business model for higher education

Higher education industry is implementing new business models

To gain a better understanding, on a global and regional level, of what's important to higher education students and what their challenges are with respect to learning, academic goals, and career goals, as well as staff perspectives on how to best communicate with, instruct, and prepare students, Salesforce partnered with Ipsos and The Chronicle of Higher Education to collect over 2,200 higher education student and administrators using an online quantitative survey. 

Here is the executive summary of the 2021 Connected Student Report : 

• Supporting students and staff wellbeing is critical - Concerns about student mental health and wellbeing had already led many institutions to offer more services, including ones that students could access online. The anxieties and calamities faced by students and faculty, and staff increased those worries, with 76% of students and 73% of staff reporting that maintaining their well-being remains a challenge. 
• Flexible learning and working options are here to stay - One major takeaway from the report is the need for learning options that fit within students' busy schedules. One in four students said that having more flexible courses and part-time offerings would help them succeed. 43% of students prefer hybrid courses.
• Student career pathways are top of mind - Financial challenges and anxiety about the future are common amongst students. Close to half of students (49%) say that future career prospects are most important when deciding to enroll in a college/university.
• Universities explore new business models - The COVID-19 era has led many institutions to make considerable adjustments to how they operate -- changes that represent opportunities for growth and increased efficiency. 45% of staff said their institutions are implementing new business models.
• Learners and institution success require innovation - Many institutions are experiencing a gap in trust. Nearly 6 in 10 students say the trust gap between students and institution leaders is due to a lack of consistent communications; about half of the staff agree. 45% of staff said their institutions are prioritizing investments in integration technology

2021 Connected Student Report, Salesforce.org 

Here is a deeper look into each of the key takeaways from the 2021 Connected Student Report : 

Supporting student and staff wellbeing is critical 

• 34% of students said they need more help managing their course load.
• 76% of staff said maintaining their work/life balance is a top challenge.
• 40% of students said their institution can best support their wellbeing by offering more flexible learning options. 

Flexible Learning & Working Options Are Here to Stay

• 54% of staff prefer hybrid courses.
• Students expect 50% of their courses moving forward to be online.
• 46% of staff anticipate more remote work in the near future.

Student career pathways are top of mind

• 31% of students identified low career prospects as why they have a poor college/university experience.
• 29% of students said they need more career resources from their college/university in order to be successful.
• 50% of staff say their institutions are strengthening corporate partnerships in order to help students prepare for digital careers.

Universities Explore New Business Models

• 48% of staff said their institutions are investing in new business models focused on more part-time learning options.
• 33% of staff said their institutions are investing in new business models focused on executive education.
• 29% of staff said their institutions are investing in new business models focused on credentialing/ micro-credentialing.

Learner & Institution Success Requires Innovation

• 27% of staff say their institutions are hiring for a head of digital experience.
• 53% of staff members say they will rely on social media to better engage with students in the coming fall semester.
• 40% of staff said their institutions are prioritizing investments in real-time data analytics.

2021 Connected Student Report, Salesforce: Technology challenges and investment areas in higher education 

The 2021 Connected Student Report also highlighted solution line key findings: 

Recruitment and Admissions

• Students say they would choose one university over another if it offered more help finding paid internship/ job opportunities (40%) or more flexible course options (36%).
• 51% of recruitment and admissions staff anticipate an increase in social media engagement to target incoming students.
• Coming out of the pandemic, only 7% of staff anticipate their institutions will continue to buy lists to attract prospective students, yet close to a quarter (24%) expect digital advertising to be a key tactic moving forward.

Student Experience 

• Only 27% of students say they can easily sign up for an advising appointment at their college or university.
• 26% of students say they have to sign in to two or more different platforms to find answers to their questions and access the resources they need to be successful every day.
• 92% of staff say tailored student enrollment plans have successfully ensured accepted students enroll at their university or college.

Advancement 

• Advancement staff anticipate video conferencing (39%), social media (38%) and email (38%) to be the most effective channels in securing major gifts coming out of the pandemic.
• 55% of advancement staff anticipate more virtual events to engage alumni and constituents coming out of the pandemic compared to pre-pandemic times.
• Of those students that don't feel connected to alumni, 34% said it's because their college or university does not provide an online community to interact with alumni.

Marketing and Communications

• 59% of students attribute a leadership-student trust gap at their college or university to a lack of consistent communications; about half of the staff agree.
• When asked how their university could improve their communications,42% of students said more personalization.
• When asked how their university could improve their communications,39% of students said more reminders or alerts.

2021 Connected Student Report, Salesforce: Communication is key to establishing stakeholder trust 

9 in 10 students want institutions to communicate with them as often or more via email, personalized communications, and alerts. Around four in 10 say they'd like communications to be more personalized, while 25% say they'd like a more personalized college experience overall.

2021 Connected Student Report, Salesforce: Three ways universities can improve student communications 

Institution Operations 

• 62% of staff say their institution is reevaluating their faculty/staff support & service model as a result of the pandemic.
• Of those staff members that indicated they don't have enough support from their institution, 31% said it's because their college/university uses multiple technology systems. It's hard to get the data they need to do their jobs effectively.
• When asked how their institution could better help staff, close to half said more online resources for technology support (44%) and an online portal to connect with other staff members (42%).

The pursuit of new business models in higher education is an important finding. According to the Chronicle: 

"COVID-19 may not have created any new reasons for colleges to change how they do business, but the pandemic rapidly accelerated the process. Just in the U.S., the loss of dining hall income, residential and student fees and, in many cases, tuition has likely cost institutions around $183 billion . Post-pandemic, institutions will need to do more than assure the safety of students and staff. They'll have to keep an eye on the bottom line as well. Findings show that many institutions are reworking their business plans to reflect this reality. Nearly half of staff surveyed globally say their institution is more likely (at 45%) than not (35%) to be implementing a new business model. 

Some institutions, such as Southern New Hampshire University, are creating new models that make on-campus learning more affordable, while Cambridge announced in May that it will roll out 50 online courses over the next five years, with an eye toward increasing learning opportunities. As institutions look ahead, many have made shoring up their value proposition for future workers more of a priority."

2021 Connected Student Report, Salesforce: New business model trends in higher education

The report highlighted these key findings: 

• Nearly half of all institutions are implementing new business models due to the pandemic. 
• 7 in 10 staff say their institutions are investing in new growth opportunities, chiefly more online learning options. 
• About half of the total staff surveyed say those business model revisions involve the creation of more part-time learning options or shorter-term courses and programs -- changes that reflect more of a concern for non-traditional learners and other working students. 
• Nearly 40% of staff surveyed say they are seeing more partnerships between corporations and higher education. 
• About half say that their institutions are engaging employers to help recruit students by managing corporate relationships on a single platform or by tailoring marketing campaigns to corporate partners -- with France and the U.S. courting private companies at the highest rates. We know companies are key to solving the digital skills gap . 

2021 Connected Student Report, Salesforce: Staff predict more investments in technologies and engagement opportunities 

• Institutions have continued to upgrade their technology during the pandemic. Slightly less than half of those on staff say that more people on campus are involved in making tech decisions, with more than half of those in the Netherlands and U.S. reporting the highest rates of collaborative tech decision making.
• The digital competency of staff has become a priority for most institutions as well. More than 6 in 10 staff members say that the pandemic led their institution to re-evaluate their staff support and service models and invest in training that would allow faculty and staff to do their jobs virtually.
• More than half of staff (52%) anticipate their institution will invest in classroom technology, while a slightly lesser number (46%) expect to see more money going toward research tech. A considerable number (44%) anticipate investments in faculty and staff learning and engagement opportunities.

2021 Connected Student Report, Salesforce: Higher Education is investing new technologies, leadership roles and staff services models 

New business model innovation is a top priority for higher education institutions. Whether it be new sources of revenue or new areas of investment, institutions are evaluating how to create value from anywhere and what internal shifts they need to make to catalyze these changes. Learning from anywhere, success from everywhere. 

To learn more about the 2021 Connected Student Report, you can visit here . 

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Building Higher Education's Future Business Model

Peter Stokes, Andrew Laws

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The higher education industry is at an inflection point. Public and private institutions alike are tracking, if not yet being impacted by a tectonic shift in who they serve (and how they do it).

Overall enrollment has incrementally declined, forcing some colleges and universities to consider consolidation and closures. At the same time, higher education’s target market is no longer limited to new high school graduates. The pool of potential applicants is diversifying across race and ethnicity, age and socioeconomic factors. This changing audience is challenging institutions with new expectations that traditional academic offerings may not be equipped to meet.

As the higher education environment continues to transform, maintaining the status quo is the riskiest move leaders can make.

As higher education’s audience evolves, questions about institutions’ cost structures become more pressing. Tuition at public and private institutions rose more than 100 percent over the last two decades. With government appropriations shrinking, many colleges and universities are more reliant on tuition dollars than ever before — reinforcing the affordability barrier that prevents schools from attracting and retaining bright minds.

Demand for higher education is diminishing and the offerings institutions supply are losing shelf life, rendering current financial and operational structures unsustainable. To thrive for decades to come, higher education leaders, even those at institutions succeeding today, should prepare to fundamentally adapt their business models .

Connecting the Dots for Student Success

Learn how to achieve student success and financial sustainability by using strategic planning and integration across your higher education campus.

Laying the Groundwork for a Viable Future

Tactics such as tuition discounting are short-term fixes for higher education’s long-term challenges. Higher education leadership teams need a bold vision for innovating their...

Tactics such as tuition discounting are short-term fixes for higher education’s long-term challenges. Higher education leadership teams need a bold vision for innovating their operations and offerings to ensure their institutions’ longevity.

