Disrupting College

There’s a lot to learn from Harvard business professor Clayton Christensen’s Disrupting College, published this week by the Center for American Progress. Two things in particular:

First, Christensen’s disruptive innovative model, developed by studying patterns of organizational rise and fall in scores of industries, does not involve innovative new companies building a better mousetrap and putting staid incumbent mousetrap producers out of business by stealing their customers. Instead, it involves innovative new companies building a worse mousetrap, very cheaply, and selling them to customers that staid incumbent producers have little or no interest in serving.

The pattern, which he documents in industries ranging from steel and semiconductors to music and automobiles, is premised on insights into organizational behavior. Basically, successful organizations get very good at selling certain goods and services in a certain way. They compete with their rivals by trying to sell the highest-margin goods to the wealthiest customers. This makes them rich. Then an upstart comes along who uses nascent technology to provide an inferior good at low prices to resource-poor customers. The incumbent looks at the new technology and says “Who needs that? Our product is better and we make more money selling it to richer people.” Incumbents have also built up expensive, inflexible internal management /cost structures that can’t accommodate the new business in any case.

The key flaw in their thinking is non-recognition of the fact that technology improves. The upstart competitor gradually gets better at doing what they do, and starts moving up the product and customer value chain: selling more expensive things to richer people for more money. The incumbent stays the same, living fat and happy by selling the best things to the best people–right up until the moment when the upstart reaches the top of the ladder and starts selling much better stuff for much less money to everyone, and the incumbent experiences something like this.

So when Margaret Soltan says…

The trashiest form of education — by all measurable standards — is for-profit online education.  That’s why there’s a national scandal going on about it right now.  One flight up there’s non-profit online education, where cheating is easy and where standards vary wildly among institutions and among courses

…well, it’s a debatable point. There’s research about this, after all, which does not suggest that online courses are inferior. But let’s say for the sake of argument that Soltan is right, or at least right in some cases. Technology improves. Online higher education is much different and better today than it was 20 years ago and will be much different and better 20 years from now than it is today. Who will be providing it then? I have no idea. But I’m pretty sure it won’t be Soltan’s employer, George Washington University, the poster child for using old methods to sell people expensive things at high margins. The day will come when GW will suddenly run out of people willing to pay hundreds of thousands of dollars for a second-tier bachelor’s degree, and when it does the culprit will likely be someone Soltan currently sees as purveying nothing more than “trash.”

Second, Christensen tackles the issue of administrative overhead. My general assumption is that administrative bloat horror stories in higher education are true, more often than not. But Christensen’s key observation is that high overhead is often a function of complexity, not waste. As organizations try to do many different kinds of things at once–and there are few more idiosyncratic conglomerates than the modern university–the cost of management increases exponentially. Here again, new organizations are creating streamlined business models designed to do the same things at lower cost. Christensen sees little hope that old organizations will ever change themselves into what they are not, which means the great unanswered question is when, not if, the higher education disruption will come.