Published on 2015/01/13

Adapting to Higher Ed’s Change from a Public to a Private Good (Part 1)

The EvoLLLution | Adapting to Higher Ed’s Change from a Public to a Private Good (Part 1)
As higher education transforms from a public good to a private good, it’s critical for institutions to adapt and communicate with students in a different way.

The following interview is with David Collis, professor of business administration at Harvard University’s Business School. Collis’s research interests are focused on corporate strategy, international strategy and strategy process. In the first installment of this two-part interview he shifts his focus to the higher education marketplace, discussing some of the more significant changes that have affected the business of higher education over the past 10 years and shedding some light on how these changes map to transformations we have seen in other industries.

Click here to read key takeaways.

1. In recent years, higher education has begun its transformation from being viewed as a public good requiring public provision, to a private good being privately delivered and funded. What are some other industries that have gone through a similar change, and how did they adapt to the switch?

The obvious analogue is healthcare, which has in some ways, 20 years before, gone through this switch. The classic 60s view of higher education was that it’s good for the state if we provide the funding to encourage people to go to higher education. It’s good for them but more importantly it’s good for the whole economy and the state was willing to fund higher education access for everyone. Similarly, health care in the old days was provided by not-for-profit institutions and publically funded institutions. What’s happened to both of them is this belief that now it’s an individual good, it’s a private good. Getting a better education means you will earn more over the course of your life. That’s terrific for you, you should pay for it, but the state shouldn’t be funding this and it shouldn’t be a public good any more. Similarly in healthcare, this is your individual responsibility, your individual health and we’ll allow the private sector in to provide that.

That’s the notion here: The switch from public provision of a public good to private provision of a private good.

In healthcare what’s happened is obviously the emergence of private players. The biggest change from then is the consolidation and the scale that’s built by the successful players and in some sense that’s also what you see in higher education with the private providers. The lesson from healthcare is, at least for the private providers, the importance of scale and consolidation. In healthcare, even publically funded [institutions] are now being associated and building scale and scope. That’s something that hasn’t yet happened in higher education. In the not-for-profit sector or the state sector there hasn’t really been that much in the way of consolidation, certainly across state boundaries.

Another industry that’s sort of gone that way is home security. In the old days people believed it was the local police force that was supposed to provide all the security in your area. Nowadays, the use of private sector guards—whether it’s in malls, gated communities—is common. The belief now is that security is a private burden and individuals should pay for it. What was driving that was a cost issue that the publically funded public sector provision of local security became very expensive, partly because of the union contracts and so on and people arguing it’s much cheaper to provide this through private sector third parties and again, that’s part of the pressure on the public sector, higher education today.

2. In both spaces we’ve seen the emergence of a multi-tiered system of healthcare provision or security provision between different groups of people. Do you think higher education is going to experience a similar movement where multiple tiers of service become available with stratification between private provision and public provision?

Yes and that’s already happened. Historically we always had the categorization of higher education institutions but if anything, entities have to differentiate and specialize if they’re going to succeed, that’s the economics of competitive industry. That necessarily leads to a reinforcement of the tiering of the institutions, and that has happened in higher education and will increasingly happen. The corollary of that is that each one of those tiers then has to develop a very clear understanding and statement of its value proposition to its target customers. The Ivy League’s value proposition is very different than the community college. Both of them or all of them will be required to clarify exactly what benefit you get from coming to this institution and putting that together with understanding the target audience, the market they’re going to serve and bringing those two together to be able to demonstrate a return on investment.

We all know how expensive higher education is. It’s the second biggest investment after a house, the corollary of this being a private good delivered privately is an emphasis on the “what’s in it for me, what’s my return on investment” and that’s then going to have to be an important part for higher ed. The answer to that obviously varies across the tiers. Towards the community college end it’s going to be a lot more working with the local employers to provide the appropriate set of skills and job related certification and customized programs to match the skills among the employers in those areas. For the liberal arts colleges, it will be incumbent upon them to demonstrate what the value of a liberal arts education is, not just in airy-fairy terms but on some level being able to quantify the benefits.

The tiering has happened and will continue to happen as the various institutions specialize and each one of them will have to develop a very clear value proposition to the customer segments that they think are the target market for them.

This interview has been edited for length.

This is the first of a two-part interview with David Collis on the changing business environment for higher education institutions. In the second installment, Collis explains how technological advances and the opening global marketplace are impacting institutional focus.

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Key Takeaways

  • Higher education’s transformation from a public to a private good closely maps to changes seen in the healthcare and security industries.
  • Higher education institutions need to adapt to this change by very clearly defining and communicating their value propositions to prospective students.
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