Four areas higher education leaders could explore when building future-proof business models include:

• Academic portfolio optimization: Academic offerings account for approximately half of institutions’ total expenses, but few leadership teams have visibility into the efficacy of their programs. Similar to an investment portfolio, higher education executives should treat their academic offerings as a portfolio with balanced priorities (e.g., mission, prestige and profit), that has a regular cadence for review and reimagination. With a unified, data-driven approach to academic portfolio optimization, leadership teams can objectively measure each program’s performance, financial viability and alignment with the institution’s current and future strategy. Conducting this exercise on a constant cadence can reveal programs ripe for consolidation and areas worthy of additional investment.
• Revenue-driving partnerships: Another private sector trend with potential for the future of higher education is the pursuit of partnerships. The right alliance can infuse your institution with the expertise and resources necessary for successful reinvention. For example, U.S. universities have historically used joint ventures to expand their global footprints. More recently, it has become common for institutions to establish partnerships for online programs. Forging similar partnerships in other operating and academic areas could be a fast-track to cost reduction and scalability. Mergers and acquisitions should also be up for consideration. Beyond minimizing expenses, M&A can unlock growth opportunities. Purdue University’s 2017 acquisition of Kaplan University, for instance, set the stage for the launch of Purdue Global, an online program with more than 100 offerings largely geared toward adult learners.
• Education delivery innovation: Leaders’ most difficult step in building a new higher education business model is unlearning what you already know about your audience. Teams should commit to understanding the needs, challenges and goals of a new student body. With that detail, you can identify which capabilities you need—and those that are no longer relevant—to succeed. If your institution plans to increase the number of rural or working adult students, the main venue for learning may shift from the lecture hall to virtual platforms or more distributed microcampuses. For these emerging populations, two or four-year degrees may not be as feasible (or effective) as certificates, “stackable” credentials or interdisciplinary programs that can be enrolled in year-round.
• Evolved pricing structures: As education delivery and student demographics transform, institutional pricing should adapt accordingly. While undergraduate tuition discounting has steadily increased for the last decade, awarding more aid alone isn't a long-term solution to enrollment and budget challenges. Just as the healthcare industry is moving from fee-for-service to value-based payment models, higher education could benefit from more closely tying costs to student outcomes. For example, some institutions are implementing differential tuition where costs vary depending on an academic program's internal costs or graduates' earning potential. Online learning and stackable credentials also present opportunities to pilot new structures, such as subscription payments or program-specific pricing.

As the higher education environment continues to transform, maintaining the status quo is the riskiest move leaders can make. Positioning your institution for long-term financial and operational success starts with more than near-term tactics; it demands a new, strategic business model.

By developing a plan for tomorrow’s changes today, higher education leaders can protect their institutions’ relevance and competitive edge.

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How to transform higher-education institutions for the long term

Higher-education institutions in the United States are facing unprecedented challenges. Even before the COVID-19 pandemic, higher-education operating models were under tremendous pressure. Many institutions, experiencing declining enrollment, watched expenses outpace revenues and tapped into their endowments to cover shortfalls.

The COVID-19 pandemic has exacerbated the pressures that higher-education institutions face . Even some of the most notable and stable institutions are experiencing significant declines in tuition and auxiliary revenues as well as increasing budget shortfalls. Our analysis suggests  that, before any government or philanthropic intervention, up to 57 percent of public four-year institutions and up to 77 percent of private not-for-profit four-year institutions could suffer budgetary shortfalls of more than 5 percent. The more than $35 billion provided by the federal government to higher education in relief acts to date has helped institutions and students address some of the near-term challenges, but the enrollment headwinds will likely affect university budgets for years to come. 1 Relief included about $14 billion in the March CARES Act and about $23 billion in the December Coronavirus Response and Relief Supplemental Appropriations Act of 2021. Indeed, according to the National Student Clearinghouse data, declines in first-time college enrollment in fall 2020 were stark, 2 For more on the fall 2020 admissions cycle, see Hamilton Boggs, Charag Krishnan, Samvitha Ram, and Jimmy Sarakatsannis, “ Best practices for an unusual US admissions cycle amid coronavirus ,” April 30, 2020. with greater than 10 percent declines in public four-year institutions and 8 percent declines in private not-for-profit four-year institutions, 3 “National Student Clearinghouse Research Center’s monthly update on higher education enrollment,” National Student Clearinghouse Research Center, November 12, 2020, nscresearchcenter.org. significantly affecting most universities’ top revenue source. While fundraising remained flat in academic year 2020, 4 “Charitable giving to US colleges and universities reached $49.50 billion, virtually unchanged from last fiscal year,” Council for Advancement and Support of Education, February 9, 2021, case.org. institutions are projecting steep fundraising declines in 2021, 5 “EAB survey points to dramatic decline in university fundraising,” GlobeNewswire, June 8, 2020, globenewswire.com. meaning fiscal challenges won’t be easing anytime soon.

A transformation approach that enables institutions to operate more flexibly and resiliently in the long term can help institutions emerge on a stronger footing from today’s challenges and brace for those of the future. A true transformation often improves operating surplus by 20 percent or more—money that can then be reinvested into an institution’s mission. But such a transformation requires an intense, operations-wide program focused on improving student outcomes and boosting organizational health and performance. In our experience, there are five common features of the most successful transformation efforts. While many leaders are aware of such efforts, implementation success has varied. We provide five inspiring case examples that prove a transformation approach is not only possible but also essential for the long-term success of institutions.

A transformation approach that enables institutions to operate more flexibly and resiliently in the long term can help institutions emerge on a stronger footing from today’s challenges.

Educational institution transformation best practices and case examples

While a reasonable degree of cost management is necessary to address fiscal challenges and make change, it’s perhaps more important for institutions to focus on improving student outcomes and identifying new ways to diversify and grow revenues. As core decision makers—including presidents, chancellors, provosts, and CFOs or COOs—embark on a transformation, they can reflect on their alignment with five factors to measure how prepared they are and determine where they need to focus their efforts.

Ensure leadership is engaged and empowered to support the organization to reach its full potential

The best predictor of the success of a transformation is leadership that is willing to embrace new and innovative approaches, recognizes the importance of institutional performance and health, and is prepared to take a self-confident leap instead of incremental steps. A few actions can help core decision makers ensure leadership is on board.

• Develop an aspirational, shared vision. Establish a vision for the future of the organization and frame all conversations with the leadership team around it.
• Establish a data-driven organizational baseline. Assess operational and cultural performance to discover opportunities to expand mission impact and set targets.
• Create a sense of urgency for bold action. Share stories about how other institutions are responding to the moment to inspire action.
• Get everyone involved. Activate all levels of the organization to brainstorm innovative changes and help achieve the vision by following a proven approach that gathers broad stakeholder inputs and enables ownership and accountability for improvement ideas.

The leadership team of a large network of higher-education institutions wanted to identify the full potential of the organization and build a shared vision for change. As they began their transformation journey in 2018, the system leadership met with each institution’s leadership team to form a shared vision of the future of their network. These conversations helped the leaders recognize when they weren’t performing at their best and, most importantly, the detrimental impact that had on students. Consequently, the collective leadership set an ambitious goal to improve organizational health, 6 Organizational health refers to an organization’s ability to align around and achieve its strategic goals. To learn more about measuring and improving organizational health, see McKinsey’s Organizational Health Index . increase student enrollment and retention, and reduce costs in the interest of better serving students. The system leadership then structured the transformation efforts to empower institution leaders to own and drive the transformation at their institutions. While the approach and leaders involved throughout the effort varied, each leader was committed to pursuing the shared aspiration of improved student experience and outcomes.

The transformation increased enrollment in both new and existing programs by about 5 percent over approximately 16 months since the start of the effort—through a combination of increased new enrollments and improved persistence of existing students. Further, the cost-improvement efforts have helped these institutions limit tuition increases and offer additional financing options so students can complete their education even in times of uncertainty, such as those brought on by the COVID-19 crisis.

Ensure the board prioritizes the transformation

Board support and commitment is integral to the success of a transformation. The COVID-19 pandemic and associated financial and societal pressures have created an even greater imperative for boards to actively define the strategic direction of their higher-education institutions and to push leaders to make substantive and sustainable operational changes to achieve financial stability and resilience. As such, core decision makers should consider involving the board in three ways.

• Leverage the board’s advisory role and fiduciary duties. Harness the board’s unique position to push university leadership for actionable plans to adjust the status quo.
• Build in accountability. Task a board subcommittee with supporting management with problem solving and track the change through regular progress updates that focus on measurable outcomes.
• Ensure the board is grounded in current higher-education trends. Most boards, rightfully, comprise members from a diverse set of business and philanthropic backgrounds. Many trustees won’t be as familiar with the pressures facing higher education. Educating the board on the trends in higher education by sharing literature improves transparency on the institution’s challenges and finances.

A midsize liberal arts university was facing a crisis of declining enrollments and net tuition, and its operating deficits forced the university to double what it typically drew from endowments for four subsequent years. Due to these financial concerns, the university’s accreditation organization alerted it of the need for immediate action to avoid the risk of probation and possible loss of accreditation. The university needed a strategy that would enable it to make rapid and significant changes without sacrificing the quality of the education.

The board took responsibility for shaping the transformation goals, unifying key stakeholders, and building momentum throughout the university. The board oversaw a short review of the school’s key metrics and plotted a course that placed as much emphasis on student success and enrollment-driven revenue growth as cost management. Next, it supported the university leadership to encourage faculty, staff, and students to play active roles in this transformation by creating a compelling change story and providing transparency that inspired people to think and behave differently. The board and leadership relayed this change story through carefully planned internal and external communications. To continually reinforce its crucial role in this process, a subcommittee of the board committed to meet biweekly to monitor progress over the entire transformation period.

The university’s first-year class increased by 30 percent the first year of the transformation, and it saw similar increases the following two years. In addition, retention from the first to second year of school improved from 77 to 85 percent, the university’s financial health significantly improved, and for the first time in nearly a decade, it had a balanced budget in 2019. Moreover, the new processes renewed a culture of continuous improvement and put the institution in a much better position to weather the COVID-19 crisis.

Translate financial outcomes to the institution’s mission when setting transformation targets

To maximize outcomes for students, faculty, staff, and the broader community, higher-education institutions need to be financially sustainable and efficient. Drawing the link between financial goals and an institution’s mission serves as a powerful rallying cry in support of transformative change. Two related actions can help.

• Emphasize mission impact over financial impact in messaging to the campus. Share impact and successes—for example, when additional financial aid has been allocated to Pell-eligible students to support their success, focus on the impact of improved persistence rates rather than the increased revenues from student retention.
• Communicate small but impactful vignettes. For instance, spotlight additional research funding secured due to strategic investment in grant writers. Such stories personalize the change for the community.

The CFO and provost of a large flagship public university both recognized the need for change. Their operating expenses were outgrowing their operating revenues, and state funding had precipitously declined amid budget pressures. Though the university was not yet in distress, the leaders wanted to act before circumstances became more dire. Leaders were aware, however, that the university had undertaken several large initiatives over the preceding three years, and the community was wary of another significant effort. To help tie together what had previously been more siloed efforts, the university linked the financial transformation to prior initiatives tied to the teaching and research mission. Leaders linked every opportunity area that was explored—such as research, student success, and marketing optimization—to how it was enabling a greater “return on mission” for the university. Ultimately, through the community rallying around their common goal of teaching, research, and the public good, the community developed initiatives to generate and implement innovative ideas to support the institution.

In the first year of the transformation, the university realized more than $30 million of revenue generation or cost savings, and it put itself on the path to almost $100 million in improvements the following year. More importantly, this net benefit to the university also enabled investments in critical mission activities to support research growth, student advising and wellness, and more flexibility for students through expanded summer offerings.

