Published on 2013/06/14

Small Institutions Best Positioned to Succeed in the Commoditized Marketplace

The EvoLLLution |  Small Institutions Best Positioned to Succeed in the Commoditized Marketplace
Smaller colleges are well-positioned to succeed in the commoditized higher education marketplace, but they must focus on using new technologies to help them achieve their value proposition rather than following the lead of larger institutions

The following interview is with Richard DeMillo, director of the Center for 21st Century Universities at Georgia Tech University and distinguished professor in the College of Computing. DeMillo is a leading thinker when it comes to the future of higher education and how changes today will impact and influence institutions tomorrow. In his last interview, DeMillo explained how small institutions could thrive in the future. In this interview, DeMillo expands on those ideas and discuss how small institutions must adapt to succeed in the commoditized higher education marketplace.

1. Why are so many observers worried about the commoditization of the higher education space?

Well, I think a lot of people have seen what happened in the past when value’s been driven out of their businesses. There’s this great story in Tom Friedman’s “The World is Flat” about what happened to the Wall Street analysts. There used to be a whole industry that would read the news for Wall Street and essentially just quote it back verbatim and charge a lot of money for it. And once all that information became available on the Internet, you saw small businesses pop up in places like India that would do it at a fraction of the cost. So, the moral of the story is that when information is commoditized, you have to have figure out a way to add value.

And it’s pretty clear that there are a lot of institutions that are thinking pretty hard about what that means for their value proposition right now.

2. How will the commoditization of the higher education marketplace impact smaller institutions?

Well, I think small institutions are in the best position to succeed if they’re smart about their strategy.

The whole game has now shifted to demonstrating your value proposition. If you’re going to charge money for a degree or for a residential program, you have to figure out what is it in that package that people are willing to pay money for.

Bigger institutions carry a lot of overhead. They carry a lot of baggage that actually gets built into tuition.

Smaller institutions, if they focus on what they’re good at and figure out a way of using assets that maybe were hidden before; we can call it commoditized assets — online courses, public open materials, course work materials — they can fundamentally restructure their business model and offer increased value to students at a fraction of the cost. And that’s really, I think, where the small institutions can shine.

3. Do you think that smaller institutions can maintain “business as usual” going forward in the commoditized higher education marketplace or are those changes necessary in order to succeed?

Well, ‘business as usual’ is not going to work for anyone, I don’t think, whether it’s a big institution or a smaller institution.

That’s why you see the big research institutions frantically going after things like MOOCs [Massive Open Online Courses] because they know that their business model has to change. The way I think about it is, is that you can’t be a “Me Too Institution” and succeed. And it’s the smaller places — it’s the smaller liberal arts colleges, smaller technologically-oriented colleges — that are most able to change directions. I’m not talking about changing directions 180 degrees, but shifting slightly to making use of online assets, putting more resources into new modes of instruction or new programs that are highly tailored to localities.

Those are the kinds of things that I think are going to draw students in the future. It’s just absolutely clear to me that students are not going to continue to pay for value unless they see that value somehow show up in their degrees.

4. Is there anything you’d like to add about the strategies that smaller institutions must put into place in order to succeed in a commoditized marketplace?

Nothing beyond the fact that this is a conversation that’s taking place around the world. Every place I go, every place I visit, trustees, presidents, parents of prospective students are having the exact same conversation. I see reason for being optimistic. I see a lot of institutions changing their focus and focusing more on value.

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Readers Comments

Jessica Prince 2013/06/14 at 8:52 am

Demonstrating your value proposition is all well and good, but I get the feeling that many of these small colleges are going to find that their value proposition doesn’t pass muster for the new population of non-traditional students.

Many of these colleges offer a four-year residential experience, which is well-suited to a shrinking population of learners.

Without changing their value proposition, I think these colleges will not succeed over the next decade.

Cindy Lauer 2013/06/14 at 11:02 am

I would love to know more about this “Me-Too” institution characterization. Are we basically condemning all institutions that are not early adopters of a given technology to failure?

Kristine Harris 2013/06/15 at 5:53 pm

One challenge smaller institutions could face is that they often don’t have the visibility or brand of larger institutions, nor the resources to market themselves at the level of their larger competitors. In an increasingly commoditized environment, high-impact, large-scale marketing is needed to demonstrate your value proposition. Sure, you might be able to develop innovative programming solutions, but you also need potential students to know about them.

Natasha Rubin 2013/06/16 at 11:01 pm

I foresee smaller institutions developing consortia and pooling resources to create the “added value” necessary to compete in the new marketplace. If small institutions are able to do this successfully, I don’t see large institutions having any advantage over them.

Frank Gowen 2013/06/17 at 7:12 am

Good analysis. I agree that small institutions may be better able to adapt than bigger institutions. Most have always had to rely on their value-adds to attract enrollment, so, while bigger institutions may be caught off guard by commoditization and the heavy competition it yields, small institutions are operating in a very familiar context.

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