Published on 2013/06/06

Mid-Level Institutions Most Threatened by Higher Education Entrants

AUDIO | Mid-Level Institutions Most Threatened by Higher Education Entrants
As higher education institutions adapt to the increasing numbers of competitors entering the marketplace, it’s important to note this isn’t the first time online learning providers have shaken up the industry. However, institutions will need to provide clear evidence of their value going forward if they hope to succeed.

The following interview is with David Collis, business administration professor at the Harvard University Business School. In 1999, Collis wrote about the changing winds in the higher education industry, and discussed the substitutes that existed in the space institutions would be competing against in the early 2000s. In this interview, Collis reflects on the most recent explosion of new higher education providers that have emerged in the marketplace since his work was published, and discusses how the market will change and continue to grow with these new players in the field.

1. When did higher education institutions begin to lose their monopoly on high-quality postsecondary learning opportunities?

I don’t know whether I could quite agree with the premise of that question when you say high-quality postsecondary learning opportunities. … Let me segment the market here in various tiers. There’s obviously the top tiers, the Ivy Leagues and the most successful and largest and research-driven publics. And that’s what I would call, in principle, the high-quality — the highest quality postsecondary learning opportunities. And those I don’t think have lost that monopoly.

If we come down to the slightly lower tier, if you will … the second tier is probably the one that is suffering the most and has lost the monopoly. And then we have the community colleges and those that have always been a little bit more of what I would think of as the training and career-oriented rather than educational in the context of the liberal arts, four-year, away-from-home undergraduate degree. And those have always, I think, been impacted by other entities, whether it’s companies themselves or whether it’s companies offering certificates, certification, around Microsoft products and so on. …

And, at the highest end, the Ivies and so on — top of the arts — those are where you get the four-year residential experience. Those are, I still think, untouched. It’s the bit in the middle, which is the one where I think your premise about losing the monopoly on postsecondary learning has been impacted. …

Part of that right now is driven by the fundamental concern about the price and value of an undergraduate education. We all know that the price of tuition has been going up faster than the rate of inflation for the last 20 to 30 years. And, finally, that’s now kicking into a public debate around, “Is there value still … to having an undergraduate degree?” So that then puts stress on institutions that can’t demonstrate their value to their degree. And that then triggers the possibility, “Well, maybe we can do it cheaper somewhere else,” which is what a lot of the online [institutions] can offer. “Can we do it quicker? Can we do more of the skills training certification rather than the liberal arts education?” Maybe that’s better value for money for a bigger chunk of the population. And then, of course, all of this is being enabled to some extent by technologies. The feasibility of delivering things online and, to be honest, almost the breadth and access to the Internet, to tablets, to cheap PCs … have enabled people to be able to take advantage of these alternative forms of education.

2. Over the past few years, a number of alternative providers have begun to gain legitimacy in the higher education space; why do so many providers seem to be appearing in this industry now?

They’ve always been around. Over in the U.K., for example, since the 1950s there’s been the Open University which was an undergraduate degree available through the television, which was the best mode of conveying information to a disperse, remote population not on a campus. That’s been around since the 1950s. In the first Internet bubble back in the late ’90s there were a splurge of … online that never really got traction, partly because the technology wasn’t quite there, partly because I think the access to the Internet wasn’t there back in the early ’90s and partly because it’s a bubble, so money flows into it, venture capital money goes into it. If it doesn’t show returns, they pull out. I think a little bit of what’s happening now is technology has advanced some, but not a huge amount, and still has, I think, some failings in terms of being able to deliver a high-quality education.

The second thing is I think you have a wide spread of availability and everyone has access to the Internet. … The third thing is, to be honest again, the venture capital discovering this space, and there tends to be this herd behavior in venture capital where, when someone invests in it, other people invest in it. And, to be honest, I think there’s an element of that going on right now particularly around the MOOC [Massive Open Online Course] side of things, triggering availability of capital and people then responding to it.

3. So, to an extent, it’s sort of a combination of all these factors coming together, but we’re not looking at something that’s, in essence, brand new?

I don’t think so. I mean, you alluded to the article I wrote back in 1999 where the first wave of the online was coming in and, in many ways, this is déjà vu all over again; this looks very similar to what happened back then on a slightly larger scale this time. …

I think part of the reason that’s happening is because a decade and a half later, people really are questioning the fundamental value of traditional higher education degrees. And, that then puts more pressure on, “Well, if that isn’t valuable, is there an alternative? Is there a substitute we can go which is cheaper and maybe not so effective, but at least provide the better return on investment than the full-blown undergraduate degree?”

4. Do you expect these options that have been emerging from the past decade to stick around longer in more of a robust fashion than the first wave did in the ’90s?

I suppose yes is the basic answer. Back even in the ’90s, I did believe that there was going to be an upsurge in the for-profits because, to be perfectly honest, it is more cost effective than the full-blown campus-based research institution, the epitome of what we would imagine as being traditional higher education. An institution which is just dedicated towards teaching, which is what most of these are, and only pay faculty for teaching, … invests in things related to teaching. It doesn’t have the sports, it doesn’t have the beautiful … residential dorm. It is a lower cost, more effective way of delivering the pure teaching component. And in that sense, yes, you have to believe that it will … have an effect on the traditional integrated delivery of research education. … So, yes, I think it will have more traction this time around.