Take a comprehensive approach across both growth and efficiencies

Cost-reduction measures can often lead to decreased employee morale and can impact student outcomes. But targeting strategic growth can expand the impact of an institution’s mission and establish a more financially resilient university.

In response to the COVID-19 crisis, many universities turned to cost savings as immediate opportunities to improve their near-term financial outlook. While this was necessary, cost-reduction measures can often lead to decreased employee morale, and, in the worst case, they can impact student outcomes. Targeting strategic growth, in a few ways, can help provide inspiration for the community, expand the impact of an institution’s mission, and establish a more financially resilient university.

• Review student outcomes and revenue-generating and operating activities. Conduct a comprehensive review and analyze the findings to understand opportunities to grow. Key areas to explore include the program portfolio, endowment returns, and student support and service (exhibit).
• Ensure messaging to the community focuses on strategic growth ambitions as well as efficiency. University stakeholders require inspiration to help them overcome financial strain. Areas of growth can provide an optimistic outlook to help the community through the required change.

In recent years, a midsize not-for-profit religious university had faced a decreasing surplus with declining enrollment and retention paired with steady increases in costs, which was only exacerbated by the COVID-19 pandemic. Leaders wanted to solidify the university’s financial situation for future mission-based investments while diversifying its student base through targeted growth. But prior implementation of cost measures had been met with significant resistance from university faculty and staff.

University leaders realized they needed to implement a comprehensive approach focused on not only costs but also revenue; in addition to transparently framing the need to save costs to pursue future priorities, they highlighted detailed plans for strategic revenue generation. The president rallied the community for an all-hands-on-deck effort to solve the financial gap while maintaining student experience. They instituted a clear process to evaluate the ideas generated by the community and to allow for quick decisions. Ultimately, through reframing what it meant to “put the community first” and providing community members with inspirational initiatives in addition to the more challenging efforts, the president and school leaders were able to implement decisions with stakeholder support.

Indeed, within just four months, the administration was able to present a detailed outline to meet savings goals, and the university achieved 3 to 5 percent annual budget value improvement within four months of acting on this plan.

Build muscle for change

Throughout the COVID-19 pandemic, many institutions have relied on short-term efforts that may help them survive the crisis but will not change their long-term trajectory. An effective transformation builds the capacity for sustained change and continuous improvement rather than implementing short-term changes to survive a crisis.

• Establish a central transformation team. Use this team to provide support to overcome barriers and accountability to achieve objectives; run a regular cadence to ensure timely execution.
• Detail a transparent and objective decision-making process. Clearly detail what information is required to evaluate an idea and communicate how leadership will use this information to determine what moves forward. The clarity builds confidence within the community around a fair and objective process that all can participate in.
• Improve organizational capabilities. Invest in growing individual and collective capacity through dedicated training aimed at expanding the talent bench and ensuring the longevity of the transformation.

Leaders at a large Research I public university drove a transformation around the four best practices previously described to fundamentally alter their operating model. In the first 12 months, they succeeded in establishing new, objective ways to evaluate and execute on ideas. In the final six months of the transformation, the university focused on sustainability and established a team to help maintain the new habits and procedures. This central implementation team not only continues to drive the transformation forward but also is adapting the process for other parts of the organization—for example, evaluating new budget requests—thus broadening the impact and ingraining the change throughout the organization.

Higher-education institutions are under tremendous pressure and time constraints as they work to keep their students, faculty, and staff safe while they deliver on their missions to educate, conduct research, and contribute to their communities, society, and the public good. In a sector that is already feeling stretched, the prospects of a comprehensive transformation might sound overwhelming to leaders and the communities they lead. But the effort will be worth it.

Leaders can inspire their communities with a more resilient future state that allows them to see beyond the pandemic to focus on improving the well-being of individuals and society through inspired learning, growth, and change. By implementing an ambitious set of projects to inspire the entire team, foster new areas of growth, and change the university’s trajectory, these institutions can continue to influence and impact generations of learners and their communities.

Hamilton Boggs is an associate partner in McKinsey’s Denver office, Rachel Boroditsky is a consultant in the Chicago office, Charag Krishnan is a partner in the New Jersey office, and Jimmy Sarakatsannis is a partner in the Washington, DC, office.

The authors would like thank Claudio Brasca, Leah Farmer, Jack Guest, and Mark Hojnacki for their contributions to this article.

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Q&A: Building a Sustainable Higher Ed Business Model

Amelia Pang is a journalist and an editor at EdTech: Focus on Higher Education. Her work has appeared in the New Republic, Mother Jones, and  The New York Times Sunday Review, among other publications.

 Amy McIntosh is the managing editor of  EdTech: Focus on Higher Education .

The higher education landscape is evolving, and colleges and universities are learning how to evolve with it. As these institutions continue to embark on digital transformation initiatives , their budget needs are changing, and the traditional higher education financial model might not be enough to support them. Investing in new programs , diversifying revenue streams and applying effective  asset management  have never been more important.

In a  Twitter poll posted last November , 40 percent of  EdTech: Focus on Higher Education ’s readers said funding and budgeting will be their most important focus area for 2022. With declining enrollments, rising costs and shrinking budgets, it is difficult, if not impossible, for the traditional higher education business model to sustain institutions in 2022.

In a Q&A with  EdTech , Maryville University President Mark Lombardi discusses how to recognize and disrupt traditional higher education business models.

RELATED:  Universities are actively planning for long-term success.

EDTECH: From a high-level perspective, how does the higher ed financial landscape look?

Lombardi:  Overall, as an industry, the financial landscape is pretty bad. You have a whole host of universities that are really operating on deficits. They’ve taken “not for profit” to heart far too much. As a result, they’re struggling as enrollments decline.

There are so many challenges to the traditional higher ed business model that it has to be really revolutionized and radically altered. I’d say that higher ed as an industry is in bad financial shape. It demands disruption and change. That’’ one of the things that we’re doing here at Maryville, disrupting that model.

Click the banner below  to learn about North Central Missouri College's digital transformation.

EDTECH: What are some problems with the traditional higher ed model?

Lombardi:  It’s very labor-intensive, first of all. Second, it’s a scarcity model. It’s based on the notion of restricting access and opportunity to people. The budgets in most universities don’t make any sense. People make a list of all the things that they want, and then they adjust tuition and fees to accommodate that. That’s why the cost of higher education has skyrocketed over the past several decades. It’s really unaffordable for many people.

It’s a business model that’s not predicated on sound principles of fiscal management. It’s not predicated on cost-effective work. It’s not predicated on automation and digitization that can lower costs. It’s a 20th-century business model in a 21st-century world and it doesn’t work anymore.

FIND OUT:  How higher ed institutions manage long-term digital transformation projects.

EDTECH: What can be done to revolutionize the model?

Lombardi:  Well, first and foremost, we’re in a digital age. COVID-19 has eliminated the debate about what age we’re in. You have to implement strategies that are fundamentally based on data and data analytics. It’s the absolute necessity of all things. You could argue it’s the absolute necessity of the entire economy, in every vertical in the economy.

One of the things we’re doing is employing sophisticated AI techniques to provide service and content to students so that they don’t have to look for it. They’re not hunting for it; it’s pushed out to them. That way, you can significantly reduce your dependency on traditional ways of delivering things and push information, content and services to students in a way that serves their interests most effectively. Like any other service industry, education has to pivot in that direction, and that’s what we’ve been doing very well for the past several years.

Click the banner below  for exclusive content about cost containment in higher ed.

EDTECH: How can data analytics improve higher ed’s financial health?

Lombardi:   Beth Rudden  is a brilliant data scientist from  IBM , and she says data is an artifact of the human experience. Students are producing tremendous amounts of data about how they learn, how they want services and how they live, because a university is a comprehensive ecosystem. How do you collect that data? And how do you use that data, not to get money from people the way that predatory companies do, but rather to serve the interests of the students, to provide them the best education, the best learning diagnostics, so that they can anticipate problems?

That data is all out there. What we’ve done is create a data lake where we can take that data and extract it to provide outstanding service across the board. It’s about seeing the way we want to be treated in digital society and then structuring your data around that service dimension.

MORE ON DATA ANALYTICS:  Building a solid data house at Georgia State University.

You change the whole learning dimension. So instead of, ‘I’m a student, you’re a teacher, and you’re providing me with content,’ which is kind of antiquated, we are in this journey together. It’s a facilitative journey of learning, where I understand how my brain works and I’m able to then take ownership over that process with the support of life coaches, and faculty and others.

You change the whole dynamic, and it’s empowering. It opens up access and opportunity, particularly for students of color and underrepresented groups who have not had the kind of access and opportunity that they should have.

And then, the economics of that is you greatly reduce the cost of all the things that you had, that were designed to fill gaps that, frankly, no longer exist. For me, data analytics is the Rosetta stone of changing that business model in higher ed and really flipping the script and putting the student in charge of their own learning. And I think that’s exciting.

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Center for American Progress

Rethinking Higher Education Business Models

Steps toward a disruptive innovation approach to understanding and improving higher education outcomes.

Robert Sheets, Stephen Crawford, and Louis Soares explain the need for parallel innovations in higher education’s business models and “value networks.”

Building an Economy for All, Economy, Higher Education, Worker Rights +1 More

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The cost of college has skyrocketed during the last two decades, rising by 429 percent, a rate that’s even higher than the rate for health care. To cover these costs students have borrowed ever-larger amounts resulting in an average debt at graduation now exceeding $27,000. Yet only 50 percent of students pursuing a bachelor’s degree—and 21 percent of those pursuing an associate’s degree—complete their college programs.

Clearly, the great challenge facing higher education today is to contain costs while at the same time improving outcomes—in short, to increase productivity.

Information technology has long been seen as a major key to meeting this challenge, but the results thus far have been disappointing. In this brief we argue that the fault is not with the technology but rather in the ways it has been deployed. Drawing on the work of eminent Harvard Business School professor Clayton Christensen and others, we explain the need for parallel innovations in higher education’s business models and “value networks.” We also urge policymakers to facilitate such innovations by funding more applied research in these and related areas, including higher education’s regulatory and standards environments.

Concerns about college affordability have grown so serious that President Barack Obama issued a warning about the rising cost of higher education in his most recent State of the Union address. At the same time his administration is encouraging innovation in higher education through such initiatives as First in the World and Race to the Top: College Affordability. While we applaud such initiatives it is important to note that these initiatives are far more likely to succeed if they are informed by an understanding of the differences between sustaining and “disruptive” innovation and the roles that new business models and value networks play.

