GLOBAL
Is higher education ready for blue ocean strategies?
In 2015, an updated edition of Blue Ocean Strategy was published. The authors, W Chan Kim, the co-director of the INSEAD Blue Ocean Strategy Institute, and Renée Mauborgne, the INSEAD Distinguished Fellow, have been advising companies and organisations for more than a decade on “How to create uncontested market space and make competition irrelevant”.The authors define two types of oceans: red oceans and blue oceans. Red oceans exist today and are populated by similar companies competing for the same market. Supply, in red oceans, exceeds demand.
Blue oceans are defined by the authors as untapped markets, not currently in existence. Blue oceans create new demand. Blue oceans don’t focus on beating the competition. Rather, blue oceans make the competition irrelevant by opening up new and uncontested market space.
Higher education: red or blue ocean?
Much has been written and predicted about higher education’s demise. Indeed, some of the ‘disruptions’ in higher education would lead one to agree that in five or 10 years many colleges and universities will either not exist or will be merged with other institutions.
In a recent Chronicle of Higher Education survey of United States college presidents, two thirds believe that higher education is going in the wrong direction. The usual reasons are given: declining high school graduates in primary recruitment markets, a falling middle class and the lower socio-economic status of applicants.
When the presidents were asked how they planned to increase revenues, 88% of public college presidents and 77% of private college presidents listed increased fundraising as their primary ‘new’ revenue stream. When the presidents were asked to list how they would increase revenue if they didn’t have to worry about the consequences, increasing tuition fees and increasing teaching loads were at the top of their list.
Let’s consider how this survey’s results compare with the following statistics.
In the 4 June 2015 issue of The Wall Street Journal, Mark Schneider, vice-president and fellow at the American Institutes for Research and president of College Measures, reported the following:
“Between 2008 and 2013, the number of bachelor degrees awarded in the US grew 18%. The number of associate degrees was up 38% and career-focused certificate programmes increased by more than 40%.”
The US Bureau of Labor Statistics recently reported that, since 1978, higher education costs have increased by 1,200% while during the same time period healthcare costs increased 634% and the Consumer Price Index rose 279%.
Fifteen years ago, the average hourly wage for a US college graduate was US$18.41. In 2015, the average hourly wage was US$17.94, a decrease of 2.5%.
The public’s perception of a college education has shifted from a necessary ticket into the ‘good life’ to an investment that is no longer worth the time, expense and debt.
The future is online?
Technology has made brick and mortar institutions less relevant and can reshape the learning experience. Already we are seeing free and paid digital content, digital courseware, Small Private Online Courses or SPOCs, and Massive Open Online Courses or MOOCs.
Also in its infancy are game changers like Google Glass and Virtual Classroom Reality. No one can predict with certainty how online programmes, MOOCs and other technologies will ultimately impact higher education delivery, but there are a good number of venture capitalists in the Silicon Valley that are betting that higher education may go the way of music, publishing and newspapers.
Venture capital investment in higher education technology companies increased from less than US$200 million in 2008 to US$2.1 billion in 2013.
At the very least, technology is defining physical space and learning and supports Harvard Business School Professor Clayton Christensen’s theory of “disruptive innovation”, which maintains that change comes when start-up companies use technology to sell products and services to the fringes of a given market, a market that the dominant players ignore.
In a recent book by Kevin Carey, The End of College, the author argues that the cost of education and the revolution in information technology are converging in ways that will radically alter the college experience.
His “University of Everywhere” spans the globe and offers a personalised, individualised college experience to large numbers of people at reasonable prices. The “University of Everywhere” does not have traditional college credits based on arbitrary amounts of time spent in a classroom. Rather, students accumulate credits through a new credentialing system based on competency and evidence of learning.
Carey quotes Daphne Koller of Coursera who believes that in time Coursera will build 5,000 courses and will provide “an education in anything for anyone, anywhere”.
Many private US colleges and universities have not met their enrolment goals for years and many operate under a discount rate of nearly 45% and annual net revenue declines.
In 2013, the average institutional yield rate was 36%, down from 49% in 2002. Many colleges and universities continue to compete for the ever decreasing pool of ‘traditional’ college students – first year and transfer students.
One out of every three college students will not graduate from the college they enter. ‘Educational migration’ is not a new phenomenon. It has been going on for decades. Given these economic, technology and consumer realities, is higher education operating in a red or blue ocean?
Examples of blue oceans in higher education
In 2012, the American Association of Collegiate Registrars and Admission Officers, or AACRAO, published Anticipatory Enrollment Management.
It defined Anticipatory Enrollment Management, or AEM, as anticipating new enrolment by creating new academic programmes and by investing in new and creative use of technology. Enrolment managers should partner with all segments of the administration and research trends both inside and outside higher education and connect those trends to future enrolment opportunities.
AEM focuses on diversifying and increasing a college’s revenue stream by using data and research to anticipate and create new markets. AEM is about increasing the revenue pie, not cutting budgets or firing staff if enrolment goals are not met.
