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
-
- 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.