The theory of “disruptive innovation”—the notion that certain innovation can improve a product or service in such a way that it creates new markets that displace existing ones—was developed and advanced by Christensen in the 1990s. According to Christensen, who has studied the evolution of many industries, disruptive innovation occurs when sophisticated technologies are used to create more simplified and more accessible solutions to customers’ problems—solutions that are often less high performing than previous technologies but whose price and convenience attract whole new categories of consumers. The first generations of transistor radios, desktop computers, and MP3 players are examples. These new solutions—innovations to existing technologies deployed through new business models—gradually improved to the point where they displaced the previously dominant solutions. Christensen’s key point, however, is that new technologies like these cannot achieve their transformative potential without compatible changes in their industry’s business models and value networks, which in turn may require shifts in the standards and regulatory environment.

Innovations in business models have occurred in most sectors of our economy, from manufacturing (Nucor Corp.) to music (iTunes) and from health care (Minute Clinics) to retail (Amazon and eBay). In each, technology drove new ways of doing business to create more value for customers. Recent reports have highlighted emerging business models that may have similar potential in higher education, including those represented by Western Governors University, MITx, Carnegie Mellon’s Open Learning Initiative, and the leading for-profit institutions. These business models exhibit many of the features of what experts call multisided, unbundled, and open business models. Some observers believe they have the potential to dramatically change how instruction and research are delivered to expand access, reduce costs, and facilitate degree completion.

Building on CAP’s previous work in “Disrupting College and Guiding Innovation in Higher Education,” this brief begins by explaining Christensen’s analytical framework. It then focuses on one component of that framework, business models, and explains some important types of them. We then explore how new higher education business models could better harness recent advances in information technology and thereby achieve dramatic improvements in learning and credentialing, research and development, and business management. Lastly, our brief examines the policy implications, especially for the federal government’s applied research budget, our objective being to help policymakers understand what works well and what has the potential to be successfully replicated on a large scale—to “go to scale.” Specifically, our policy recommendations include:

• Using disruptive innovation thinking as a guide for competitive grant making in higher education programs and research
• Surveying federal agencies to identify all relevant programs and classify them according to the key categories for innovation in higher education—learning and credentialing, research and development, and general business services that support the first two
• Creating a primer on disruptive innovation for grant making that will be used across federal agencies
• Creating a disruptive innovation panel to help the Obama administration evaluate new technologies and the business models they enable for scalability

Christensen’s analytical framework

In the early 2000s Christensen and his colleagues developed a useful analytical framework that highlights four key “drivers” of disruptive innovation: technological enablers, business model innovations, value network adjustments, and the standards and regulatory environment. Let’s examine each more closely, folding in ideas from other experts where they are helpful.

Technological enablers

According to Christensen and his co-authors, technology enables disruptive innovation when sophisticated technologies create more simplified and routinized solutions to customer problems or needs. In education the authors point to online learning technologies as well as more specific types of student-centric and adaptive online learning systems based on advances in information technology as well as learning and assessment. Other examples are breakthroughs in information technology related to personalization, content management and social media, data management and analytics, and the management of business processes. Gregory Jackson, vice president for policy and analysis at EDUCAUSE, summarizes the recent advances in information technology that are most relevant for higher education and offers an excellent assessment of their potential to transform current practices.

Business model innovation

A business model describes how an organization creates, delivers, and captures value. Most business model definitions highlight four key elements:

• Customer value proposition, which explains how an organization will address a customer need
• Value chain, which organizes processes, partners, and resources to deliver the value proposition
• Profit formula, which lays out how an organization will make money
• Competitive strategy, which describes how an organization will compete with rivals and defend its position in the value network.

We describe each of these elements in more detail later in the brief.

Value networks

In the words of Christensen and his colleagues, “a value network is the context within which a firm establishes its business model and how it works with suppliers and channel partners or distributors so that together they can respond profitably to the common needs of a class of customers.” The overall design of the dominant value propositions, value chains, profit formulae, and strategies must fit together within a consistent and reinforcing economic logic so that they function well as a larger organizational ecosystem. Consequently disruptive innovations are not easily plugged into existing business models and their value networks. They require new business models and the replacement or restructuring of existing value networks to truly go to scale.

We build on and extend Christensen’s concept of value networks by arguing that dominant business models and value networks help establish the overall shape and competitive structure of an industry, which itself constrains or enables disruptive innovation. According to Michael Porter, a distinguished Harvard Business School expert on business strategy, competitive structure involves threats not only from direct rivals and competitors, but from the bargaining power of buyers and suppliers, new entrants, and “adjacent” products and services that could be used in place of core industry ones. Therefore, business models, value networks, and the competitive structure of industries must be considered together in examining opportunities for disruptive innovation.

Standards and regulatory environment

The emergence and spread of new business models and their value networks is more likely if the standards and conformity assessment situation and the policy and regulatory environment are supportive.

Standards and conformity assessment environment

The United States and other countries promote the development and implementation of national and global standards and conformity assessment systems for a wide variety of purposes, including facilitating global trade, improving the performance of industries, increasing competition, and protecting consumers. Standards are agreed-upon definitions of the fundamental characteristics and interfaces of all types of entities in the marketplace, including products, services, systems, organizations, and even people. They can be used to promote competition and collaboration by facilitating transparency and fostering “interoperability”—the ability to function effectively with other systems—thereby reducing information complexity and switching costs.

Conformity assessment systems define the approaches for certifying that an entity conforms to the standards used to describe it in the marketplace. Conformity assessment can be used to promote confidence and trust in the marketplace among consumers and businesses. Like other industries, higher education has an active public-private standards and conformity assessment community in key areas such as competency definition; assessment and credentialing; digitized learning content and learning management systems; data infrastructure management; institutional and program accreditation; and institutional and program comparisons and ratings. The actions of this community can serve either to support or inhibit disruptive innovation in higher education.

Regulatory and public policy environment

An industry’s regulatory and public policy environment reflects government’s role in promoting industry performance and protecting the industry’s consumers and other stakeholders as well as the general public interest. Key areas of the regulatory and policy environment for higher education’s learning and credentialing services are student grants and loans, institutional and program capacity, institutional accreditation and approval, performance accountability, and consumer information and protection. Government agencies and legislative bodies work with established stakeholder and interest groups to improve the performance of the dominant business models and value networks and to protect incumbents from new and potentially disruptive entrants— basically, maintaining the status quo. A good illustration of this type of approach are student loan policies that assume that higher education services will be delivered through standardized semester-based schedules defined in terms of credit hours.

In Christensen’s framework the most important drivers of disruptive innovation are not the technological innovations themselves, though they usually receive the most attention. Instead they are the innovative business models that can harness the power of these new technologies and the value networks that support them in the context of the standards and regulatory environment. For the purpose of policymakers who seek to provide access to quality and affordable higher education for all Americans, understanding the interplay of these four elements of disruptive innovation is a key to optimizing the use of public funds. Since business models play a critical yet neglected role in disruptive innovation, we examine them in greater detail.

Business models

A business model is an organization’s blueprint for creating, delivering, and capturing value and for generating the revenue it needs to cover costs, reward stakeholders, and reinvest in order to remain competitive. All organizations, whether for-profit or nonprofit, have a business model, whether or not it’s explicit.

As mentioned above, business models involve four core elements:

• A customer value proposition, which explains how an organization will address customers’ needs through a product or service it offers
• A value chain, which organizes processes, partners, and resources to deliver the value proposition
• A profit formula, which lays out how an organization will generate enough revenue to more than cover costs
• A competitive strategy, which details how an organization will compete with rivals and defend its position in the value network

Given the many possible combinations of these four elements, it might be thought that any particular industry would exhibit a wide variety of business models. In practice, however, most mature industries, including higher education, feature only a few, which are normally referred to as the industry’s dominant business model(s). These provide the main trajectory for business growth and development within an industry—for example, the path to becoming a top-tier research university in the higher education industry.

New business models arise and even displace the currently dominant ones when innovative organizations develop different value propositions, value chains, profit formulas, and/or competitive strategies that enable them to provide greater value to more customers—often by taking better advantage of new technologies. Of special interest here are business models that are “open,” “multisided,” and “unbundled” and that involve “facilitated networks.”

Open business models

As defined by Henry Chesbrough, a leading expert on open innovation, open business models involve the use of external as well as internal ideas and resources, along with external as well as internal pathways for deploying them to create and capture value for an organization. “Outside-in” strategies exploit external ideas and resources within an organization, whereas “inside-out” strategies create additional value from internal ideas and resources by moving them through external pathways. In Chesbrough’s view the most advanced type of open business model is the open “platform” model. This model leverages customer co-creation and interdependencies between customer groups and attracts other businesses to invest ideas, time, and money in ways that increase the value of the platform for the organization. The use of such platforms by Amazon and Apple are prime examples.

Multisided models

Many open business models, especially open platform models, involve some features of what Alexander Osterwalder and Yves Pigneur, co-authors of the 2010 bestseller Business Model Generation , call “multisided” models. These create value by facilitating interactions between interdependent groups of customers, such as applications developers and users on the platforms. Higher education institutions have a multisided business model to the extent that they leverage the interdependencies between employers and students in providing learning and credentialing services. Some also leverage the interdependencies between businesses interested in commercializing university research and government funders interested in accelerating technology and economic development.

Unbundled models

Many open business models, especially open platform models, also include key features of what Osterwalder and Pigneur call “unbundled” business models. Unbundled models separate three core business functions that require different types of organizational expertise: customer-relationship management, product innovation, and infrastructure management.

Customer-relationship management businesses focus on customer acquisition and retention and seek to be a one-stop connection for customers. The hope is to realize significant economies of scope by offering a comprehensive set of competitive products and services that can be provided in cooperation with internal or external product innovation units.

In contrast, product innovation businesses focus on the constant development of products and services that can be promoted, distributed, and supported through customer-relationship management businesses. They seek to harness economies of scale by distributing their products and services through large internal or external distribution channels managed by customer-relationship management partners.

Finally, infrastructure management businesses also seek economies of scale, but do so by providing both internal and external customer-relationship management and product innovation businesses with an infrastructure platform that can support large volumes of transactions. The most widely cited examples of unbundled business models are in telecommunications. Wireless providers build platforms supporting products and services that are offered by hardware and software product innovators and are delivered through customer-relationship management businesses—either the wireless providers themselves or external retail partners.

Facilitated network models

Christensen and his colleagues identify an additional type of business model that could prove highly relevant to higher education—the “facilitated network” model. Facilitated network models can be used to enable customers to better access and use the most appropriate mixture of products and services offered by multiple organizations. In the health care industry, for example, patient-centered networks provide support to patients in accessing and managing the services of multiple health care providers. Similarly, in higher education there are now organizations that provide career and educational planning services directly to students who are searching for and applying to higher education programs. These models change the competitive structure of the industry by increasing “buyer power” as a result of reducing informational complexity and asymmetry. To put it more simply, students gain some consumer leverage with higher education institutions that traditionally have had more information about the students than the students have had about them.