Do blue ocean strategy and Anticipatory Enrollment Management have anything in common?
There are too many potential blue oceans in higher education to list but here are a few:
- • On 14 May 2015 UNESCO reported that global participation in higher education increased from 19% in 2000 to 32% in 2012. Many of these international students did not travel abroad and enrol in four-year undergraduate programmes. Some of the increase can be attributed to international students taking online or MOOC courses.
- • According to the Organisation for Economic Co-operation and Development, or OECD, students studying abroad more than doubled from 2.1 million in 2000 to 4.2 million in 2012.
- • Another OECD report revealed that there were about 1.8 billion people in the middle class in 2009 and by 2020, the global middle class is estimated to grow to 3.3 billion.
Perhaps the days of sending international counsellors to attend international fairs and conferences and hiring agents is only one way to recruit international students.
What these statistics indicate is a potential blue ocean market for online courses and short-term study abroad programmes for international students.
There are also opportunities for US colleges and universities to increase their college’s share of the national student pie. The US Census Bureau recently reported that only one third of working-age American adults have a bachelor degree and there are 35 million college dropouts over the age of 25.
Do colleges and universities know how many of their dropouts have completed a degree or how many adults in their local areas have some college credits and would want to complete their degree through some combination of online and competency-based credits? What would happen if they were contacted?
This cohort represents an untapped source of new enrolments and revenue.
One more example of swimming in blue ocean waters is the story of Michael M Crow, the president of Arizona State University. He operates in a blue ocean world. Since he became president, enrolment has increased by 50%, academic departments have been reconfigured, the university struck a deal with Starbucks to enrol employees in online programmes and Starbucks will reimburse students for any tuition costs not covered by needs-based financial aid.
Progression from first to second year rates reached 84% in 2013, a seven point increase since 2006. This year Arizona State University teamed up with the MOOC provider edX and created the Global Freshman Academy which will offer a set of online courses to fulfil the general education requirements of freshman year.
Fishing in blue oceans
Recognising blue oceans is one thing, capitalising on them is another issue. While much has been written about the challenges facing higher education, less is written about how to fix the problems college and university presidents confront each day.
University leaders need to create new business models that require a disciplined strategy to execution process and models that challenge deeply ingrained beliefs and university cultures.
While the new business models respect a university’s past, the models are agile and capable of helping colleges and universities adapt and anticipate the future.
According to Larry Ladd, Grant Thornton’s director of national higher education practice, only 25% of university administrators believe that the current business models will be sustainable for more than five years. Colleges and universities will need to re-examine their strategies from their missions to their investment roadmaps.
University business model transformation
Reaping the benefits of blue ocean thinking requires college and university presidents to answers five questions in order to transform higher education business models:
- • Has your mission changed?
Who are your university’s customers, where do you serve, and to what extent?
Is your spending appropriate to your mission?
- • What is your college or university’s operating model?
Do you operate like a Holding Company (act in your own interests), an Allied Company (some local autonomy based on market needs and a strong desire to share some services) or as an Integrated Company (one strategy for all parts of the college or university and common systems throughout)?
- • Do you have revenue exposure?
To what extent will MOOCs (as they evolve), short-term and certificate programmes, virtual classrooms and other technologies impact your university’s four-year, on-campus undergraduate degree programmes and revenue?
- • What is your university’s growth strategy to close financial gaps?
What are the organic opportunities?
• Raising fees
• Fundraising
• Adjacencies (supply chain, geographic, product, etc)
• New growth platforms
Are there acquisition opportunities?
What are the joint venture opportunities?
- • How can colleges and universities reshape the market?
- • What capabilities do you need to invest in to execute your new strategy and growth plans?
a) What missing capabilities are needed and where should they reside?
b) How can you better leverage resources across your university?
c) What capabilities can you purchase, broker or borrow to close gaps?
- • Where can you target cost reductions without impacting students, increasing risk, or hampering growth of blue oceans?
- • How can you invest in needed capabilities and get leaner at the same time?
- • Can your administrative groups adopt lean and process-improvement techniques to reduce waste?
It’s time for colleges and universities and the people who lead them to adopt blue ocean thinking and implement a strategy to execution process, one that, while respecting the past, anticipates the future.
Marguerite J Dennis has been a higher education administrator for more than 40 years, at St John’s University in New York, at Georgetown University in Washington, DC and at Suffolk University in Boston, USA. She is a consultant to colleges and universities in the United States and around the world on higher education administration, enrolment, retention and international programmes and is the author of five books on higher education, college admission and financing and international strategic planning. Richard Lynch is vice-president of Accelare’s Global Strategy to Execution team. Email: richard.lynch@accelare.com. Lynch specialises in helping organisations move from strategy to execution through capability management and finding and developing new growth platforms. He is co-authoring an eBook called Strategy Made Simple and is the lead author of The Capable Company: Building the capabilities that make strategy work (Wiley).