators can elicit negative reactions from the campus community.

This, then, is the new competitive landscape: new sets of buyers with new expectations, a growing set of competitors who see a lucrative business opportunity, and existing higher education institutions that are steeped in tradition. Ultimately, culture may be the greatest factor affecting the ability of colleges and universities to succeed in the new market.

Harvey Blustain, Philip Goldstein, and Gregory Lozier are, respectively, director, principal, and managing associate in the Higher Education Consulting Practice at PricewaterhouseCoopers LLP.

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