The promise

Business model frameworks have become a cornerstone of business strategy development and analysis across a wide variety of industries and sectors, and have more recently entered the discussion related to higher education. Multisided and unbundled open business models—especially when combined with facilitated network models—hold great promise for improving the performance of higher education. That promise flows from their potential to achieve enormous economies of scale and scope, and in the process, enable genuine personalization in learning and credentialing along with comparable improvements in research and development and in business management. The following sections examine that potential in each of these three areas.

• Learning and credentialing

Christensen and his colleagues argue that higher education institutions incur major costs and inefficiencies by administering two different types of business under one roof—research, which operates as a “solutions shop,” and learning and credentialing, which is a “value-adding process.” Yet learning and credentialing can itself be unbundled to unlock even greater economies of scale and scope.

In addressing students’ concern with launching a successful career, colleges. and universities usually offer a value proposition that involves the following elements:

• Determining what a student needs to know and be able to do for a successful career launch in a chosen field
• Developing a sequence of learning experiences and related services for achieving these skills through a curriculum, including learning units such as courses, modules, and objects, with the necessary learning and assessment resources
• Providing learning services based on the design and curriculum
• Assessing students’ skills and providing various types of credentialing, including grades, portfolios, certificates, and degrees that have market value
• Connecting students with employers, for example, through internships, and helping students find and transition to employment and advance in their careers

Most higher education institutions take a decentralized and bundled approach to instruction, meaning that faculty departments, committees, and/or individual faculty members develop the curriculum—product innovation—and deliver the instruction—customer-relationship management—through their own processes. Most faculty members are content experts who have no formal training in curriculum development and instruction. Yet they are expected to select or develop most of the learning and assessment materials used in their courses. Complicating matters, these processes may be different for different delivery channels, such as credit versus noncredit programs. The traditional models also give great latitude to faculty in how they incorporate learning technologies, resulting in very uneven use in learning and credentialing.

Further, many higher education institutions are under considerable pressure to offer a large menu of programs and courses. Yet these institutions find it difficult to acquire the faculty expertise and organizational resources needed to ensure high quality across such a broad range of specialties. One result of this shortcoming is a combination of strong and weak programs. Given their current business models, these institutions face a real dilemma—they can achieve greater economies of scale only by sacrificing economies of scope. That is, they find it almost impossible to offer as wide an array of programs as desired by students (and sometimes employers) and still maintain high quality across the institution at affordable costs.

Institutions using more innovative business models are achieving greater economies of scale by increasing the centralization of the product innovation function, including the design, development, assessment, and credentialing components of the value proposition—that is to say, the curriculum development. These institutions also administer fewer programs and minimize the number of pathways through these programs with fewer electives.

Western Governors University in Salt Lake City, Utah and many for-profit institutions have gone even further, achieving significant economies of scale by centralizing more of the curriculum development function, often in partnership with outside experts and organizations in their value networks. They organize the delivery of instruction separately, through standardized processes using specially trained instructors and mentors. They support both functions through centralized infrastructure management systems that provide additional economies of scale.

These innovative business models can be expanded even more by further outsourcing curriculum development through partnerships with other universities and colleges, content aggregators, and academic and professional publishers who are moving to provide “curriculum as a service.” This outsourcing could draw from public and private learning exchanges similar to the Learning Registry, launched by the U.S. Departments of Education and Defense in November 2011. Outsourcing could provide institutions with nationally branded curricula (using the brand of a leading university) or institutionally branded curriculum (using a “private label”) that could be delivered through the institution’s own delivery channels.

The partners providing instructional delivery services could work with internal or external curriculum developers—outside-in models—to provide a wide array of personalized programs and courses, including ones customized to meet the needs of specific employers. Students could also start and progress at their own pace, choose the learning formats that best address their learning styles and preferences, and select and use mentors and tutors as well as other resources in their learner-centered networks. Many of the instructional delivery services, such as mentoring and tutoring, could be provided by outside partners. All of these options provide new opportunities for higher education institutions to achieve greater economies of scope by offering more students a multitude of high-quality options at competitive prices.

Under this unbundled model, infrastructure-management services could also be outsourced to provide a multisided open platform for institutions to work cooperatively with both internal and external curriculum developers and a wide variety of learning-delivery partners. These infrastructure-management services could provide authoring software containing learning-design templates and guidelines including universal design for accommodating multiple learning styles, as well as learning object repositories and registries for both free open-source and proprietary-content resources. In addition, they could provide learning management systems that resemble more flexible and open “virtual learning environments,” which in turn could support fully bundled traditional courses or more unbundled self-study and mentor-support services. These shared infrastructure-management services could be supported by global and national eLearning standards.

Facilitated networks could empower and support learners faced with the added complexity of these new learning and credentialing systems. They would do so by providing students with career and learning management services and group- purchasing options that help students select, access, and optimize the use of these systems. The facilitated network could be supported by existing career and educational planning system providers or by new market entrants. These players could change the competitive structure of higher education through the increased buyer power created by reducing informational complexity and asymmetry and by providing opportunities to secure higher-quality services, with more convenience, at better prices.

Such multisided, unbundled, and facilitated network business models offer promising options for providing low-cost and effective learning and credentialing systems, ones that can be personalized to meet the needs of individual learners. These systems can also be customized for employers seeking different types and combinations of employee competencies and/or different levels of assurance that employees have these competencies—assurances ranging from self-evaluated learning portfolios to instructor assessments and grades to third-party assessment and certification.

Gateway learning and credentialing

The potential of such business models to capitalize on both economies of scale and economies of scope and to transform the competitive structure of higher education is especially high in the case of “gateway” learning and credentialing. Gateway courses are the major general education and prerequisite courses required for two-year and four-year degree and certificate programs. They represent a large share of the postsecondary credits awarded by high schools, community colleges, and universities. This market space has been the focus of many of the most widely cited reform efforts, including those of the National Center for Academic Transformation, or NCAT, and of national and state attempts to simplify credit transfer in order to reduce costs and accelerate time to degree.

A secondary school initiative—the Shared Learning Collaborative, or SLC, coordinated through the Council of Chief State School Officers, or CCSSO, and funded by the Bill & Melinda Gates Foundation and the Carnegie Corporation of New York—provides an example. The SLC is working with a consortium of states to test a new, shared learning environment that provides fully open and transparent “learning maps” for the national “common core” academic standards. These maps can be linked to national, state, or local summative and formative assessment data, as well as to curriculum materials, through national metadata tagging standards. This shared learning environment will create an open marketplace for distributed content development and aggregation through infrastructure management systems. This will include learning management and repository and registry systems that have the potential for integration with state and local student data systems and learner-managed accounts to support personalized learning and the use of intelligent agents and smart learning-ware.

If the SLC is successful, these learning standards, maps, and related learning and assessment resources could easily be extended into a shared marketplace for postsecondary gateway courses, especially in general education and the lower-level prerequisite subjects related to the national common core standards in language arts, mathematics, and science. The maps and assessment resources could provide the basis for new economies of scale for specialized global curriculum developers in the more “commoditized” content areas, for example, math. Developers could produce and distribute high-quality and low-cost curricula that can be customized for multiple channels and personalized to the needs of learners. This could also result in significant economies of scope for smaller regional or local “channel partners,” such as community colleges, which could provide high-quality, low-cost, and personalized learning services for their students and eventually offer even more gateway courses. They could also afford to make use of what Osterwalder and Pigneur call “long-tail” business models—for example, low-enrollment programs and course options—to meet specialized employer and student needs.

Although innovative business models of the kind discussed above promise enormous productivity gains, they also face several barriers to widespread adoption. One barrier is the implication of a fundamental shift in the role of faculty in curriculum development and delivery, and in the shared governance arrangements that exist on many campuses. Second, these models threaten higher education’s traditional profit formula, which depends on low-cost gateway courses taught by part-time faculty to generate enough revenues to cover the unmet costs of the institution’s more expensive courses and activities. Third, these models are inconsistent with accreditation systems that assume that core learning and credentialing services will be managed within the institution through traditional business models. A shift toward more “open architecture” accreditation and related accreditation reforms would allow the accreditation of all internal and external partners in the institution’s value chain.

In addition, the gateway marketplace still faces a significant problem with credit transfer, due to the high switching costs both within the traditional education sector and between the traditional and nontraditional sectors, including for-profit institutions and specialized service providers like StraighterLine offering online college courses. Further, federal and state student loan policies have many legacy assumptions that impede the use of more flexible student financing options.

Lastly, these open models, especially facilitated network models, require full data integration within the higher education value network or ecosystem, similar to what is now being done through electronic health care data exchanges. This would require efforts by federal and state agencies to work with national standards bodies and higher education stakeholders to establish shared data infrastructures that go well beyond current state data infrastructures.

• Research and development

The United States has the largest public-private research and development sector in the world. Higher education’s share of this sector, although small—approximately 15 percent—is nonetheless critical since research universities conduct the bulk of government-funded basic research. That research is of special interest because entrepreneurs use it to develop innovative products and services that in turn spur economic development. As a result, federal and state governments promote a wide variety of strategies to improve technology transfer between universities and their industry counterparts, including the creation of technology-transfer offices supported through university patents and licensing. The most effective approach to technology transfer, however, remains the traditional practice of “open science,” in which technology is transferred through publications, conferences and meetings, consulting, personnel exchanges, informal interactions among bench scientists and engineers, and the movement of graduate students into private employment. This is most evident in the catalyst roles played by many leading universities in state and regional economic development through open public-private innovation networks.

Chesbrough first developed the concept of open innovation as a new way to improve industrial research and development through the leveraging of outside ideas and market opportunities. His book Open Innovation, published in 2003, showcases several open business approaches. It also highlights the role of innovation intermediaries, such as InnoCentive, an organization that provides a platform for companies to solve key problems by connecting them to diverse sources of solutions, including employees, customers, and outside parties, in creating global value networks through both inside-out and outside-in strategies. As Chesbrough notes, this open approach to research and development is even more important now, as these innovation activities are becoming widely dispersed throughout the world and a growing share is being carried out by more agile mid-sized and small businesses. Increasingly, large research and development enterprises will have to build more open global platforms that support a larger public-private value network or ecosystem of partners if they are to succeed. This applies to institutions of higher education as well as to private firms that depend on research and development.

Over the last few decades, many universities and their funders in the United States and Europe have taken major steps to harness the power of open innovation through public-private research partnerships, research parks, and shared research infrastructures. These efforts can be extended by further unbundling research and development activities—product innovation businesses—from the infrastructure services—infrastructure-management businesses—that support them. This would allow the development of global infrastructure-management organizations that are able to provide greater economies of scale and scope and make fuller use of research facilities, research support teams, and related information technology tools and resources.