There’s two things going on here. One thing is the online version, of which the MOOCs are the epitome of. And then the other overlay is the for-profits, and sometimes these things are for-profit, sometimes they’re not-for-profit, like edX by Harvard [University]. But the for-profits themselves have been under an enormous amount of pressure in the last two or three years because so much of their income came from students who were on government grants; 80 to 90 percent of their income. And the government is now pushing back on their return on investment and graduation rates and what jobs do people get after this. So, the interesting dynamic here is that the alternative technology enables for-profits. … The for-profits have suffered enormously and have shrunk 20 to 30 percent in the last two or three years.

But going forward, I think, ultimately you have to say some efficiency arguments and say that a much more technologically-enabled version of teaching in institutions which focus primarily, if not exclusively, on teaching and don’t have any of the [auxiliary] activities will be successful and will take a bigger share of higher education.

5. How do you expect the marketplace to adapt to accommodate this array of new higher education providers?

I think the answer here is tiering again. … So, to be perfectly honest, if I can call them the top tier — the Ivies and so on, the best liberal arts ones that do deliver the full-blown traditional education — I think they are going to be relatively untouched by this. They themselves will start to use technology more in their classrooms and have these … [flipped] classes, where there’s some video lectures and the classroom is more discussion and problem sets rather than the other way around. So, it will change them somewhat, but it’s not as if they’re going to decline.

The community colleges, the ones that are more skills training and skills-oriented, they, I think, have always had to deal more with the threat of alternatives and substitutes. So, similarly, they are adopting more technology, they’ll have to respond, they’ll have to … work much closer with the firms in their areas and try to target and customize the programs and degrees and the certificates they offer to the firm and the employer needs in their particular area.

But I think the ones who have the most at risk here are that middle tier, the ones that have been trying to deliver, and delivering, the four-year experience, campus-based [education], that don’t have the brand reputation. They’re the ones [with] this pressure to deliver return on [investment]. So, I think response like University of Southern New Hampshire, which is a campus that has added enormously and most of what they do now is their online version of [education] — I think that’s probably a way forward.

I do think that, unfortunately, some of these institutions will, in the next decade, probably close, go out of business one way or another because it’s unclear what their value proposition is. They are getting squeezed, if you will, between their ability to deliver high-quality campus and, “No, this is a lower cost, quicker way of doing it, maybe not quite so effective, but at least it gives you a degree and a cheaper way and hopefully leads on to a career for you.”

6. Is there anything you’d like to add about the explosion of providers in the higher education space and what that’s going to mean for the future of the industry?

We’ve seen it before. I do think there is an element of a bubble here, to be honest, from the confluence of circumstances we’ve talked about. That doesn’t mean I … think they’re all going to disappear and we’ll be back to where we were in the ’70s going forward.

But I do think these changes are ultimately for the good here, but I do have a little bit of a sense that this is overblown and if we reexamine it in 18 months to two years’ time, yes, they’ll still be there, but they won’t be as visible or they won’t seem to be so dramatic a threat as they are now.

Again, the numbers on the Coursera side — the hundreds of thousands of people sign up for a course and maybe 2,000 or 3,000 actually complete it — I also have the sense, to be perfectly honest, that the 200,000 who want to do it, do it the next time around, and next year they’ll get 120,000 and the third year there will be 30,000. Novelty always attracts customers. You get this for free, and there is lots of news about it, “Oh, let’s try it.” That dries up. …

So I do think, to be perfectly honest, it’s a little bit of a bubble, a little bit overblown. Although there is an underlying gradual improvement in quality of education delivered this way, and technology and all those things that will see them continuing to have a viable role going forward, but perhaps not such a dramatic or immediate impact that some people are implying at this stage.

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Readers Comments

Peter Miller 2013/06/06 at 12:09 pm

I agree with Collis that elite institutions remain untouched, but I am not entirely convinced that the “third-tier” institutions he describes are also safe. While it’s true that they are perhaps more familiar with competing with other providers in the market, I would say private, for-profit providers have, today, unprecedented access to resources for marketing that traditional third-tier institutions such as community colleges don’t have. In fact, community colleges have lost funding over the years. Thus, the gap between these two types of institutions will only continue to grow. Though they may not be in as dire a situation as mid-level institutions are in now, third-tier institutions are catching up in this race to the bottom.

Cindy Lauer 2013/06/06 at 6:39 pm

This is a helpful analysis by David Collis about the way each “tier” of institutions is impacted by new higher education providers. It is necessary to first properly diagnose the issue — which he does by identifying mid-level institutions as the most at risk — so that we can develop the strategic interventions necessary to recoup their market share. To that end, I would have liked to hear more about Collis’ ideas for what those interventions might be in order to prevent the scenario he describes where mid-level institutions close out in the coming years.

Phil Gunnarson 2013/06/06 at 9:02 pm

I predict we will see increasing government attention to performance analytics, as President Obama has indicated that a better educated population is one of his priorities in office. This greater governmental scrutiny will apply not only to public institutions, but for-profit, private ones as well — in fact, any institution that receives students on government loans/aid. This is a positive development as it will help us to separate the legitimate (if I may use the word) institutions from those that would only seek to make a quick buck while delivering sub-par education.
At the same time, we have to be careful about the types of data we use to measure institutions’ return on investment. There are elements of the postsecondary experience, particularly at the mid-level institutions Collis describes, that are difficult to quantify. We must not allow that to cloud our judgment of these institutions’ value.

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