Walking the Tightrope: Balancing Innovation and Risk in Higher Education
Across the higher education landscape, innovation has quickly become the new mantra (a huge shout out to the old mantra, “traditional”). We see institutions of higher education wear their “innovation-leader” status as a badge of honor, while touting the receipt of various innovation-related awards, or their standing on “most innovative” rankings. In my previous article, Change in Higher Education: Four Simple Observations, I provided a few of my observations on how organizations could prepare for a change-intensive environment, and the potential implications of such an environment for higher education. But not all change is related to innovation, so with higher education’s burning gaze focused directly on innovation, I wanted to provide three thoughts on innovation itself in terms of why innovation is important, risks that are associated with innovation, and how those risks can be mitigated.
1) Innovate or perish
Peter Drucker, one of the founding fathers of how we conceptualize modern business corporations, coined the well-known phrase: Innovate or perish. This highlights the ever-present impact change on organizations, teams, and even individuals. For example, imagine an individual who chooses to reject using mobile technologies, and the significant disadvantage they might be at in today’s world, as compared to those who have adopted those technologies, and have libraries worth of information, banking and finance, social networks, personal contacts, teleconferencing, GPS navigation, at their fingertips wherever they go. Now, what if it was an organization that was slow to adopt significant innovation, such as digital transformation? Those competitive disadvantages would make it difficult, if not impossible for them to survive. But that’s fairly obvious, right?
Now let’s overlay the notion of competitive advantage and disadvantage with the product lifecycle concept. Industries, markets, and products, exist along a lifecycle which has 4 major components: emergence, growth, maturity, and decline. In emerging markets, innovation is the critical strategic driver as organizations need to innovate quickly and (potentially) disruptively, creating new products and operational paradigms. This is done to meet unmet or under explored needs of the burgeoning market (product requirements); provide benefit to the consumers in that market (value proposition); and navigate environmental conditions (competition, regulation, cost of entry, available substitutes, and supply chain capabilities). Then as these requirements are addressed within product development, and customer bases become larger and more established, growth markets begin to emerge. In growth markets, organizations focus on how to increase market share through meeting the needs of expanding consumer segments, while building brand prominence (Blue Ocean Strategy). Regulation and competition are still somewhat low, and opportunity is high.
However, with growth comes increased competition, as opportunities to identify and serve new consumer segments for the product decline. The regulatory and competitive environment intensifies, with consumers having more choice. This indicates a shift along the lifecycle from an ascending, “growth” mindset, to a mature and flattening, “scale” mindset. Efficiency, and cost-control become more widespread, with continuous improvement being the more likely type of innovation. Organizations try to drive costs down and compete for market- share by taking it from competitors. Products at this part of the lifecycle also tend to be the main revenue-drivers of the organization. Then as newer, disruptive innovations, models, products come along as organizations seek to find new growth opportunities, these then drive mature markets into decline, where investments in supporting declining products make less long-term financial sense, and they are eventually phased out.
Three important things to note here: First, there is no timeline for how long a product might take to move from one phase of the lifecycle to another, although variables such as technology, communication advances, transportation capabilities, global networks, etc. may expedite how quickly this progression occurs. Next, emerging products and disruptive innovation do not necessarily mean the end of a current paradigm if the marketplace continues to show demand for both the mature and the emerging products. For example, the emergence of homemade coffee brewers did not mean the end of the coffee shop, as the marketplace allowed for the existence of each. Finally, organizations that are paying attention, may (should) provide products along various parts of the market lifecycle, as a means of assuring the longevity of the overall organization, allowing the organization to continue to meet the requirements of its mission. I mention part three because this is where I see higher education sitting today.
Traditional higher education is competing in the clearly “mature” traditional, program, course, credit-hour, based higher-education space. Even with the emergence of the one-time disruptor-turn-tablestakes, online education. Thousands of competitors operate in the higher education space, with significant regulation that governs action. Consumers have significant information at their fingertips, and a wide array of choices they can make. Although the private- non-for-profit segment has experienced a 10-year growth trend, the overall size of the consumer base for the industry is in decline. Issues such as pricing; student outcome attainment (does the product perform as promised); low unemployment accompanied by rising salaries for jobs that do not require a degree; emerging alternatives, etc. have forced established higher-education institutions out of the market. As a result, competitors seek to take market share from other competitors both nationally and globally.
These conditions highlight why it is important for us to consider continuous improvement, within the traditional, mature product line, as our basis for innovation as we seek to maintain our standing in a still viable, higher-education industry. Innovation here, should typically be aimed at improving efficiency or effectiveness (e.g. improving the learner experience, better service, improving attainment levels (how many learners graduate); applying technology to facilitate scale and reduce cost; predictive analytics to support just-in-time interventions; focusing more directly on already existing consumer sub-groups; improving how products are delivered, etc. Even when significantly new technologies or models arise, their ability to produce competitive advantage or industry disruption is quickly mitigated as competitors can quickly adjust and adapt to the innovation.
At the same time, we see new markets, that are quickly moving from emergence to the growth phase, as those new products take root, and more institutions enter that segment. For example, in higher education, we know of the need for small, quickly attained, low-priced, career-focused/career-advancing bursts of learning (badges, micro credentials, certificates). These may or may not be credit-bearing. Increasingly, employers are seeking these “credentials” as proof of job skills, in lieu of a full college degree, with research showing that approximately 68% of adult students who were thinking of enrolling in college program stating a preference for non-degree options. These new types of educational products require us to think differently and “disruptively” innovate around how we meet the needs of that emerging market. How do we identify those consumers? What are their needs and how do we build products that meet those needs? How do we deliver those products and what services do we need to provide to support those products and consumers? What does quality mean, and how do we deliver it all in one high-grade, seamless customer experience? We innovate disruptively here not intending to break the mature products’ standing in the marketplace, but to provide the organization with the capabilities necessary to meet the needs of the emerging market.