These infrastructure-management services could also improve the use of the underutilized instructional assets and resources of nonresearch universities and community colleges and make them available for use by public and private researchers and entrepreneurs—similar to community-based design centers and innovation hubs. This unbundling of research and development activities from infrastructure management could also provide advantages to large research universities by lowering costs and enabling scientists to focus on their research and development. This in turn could provide a more level playing field for the small and mid-sized businesses competing on innovation in the global economy.

Business management

The concept of multisided and unbundled open business models can also be applied to some instructional and research support functions that are not currently being outsourced by higher education institutions. Enrollment management is one example. Enrollment management involves the outreach, recruitment, selection, enrollment, and “on-boarding” of students so that higher education institutions have the appropriate numbers and types of qualified students to ensure high levels of financial and operational performance and to maintain the institutional brand.

Many institutions of higher education and their suppliers, including secondary schools, have partnered with intermediaries, such as ConnectEDU, a firm that provides web-based information and education search and social media tools for connecting students, colleges, and employers. Such intermediaries create shared multisided platforms that provide tools and information to university admissions officers and enrollment managers, as well as to high school guidance counselors, students, and parents. These platforms show great promise for improving the performance of higher education as well as empowering customers by removing the information asymmetry and complexity in the marketplace—a major aspect of the competitive structure of the higher education industry, as discussed earlier.

Such innovation could be extended further by unbundling the applications, tools, and resources and the infrastructure management services of intermediaries, thereby creating an applications marketplace for enrollment management, including analytical services. These analytical services include firms such as SAS, the global research and analytics giant; Career Cruising, which provides career and education guidance and counseling services; and Parchment, a web-based provider of credential warehousing and distribution services, supported by multisided infrastructure-management services. These infrastructure-management services could provide full data integration with state preschool through college (P-20) data infrastructures to maximize the effectiveness of applications services in offering value to both institutions and learners and improving P-20 transitions, which are critical to federal and state government funders.

Policy recommendations

Disruptive innovation offers an analytical framework that can greatly help policymakers do their part in improving higher education. In this section we briefly discuss the implications for the federal government’s role and recommend some specific federal policy initiatives.

The federal government already encourages innovation in education, as evidenced by the Obama administration’s Race to the Top program and the portion of its 2013 budget aptly titled “Promoting Innovation in Education.” The administration also funds a considerable amount of applied research on education through the Department of Education, the National Science Foundation, or NSF, and other agencies. The NSF sponsors relevant research not only through its Directorate for Education and Human Resources but also through its Directorate for Computer and Information Science and Engineering.

The latter includes a “Cyberlearning: Transforming Education” program that “seeks to integrate advances in technology with advances in what is known about how people learn.” This program gives special attention to “technological advances that allow more personalized learning experiences, draw in and promote learning among those in populations not served well by current educational practices, allow access to learning resources anytime and anywhere, and provide new ways of assessing capabilities.” Yet the focus is entirely on the technology and its impact on individual learning. Neither here nor elsewhere is federally sponsored research focusing on the business models, value networks, or standards and policy environments that may be needed to harness technological advances and apply them broadly.

To correct for this neglect, we recommend the following:

First, the Obama administration should adopt a disruptive innovation framework in awarding grants through its innovation-promoting programs, including Race to the Top, i3, First in the World, and Race to the Top – College Affordability. This would allow grant applications to be evaluated according to their potential for, among other things, shedding light on the business models and value networks that are best suited to deploy productivity-enhancing improvements in technology.

Second, the Obama administration should conduct a cross-agency census to identify all competitive grant initiatives that fund programs or research that can expand our under- standing of productivity and innovation in higher education. These initiatives should be classified as follows:

• General business services that support learning and research

This classification will facilitate the aligning of funding with the major educational functions in which disruptive innovation could improve productivity. It should be applied across the board, from signature initiatives such as the proposed $55 million “First in the World” grant program to National Science Foundation grants to individual researchers studying effects of technology in higher education. It will be important that this census take in all relevant programs. Some NSF-funded programs in neuroscience research and even U.S. Department of Labor grants to community colleges may seem obvious. Yet others are not, a good example being the NSF Office of Cyber Infrastructure, which has an interest in how technology changes the way organizations operate.

Third, ARPA-ED, the research agency for education proposed by the administration, should be fully funded and should include an advisory panel on disruptive innovation in higher education. This panel’s form and function should be a hybrid of existing Department of Education advisory committees (student success, financial aid) and the committees that advise the Federal Drug Administration on clinical trial results and drug readiness for the market.

The panel should include members of the Committee on Measures of Student Success and The Fund for the Improvement of Postsecondary Education as well as experts in disruptive innovation. The panel would advise ARPA-ED on how to target investments made through signature programs to areas that show potential for disruptive innovation. It would also provide guidance on how to evaluate the emerging business models for scalability.

Fourth, the White House Office of Science and Technology Policy should work with disruptive innovation experts to create a primer on how to integrate disruptive innovation theory as an analytical framework and evaluation tool into federal grantmaking. The primer must include:

• An overview of disruptive innovation theory
• A description of its core elements—technology enablers, business models, value networks, standards, and regulatory environment
• Examples of industries in which technological innovations achieved their potential only after creative leaders developed new business models to harness and deploy them

This primer would be used by federal agencies to incorporate appropriate evaluation language into grants they make going forward with regards analyzing the impact cost and effectiveness.

In this paper we have argued that information technology’s potential to dramatically improve the performance of higher education will be realized only when new business models arise to harness it. Especially promising are open, multisided, and unbundled models that involve facilitated networks. Applied to learning and credentialing services, these approaches could improve performance by achieving greater economies of scale and scope and providing the basis for increasing personalization, access, and choice at affordable prices. They could also enhance research and development by improving access to and utilization of shared research infrastructures. Finally, they could assist institutions, students, and federal and state funders in the area of enrollment management and P-20 transitions. There are probably many actions policymakers could take to encourage the emergence and adoption of effective new business models, but a good starting point would be to embrace the recommendations we advance in this report.

Robert Sheets is the director of research, Business Innovation Services at the University of Illinois at Urbana-Champaign.

Stephen Crawford is a research professor at the George Washington Institute of Public Policy at the George Washington University.

Louis Soares is a Senior Fellow with the Center for American Progress and provides strategic guidance and policy expertise on higher education reform.

Center for American Progress and EDUCAUSE share a common interest in the advancement of higher education for the greater social good. We agree that innovation in higher education is necessary for future progress. Therefore, we bring together our organizational strengths to better understand the issues and opportunities at the intersection of public policy, information technology, and potential new models for education delivery. We promote public policy innovation by collaboratively convening thought leaders to create interdisciplinary dialogue on innovation in higher education, producing white papers to set the stage for policy action, and producing issue briefs that promote policies conducive to innovation in higher education.

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here . American Progress would like to acknowledge the many generous supporters who make our work possible.

Robert Sheets

Stephen crawford, louis soares.

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The Higher Education Reference Models

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The Higher Education Reference Models provide standardized business and data architectures that communicate a generalized view of how higher education institutions are organized and the information they use.  First published in 2016, the CAUDIT Higher Education Reference Models are now being used by more than a thousand institutions around the world.

The reference models are governed and continue to be developed by the CAUDIT Higher Education Reference Models (HERM) Working Group, with active collaboration and contributions from corresponding groups in EDUCAUSE (particularly through the Enterprise, Business, and Technical Architects Community Group, ITANA), UCISA (United Kingdom), and EUNIS (Europe).

The HERM resources can be used in many ways, such as a starter kit to accelerate digital transformation; to describe, communicate, and model an institution's business, data, and application architectures; a reference point to explore commonalities and differentiators for the institution; and a strategic communication tool to engage business stakeholders.

These reference models help institutions to:

• increase the value and efficiency of their architecture teams
• describe a 'whole of institution' view to colleagues within their institution
• facilitate the exchange of architectural knowledge and good practice in the sector
• support interoperability and collaboration
• improve engagement with industry in major projects and initiatives

A living collection of examples that illustrate the many valuable ways institutions are using the reference models is available in the Higher Education Use-Case Compendium .

Version 3.0 of the HERM was released in February 2024 and is available to EDUCAUSE members as the ZIP archive attached to this page.  The HERM distribution includes an overview of change highlights and commentary about enhancements being considered for introduction in the next major release, along with the core HERM artefacts:

• Business Capability Model and underlying catalog
• Business Capability Model “Recipe Cards”
• Business Model Canvas and supporting documentation
• Data Reference Model and underlying catalog
• Application Reference Model and underlying catalog
• Extra features, including versions of the models in ArchiMate and Visio format

Related Resources :

Enterprise, Business, and Technical Architects (ITANA) Community Group

Architecting the Architecture: Necessary Steps for Setting Up an EA Practice

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Version 3.0 (February 2024)

Full access to this content is reserved for EDUCAUSE members.

Collaborative Leadership for Higher Education Business Model Vitality

Strategic conversations for small college and university governing boards and administrative leaders, chart a course to institutional sustainability and student success.

As higher education faces disruption and uncertainty, the efforts of college and university governing boards and senior leadership may not be enough to sustain long-term institutional business model vitality. Economic and competitive pressures continue to mount post-COVID-19, leaving less selective small private institutions with limited financial resources particularly vulnerable, and with little time to react to fiscal challenges.

Colleges and universities that embark on revitalizing or strengthening their business model will be better positioned for sustainability and success. This report includes examples of business model transformation from candid and constructive leadership conversations to help secure institutions’ futures. The guide also outlines business model risk mitigation steps as a series of collaborative leadership discussions.

Get ready to define expectations, clarify business goals and objectives and prioritize the steps necessary to position your institution to weather today’s economic headwinds.

Start my journey.

Boards, presidents and CFOs have to collectively master the fundamentals of a sustainable business model before they reach a crisis. When times are good, it can be easy to overlook the basics, or ignore gaps in understanding. Not so when institutions are facing dramatic upheaval. These questions ensure that everyone is on the same page and ready to make the tough calls.

Driving change through collaboration

This report is a joint project of Baker Tilly, the Association of Governing Boards of Universities and Colleges (AGB), the National Association of College and University Business Officers (NACUBO) and the Council of Independent Colleges (CIC).

Connect with us to discover more about how Baker Tilly’s higher education Value Architects™ can help your institution develop and implement its strategy to be long-term fiscally sustainable.

Take the leap.

Fiscal resiliency resources for higher education

Strategic insights to reach institutional sustainability

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The Business Model of Higher Education

Eric Denna, CIO for the University of Utah and the Utah System of Higher Education, is the 2014 Viewpoints department editor for EDUCAUSE Review .

According to a recent search for the term "changing business model" on The Chronicle of Higher Education website, the term was used more than 2,000 times during the past three years. A quick reading of even just a few of the references reveals that the term is used rather loosely—which seems ironic for a community that prides itself on precision in language. This lack of precision suggests that although there is significant interest in the term, there is little agreement on what it means.

Furthermore, the lack of precision in the use of the term "business model" is resulting in gross generalizations, sloppy thinking, and unrealistic expectations about the nature and future of the business model of higher education. This allows others—others outside of higher education—to drive the conversation, with little rigor and even less familiarity with the history and nature of higher education, let alone its future. The collective lack of understanding about the nature of a business model in higher education results in academics being excluded from critical policy discussions at the institution, local, state, and federal levels—where many are equally unclear about the nature of business models in general and within higher education specifically.

To make matters worse, reactions to the term "business model" within higher education range from "higher education is not a ^#%$@* business" to "what in the world is a business model?" As a result, those of us in higher education come off as naïve at best and as head-in-the-sand intransigents at worst. To many, we seem to be saying: "Let the rest of the sectors of the economy—whether medicine, construction, manufacturing, publishing, governments (all levels), governmental agencies, professional services, entertainment, libraries, whatever—enjoy being disrupted. Higher education is different."

Why is all of this important to CIOs and other IT leaders? As Clayton Christensen explains, disruption of business models involves technology (and not just what IT leaders would typically call information technology ). Since we IT leaders have primary responsibility to plan, build/install, and run information technology on campus, we are naturally poised to participate in the discussion about the future business model of higher education. Not participating marginalizes us in the strategic conversations of the academy. We become technologists instead of active members of the CxO crowd.

So, what exactly is a business model? With my background as a business school professor, an entrepreneur, and a senior executive or board member in many for-profit and not-for-profit organizations, business models have always been part of my world. However, about three years ago the concept of a business model became much easier for me to talk about when I was introduced to the book Business Model Generation, written by Alex Osterwalder and Yves Pigneur. The book grew out of their work at HEC Lausanne in Switzerland. Osterwalder and Pigneur provide a framework for a business model in the form of a template or canvas, which they call the Business Model Canvas, consisting of nine components:

• Customer Segments
• Value Propositions
• Customer Channels
• Customer Relationships
• Revenue Streams
• Key Activities
• Key Resources
• Key Partners
• Cost Structure 1

Many academics seem to struggle with the notion of a higher education business model because they can't get past the language barrier. In response, I have translated the nine components of the Business Model Canvas into a series of nine questions that I hope are more useful for higher education (those of you who read my January/February 2014 Viewpoints column in EDUCAUSE Review will recognize some of the questions):

• Who do we serve, and what are they trying to do?
• How do we help those we intend to serve do what they are trying to do?
• How do we deliver our services to those we are trying to serve?
• What is the nature of the relationship we have with those we serve?
• How do these prior components translate into revenue for our institution?
• What are the key activities that create the services we provide?
• What are the key resources we need to create the services we provide?
• Who are the key partners that help us create the services we provide to those we serve?
• How do the key partners, resources, and activities translate into our institution's cost model?

Answering these questions puts the IT leader squarely in a business model discussion without ever having to use the cursed "BM" word. More important, these questions and the underlying model can provide insights into just how higher education is being disrupted. Applying a framework like the Business Model Canvas to each of the oft-sited disruptors of higher education will begin to reveal some general trends. A recent and rather concise description of these disruptive trends in higher education was offered by MIT in Institute-wide Task Force on the Future of MIT Education: Preliminary Report:

The digital revolution can be felt across a number of industries, from publishing to media to retail, with the following trends surfacing across the spectrum:

• Massive scale of adoption : YouTube, for example, claims a viewership of over one billion unique viewers and over six billion hours of video watched every month.
• Increased potential and demand for disaggregating or unbundling products : Newspapers have become disaggregated into individual articles available piecemeal online. These are often curated and aggregated by other online sites such as The Huffington Post or Drudge Report. Apple unbundled albums into 99-cent songs, and users re-aggregate individual songs into their own playlists.
• Blurring of boundaries : Traditional boundaries in various media and platforms are becoming less distinct, creating new opportunities and greater potential for collaboration. The availability of online video through YouTube, iTunes, Hulu, and other sources, for example, has blurred the boundaries between traditional television programming, cable, computers, and mobile phones. Telecommuting has the same effect on the division between offices and homes. Online retail has blurred the boundaries between brick-and-mortar stores such as Walmart, electronic commerce sites such as Amazon, and auction sites such as eBay.
• Affordability and access : The public conversation about the affordability of higher education and the impact of cost on access for all of those desiring to go to college is growing. There is also a growing conversation about the value of education that does not immediately result in jobs. 2

What does all this have to do with the business model of higher education? The key lies in how these four trends change the answers to the nine questions I listed earlier. In fact, what might be more important is how these trends change the answers to the nine questions when they are rephrased to look to the future:

• Who should we serve, and what are they trying to do?
• How should we help those we intend to serve do what they are trying to do?
• How should we deliver our services to those we are trying to serve?
• What should be the nature of the relationship we have with those we serve?
• How should these prior components translate into revenue for our institution?
• What should be the key activities that create the services we provide?
• What should be the key resources we need to create the services we provide?
• Who should be the key partners that help us create the services we provide to those we serve?
• How should the key partners, resources, and activities translate into our institution's cost model?

Although I am tempted to offer my own answers to these questions (both the "do" and the "should" forms), my professor side suggests that this is a good homework assignment. In fact, answering these questions is a great group exercise. In my experience, the process of answering the questions, and reconciling the answers across the campus community (in part and as a whole), is at least as important as, if not more important than, the answers themselves. Why? Because the answers will likely change a great deal during the coming years. Therefore, a key activity for keeping the business model of higher education viable will be the community's ability to engage in asking and answering these questions and then implementing the answers.

Only one thing seems certain: the last ten years are not a good predictor of the next ten. Some in higher education (e.g., senior administrators, members of the faculty senate, deans, or department chairs) may be tempted to think that they can manage, or even minimize, the disruption that is under way. And some self-avowed "elite" schools may think that the disruption does not even apply to them. But those who feel they are immune from business model disruption are the ones who should be the most worried.

In conclusion, let me be clear: much of the disruption of the higher education business model is the result of leveraging technology. Therefore, IT leaders have a natural and important role to play in the conversation about the business model of higher education. Using a tool like the Business Model Canvas, or answering the questions listed above, should provide the framework for any IT leader not only to participate but to be a key player in the future of higher education.

• Alexander Osterwalder and Yves Pigneur, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Hoboken, N.J.: Wiley, 2010). A video introduction to the Business Model Canvas is available here . Osterwalder’s blog, Business Model Alchemist , offers a wonderful account of the development of the Business Model Canvas.
• Institute-wide Task Force on the Future of MIT Education: Preliminary Report , November 21, 2013, pp. 8–9.

© 2014 Eric Denna. The text of this article is licensed under the Creative Commons Attribution-NonCommercial 4.0 International License .

EDUCAUSE Review, vol. 49, no. 2 (March/April 2014)

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Exploring Higher Education Business Models (If Such a Thing Exists)

Posted October 8, 2013

By John O. Harney

Jay A. Halfond of Boston University and Peter Stokes of Northeastern University recently conducted a non-scientific “ pulse” survey of presidents at smaller New England institutions about their views of new models. The presidents generally agreed that to become more sustainable, colleges need to change their financial model, lower discount rates, reach new audiences through online learning and strengthen their institution’s competitive differentiation.

Too many institutions each year raise tuition beyond the rate of inflation and look to get more students, despite demographic forecasts promising fewer traditional college-age students.

Predicting a shakeout, most of the presidents expressed confidence for their own school’s ability to adapt, but only 57% agreed that, “the small New England college will remain an important fixture within the academic landscape for many years to come.” (It’s a bit like Americans voicing disdain for Congress as they reelect their own representatives.) As one respondent put it: “If your institution does not have a well-defined market niche … that is robust, be that market in or out of New England, it is toast.”

Meanwhile, innovators and entrepreneurs are using multiple technologies to make available freely or cheaply, the things for which universities charge significant money. “MOOCs,” free online courses, lecture podcasts, low-cost off-the-shelf general education courses, online tutorials and digital collections of open-learning resources are disrupting higher education’s hold on knowledge, expertise, instruction and credentialing.

Business model vocab

In a sense, everything NEJHE has ever covered over the decades—from classroom teaching to university research to town-gown relations—has been about higher ed business models. Yet the business model concept itself was largely unarticulated in academia until people—mostly business people—started telling higher education to act more like a business (ironically, around the time business meltdowns were fueling the recession).

Even today, elements of business models, including differences in institutional control, segment and mission, are not widely appreciated in higher ed. But there’s a perceived need for a common vocabulary and analytical framework to support dialog among diverse stakeholders including students, faculty, staff, administrators and trustees.

Still, “institutional diversity” is a hallmark of American higher education—with institutions ranging from community colleges to global research universities, religious and secular, public and private, nonprofit and, increasingly, for-profit, online, bricks-and-mortar or hybrids. And big differences in institution kind must inform any business model discussion. As  Catalogue for Philanthropy founder George McCully noted in a recent NEJHE forum : “The business model is a major challenge for higher ed. At the same time, major institutions which have very large endowments are in a positive feedback loop that is intrinsically inefficient. Harvard earns more from the yield on its endowment in a single year than its development officers can raise in five years.”

Among questions that arise:

• What is the future sustainability of higher education institutions (HEIs) in a world where higher learning is free and widely available beyond the academy’s walls?
• How does the issue of “quality” figure in the equation?
• How about social and cultural aspects of college life?
• Do these factors alter what people expect from college and are willing to pay for it?
• Will the accelerating profusion of open-learning opportunities, innovations and new providers displace traditional HEIs?
• Will such forces cause HEIs to reconsider their fundamental business models?

Genesis of NEBHE-Davis work

Recently, NEBHE was awarded funding by the Davis Educational Foundation to jointly convene higher education leaders for a frank and compelling conversation about costs and the higher ed business model. An October 2013 Summit on Cost in Higher Education will convene higher ed leaders to discuss costs and, by extension, business models. One catalyst for this investigation was the Davis Educational Foundation’s November 2012 report, An Inquiry into the Rising Cost of Higher Education . As one New England college president noted in the report: “I think all of us who work in higher education understand that the financial model for most universities and colleges in our region is no longer feasible.”

NEBHE aims to build upon the insights and concerns expressed by HEI presidents in that report and pursue additional research before and after the October summit. Among other things, a multimedia “whitepaper” will synthesize key findings from a literature analysis, survey and interviews with summit participants, Davis grantees and regional and national collaborators.

Costs and prices

There are two main angles to any inquiry about higher ed costs. One is cost-containment by institutions. The other is price affordability for students and families.