To summarize, if we do not innovate in higher education, we may find ourselves selling over-priced flip phones, in an iPhone2000 Ultra Super Beta Max Pro in sparkling rose gold, market.
2) To do or not to do, that is the question
“Oh My Gosh There’s a Rock in My Bed!” Those were the words of Ruth Hamilton, after she was woken from her sleep by a loud crashing noise, turned on her lights, and found that a 2.8-pound meteorite had crashed through her ceiling and barely missed her head! Whether we are sound asleep, or up and about and active, there is always some level of risk.
There is risk in “doing”, and risk in “not doing”. Risk of not doing is of course famously memorialized in the fall of the onetime corporate giant, Kodak, who chose to pass on what would become the existentially disruptive technology, digital photography. Making this even more tragic is the fact that digital camera technology was invented by a Kodak engineer! Long-term success in all phases of a product lifecycle, usually hinges on being skilled at determining (business intelligence) if the risk of doing, outweighs the risk of not doing, and evaluating your organization’s ability to respond if the risk is worth the reward.
Although there are many risks to innovation, there are three that stand out to me. The first is the risk is trying to drive innovation that does not appropriately consider the marketplace and the product’s position along the lifecycle. For example, institutions of higher education that are seeking to be industry disruptors within their mature product lines, versus determining how to enhance, of continuously improve and optimize how they operate, may be making a significant mistake.
Exploring and building disruptive innovation can be costly and consume significant resources and time. In a mature environment, organizations do not need incur the cost of R&D, and other such costs related to disruptive innovation, but can instead apply a continuous improvement model, allowing them to iterate and improve on industry best-practices, existing (but maybe customized) technologies, vendor relationships with various service providers (for example online program managers OPMs), etc. to allow for quickly implemented, effective and efficient improvements to how they make and deliver their products. The risk here is if institutions overspend resources on disruptive innovation in the mature segment of a product lifecycle, the ability to achieve significant return on investment will require either a commensurate gain in market share to drive revenue, and/or a commensurate reduction in its cost base through achieved efficiencies. Each is difficult to achieve in a mature market, with consideration for the speed at which copy-cat products will emerge in a mature and competitive market.
A second risk is related to driving value to the customer. Not only should organizations consider their product’s place in its lifecycle, they must consider innovation in relation to an organization’s value proposition. As we discuss value (I will leave a full discussion on the importance of creating value by aligning a product lifecycle strategy with the consumer adoption lifecycle and your target market, for another time) I’ll ask the simple question: What if I told you I invented a flying toaster? You might say to me, “Wow, that’s pretty cool!” You would be correct, but might also be thinking, “what the heck would I use that for?” In fact, statistically, most people (the “majority” of the market) might also ask the same question. However, there are a few people who would immediately sign up, almost regardless of price, to be the first (early adopters) to own an official Wyatt Flying Toaster. There are those who think of innovation as building “cool stuff”. Building cool is great but building value is critical. Building things that are both cool and add value, is what your organization might call its “secret sauce!” In higher education, the risk here is innovating, around things that do not truly – directly or indirectly – add learner value. They therefore do not help the learner achieve their goals (graduation, self-fulfillment, job growth or attainment, etc.), or allow the organization to drive financial and other performance outcomes such as increased efficiency or lower costs. Innovations that do not add value, but add to the organization’s cost base, may lead to increased pricing, or lower quality, which reduces the value of the product to the customer. The implications here are clear.
A third innovation risk sits at the intersection of microeconomic theory, resource management principles, capacity management, and fundamentals of finance, which simply stated is misreading environmental signals and building the wrong “thing”. A respected colleague frequently refers to this as the “right answer, wrong question” risk. No matter the organization, no matter how solid its margin might be, if you think of resources as bullets in a gun (please forgive the metaphor), an organization can only afford a finite number of bullets. Missing your target, due to misread signals, poor product design or ineffective execution, is costly and will lead to an inability to replenish your supply, and you will eventually run out of bullets (margin).
3) Discipline and structure is the key
Clearly higher education needs to innovate, but it is also clear that there is risk. Throughout higher education there are many very smart people grappling with this very need to balance those two forces. In my own work, as I seek to make decisions related to innovation versus risk mitigation, here are a few heuristics that I try to apply:
- Measure twice, cut once. There is no such thing as a sure bet, but work to clearly understand the marketplace, its consumers, and where the signals are leading. Then consider how to move toward a focused innovation strategy. Do NOT come up with a solution, then go hunting for a place to set it down. The cost of missed or misread opportunity is too high.
- Plug into the DISCIPLE of innovation. Used established methods for undertaking innovation in a structured manner or when individuals have great ideas that match with the needs of the marketplace, how those ideas plug into an innovation methodology and strategy. One such methodology is the Business Model Canvas.
- Don’t splinter the organization in a million different pieces. Compartmentalize the spaces in which you allocate resources to innovate, and the lifecycle of the product in question. Consider approaches, such as the Deloitte approach to innovation and unlocking the flexible organization, which builds on the principle of securing the core business model, and innovate in clearly defined spaces that do not break core models (at the edge).
- Be strategic. There many, many great ideas that may come from or come to an organization. But only a few of those great ideas align to your mission and purpose, consumer base, market position, organizational goals, and available resources. Identify, prototype, implement, test, and evaluate those ideas. Discard quickly what doesn’t work and expediently bring to market those that do.
The complete interview from the Agents of Change podcast fan be found here.
Author Perspective: Administrator