The institutional cost angle encompasses everything from the sensationalist stories about spending for luxury dorms and overpaid administrators on the one hand to the eternal fact that intellectual talent (traditionally professors and instructors) costs a lot of money to hire and retain.

In NEJHE, a feature by higher ed policy guru Jane Wellman described ways to increase college attainment by restructuring costs and increasing productivity despite an academic culture that views these strategies as code for budget-cutting.

The student and family angle is told by stories of rising tuition prices, stagnant aid and student loan debt now staggering to the point where graduates are delaying buying homes, cars and other big items and are steered by salary pressures into occupations that help them pay back their loans.

As higher education democratizes, future students are likely to have less means. The Pell Grant program, meanwhile, is unlikely to get richer, and tax credits may disappear in the interest of budget balancing. So how will we make sure students have access to all the newly freed-up content?

The traditional system of students who can afford to pay for college subsidizing those who cannot is thrown off kilter by various forays into merit-based over need-based aid. Institutions know that offering some merit-based aid to students who would probably go to college anyway, leads to more revenue for the institution than offering a full boat to someone who couldn’t pay. As Phil Wick, former financial aid chief at Williams College, wrote in NEJHE ( Connection ): “Institutions use ‘merit’ scholarships to boost tuition revenue. For example, a college that charges $20,000 in tuition knows that it can realizes $60,000 in additional revenue simply by replacing one $20,000 scholarship, which is need-based, with $5,000 merit awards to four students who could afford the full cost” and will pay what net price remains. Some money-saving strategies may force students to do things they may not want to, such as trimming unneeded credits. Others would include reverse transfer , in which students en route to bachelor’s degrees get an associate degree on the way, or prior learning assessment , in which college credit is awarded for college-level learning from work and life experience.

One business model phenomenon that colors both institutional cost containment and student price savings is online learning. It’s new and improved since the days of being  disparaged as somehow not as real as learning from an in-the-flesh prof lecturing in a bricks-and-morter classroom. In “Rethinking Higher Education Business Models,” University of Illinois at Urbana-Champaign director of research Robert Sheets, George Washington University professor Stephen Crawford and Center for American Progress senior fellow Louis Soares argue that “information technology’s potential to dramatically improve the performance of higher education will be realized only when new business models arise to harness it.” The piece published in 2012 by the Center for American Progress and EDUCAUSE states: “Clearly, the great challenge facing higher education today is to contain costs while at the same time improving outcomes—in short, to increase productivity.”

In “University Business Models and Online Practices: A Third Way,” Beth Rubin of DePaul University argues: “In the world of higher education, the third way lies between the efficiency-oriented market perspective aimed at adults, as taken by proprietary universities, and the traditional approach that focuses on research and teaching young students.”

Containing costs for institutions

Profs to adjuncts

The proposed solutions to making higher ed sustainable sometimes involve dissing professors, taking specific aim at tenure and sabbaticals. And indeed, there has been a move from tenured professors to adjuncts, who are usually paid by the course and don’t get benefits. Non-tenure-track faculty account for almost two-thirds of teachers in higher education Their average hourly wage is $8.90 an hour, with 80% of them earning less than $20,000 annually, according to the Adjunct Project . For the institutions, the adjuncts not only save money, but also appeal to career-minded students and families because they are tethered to the “real world” of work, rather than theory.

Competencies not credits

Southern New Hampshire University (SNHU) President Paul LeBlanc is the closest thing to a rock star in the arena of higher education business model innovation. SNHU became the first university eligible to receive federal aid for a program not based on the “credit hour,” the time-based unit that underlies courses and degrees. As the Chronicle of Higher Education summarized it, “The low-cost, self-paced education lacks courses and traditional professors. Instead, students progress by showing mastery of 120 ‘competencies,’ such as ‘can use logic, reasoning, and analysis to address a business problem.’” SNHU had already pioneered a cheaper, more flexible “no-frills” option for students who get access to the same SNHU faculty but don’t want to pay for amenities nor take time away from their jobs. Resource-sharing

In interpreting their survey of presidents, Halfond and Stokes called for more “practical opportunities for collaboration, alliances, resource-sharing and outsourcing.” NEBHE’s flagship program, Tuition Break (the Regional Student Program) allows New England states to share costs of many academic programs not offered in neighboring states in the region. More recently, NEBHE began offering New England campuses a comprehensive property insurance program tailored specifically to higher education at costs that have consistently been below industry trends. Established in 1994 by the Midwestern Higher Education Compact, this Master Property Program is based on a no-brainer: use your numbers to drive down prices and get a better deal.

Various consortia have also fought for economies of scale in areas ranging from academics to cell phone services. These groups include: the Connecticut Conference of Independent Colleges; Hartford Consortium for Higher Education; AICUM; Boston Consortium for Higher Education; Colleges of the Fenway; Colleges of Worcester Consortium; CONNECT-Southeastern Massachusetts Higher Education Partnership; the Council of Presidents of the Massachusetts State Universities; Five Colleges Consortium; the New England Higher Education Recruitment Consortium; Massachusetts Higher Education Consortium; the Association of Independent Colleges and Universities of Rhode Island; the Association of Vermont Independent Colleges; and the Cooperating Colleges of Greater Springfield.

In some ways, MOOCs (massive open online courses) are like consortia on steroids. In the past two years, they became everybody’s darling—based at prestigious universities but attracting partnerships with community colleges, rooted in hard sciences but spreading to humanities, originally culminating in certifications but increasingly offering credit toward degrees.

Still, the MOOC idea has felt some growing pains. “It’s time to push the pause button … on MOOC mania generally,” wrote David L. Kirp, professor of public policy at the University of California, Berkeley, in “Tech Mania Goes to College.” Kirp’s piece published in The Nation warned: “While modified MOOCs like the flipped classroom hold great promise, the pure MOOC model looks like a failure. New technologies have indeed made it possible to reach more students—MIT’s OpenCourseWare materials, free to all, have been visited by 125 million people the world over—and, sensibly used, can improve teaching as well. But there’s no cheap solution to higher education’s woes, no alternative to making a serious public investment, no substitute for the professor who provokes students into confronting their most cherished beliefs, changing their lives in the process.”

Other cost drivers

Though they seem hardly to be dignified as “business models,” a variety of different drivers also enter into the high cost of higher education. These include insurance, electricity, broadband, buildings and grounds maintenance, even paperclips. Plus, sports. At some colleges, appealing to students and donors involves building brand-new stadiums and paying head coaches more than top administrators and faculty. At others, the momentum is to eliminate some sports as Boston University did with its football team in 1997.

Ideally, all these cost containment steps could pass savings on to students in lower tuition and fee prices. But there are other strategies aimed more directly at reducing tuition and fee burdens. Free tuition

The federal government already spends enough on student aid initiatives and tax breaks to cover the tuition of every U.S. public college student—or almost. Consider “How Washington Could Make College Tuition Free (Without Spending a Penny More on Education),” advanced in The Atlantic magazine by Jordan Weissmann and in “From Master Plan to No Plan: The Slow Death of Public Higher Education” in Dissent magazine by Aaron Bady and Mike Konczal.

Pay it forward

A more recent proposal in Oregon would allow students to pay tuition after they graduate based on income. Under the so-called “Pay It Forward” idea, students would pay tuition only as a share of their salaries after graduation. But critics say the idea would give public colleges an incentive to build up programs likely to attract students who will earn the most money after graduation.

New models are being assembled right now. NEBHE’s exploration of these issues will continue to ask key questions: What is higher education’s current business model? What new models will bring access and success to more students. Keep them curious. Employable. And out of debt.

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Jan. 4, 2023

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The Business Model of Higher Education

• Annual tuition increases with too little attention paid to controlling costs
• Low graduation rates
• The slow pace of change from lectures to massive open online courses (MOOCs) or the adoption of other new technology to improve access and lower the costs of instruction
• Inefficient use of resources
• Too much construction of new buildings, some of which are perceived to be frills
• Increasing student and institutional debt
• Universities focus on short-term instead of long-term thinking and on money more than on the mission
• Universities use resources to promote prestige rather than to educate talented low-income students
• Universities abandoned shared governance with faculty in favor of more top-down decision-making
• Administrators have allowed the erosion of institutional autonomy in academic research
• Universities consider faculty as "producers" and students as "consumers"
• Universities silence voices of dissent
• Universities give higher priority to advertising and public recognition than to improving student and faculty success

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• Leadership in Higher Ed

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About the Author

Robert A. Scott President Emeritus, Adelphi University & Author

Dr. Robert A. Scott is President  Emeritus and University Professor Emeritus of Adelphi University, where he served from July 2000 to July 201...

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Want to innovate as an entrepreneur learn from top higher education institutions.

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Arush Chandna is the co-founder of Quad Education .

America has been abuzz with unprecedented entrepreneurial activity since the pandemic. According to Babson College's Global Entrepreneurship Monitor (GEM) 2022-2023 USA report, the total entrepreneurial activity rates were at an all-time high , with an increase of 18% for women and 20% for men. In 2020 alone, Americans filed paperwork to start 4.3 million businesses .

This boom poses a key question—how are entrepreneurs identifying so many business ideas? Clearly, not all ideas or models are novel or innovative. But all businesses do need some innovation in the way they operate to propel the business toward success. Why is that? Let’s first understand what innovation is.

According to McKinsey , in business terms,"innovation is the ability to conceive, develop, deliver, and scale new products, services, processes, and business models for customers." Harvard Business Review further explains, “Innovations don't have to be major breakthroughs in technology or new business models; they can be as simple as upgrades to a company's customer service or features added to an existing product."

By prioritizing and investing in innovation, be it for products or processes, companies can expect financial returns. According to the McKinsey article linked above, businesses that excel at innovating can generate 2.4 times higher economic profit than other companies.

So, how can aspiring entrepreneurs or leaders master the essentials of innovation—both in how they think and how they can implement it in business? As the founder of an ed tech business, I believe leaders can learn how to emulate a culture of innovation in business from colleges and universities.

Embrace and encourage interdisciplinary innovation.

Different units of a business might work in silos, but an innovative leader will always know which departments can benefit from collaboration to drive maximum innovation and profitability. Stanford University provides an impressive example of how this can work.

The university has programs and an environment that encourages students from across disciplines and focus areas to collaborate and devise solutions to complex societal issues. Their Bio-X program , for example, "brings together researchers from the fields of biology, engineering, and medicine to tackle pressing issues in healthcare and biotechnology." At the Massachusetts Institute of Technology , "A general prerequisite of most MIT entrepreneurial contests or accelerators, for instance, is that participants form mixed teams of scientists and engineers with management students."

Businesses, too, can significantly benefit from such cross-pollination if their leaders take the initiative to amalgamate parts of the business that might be unrelated but have massive scope for innovation. For example, does your marketing team have a roadblock that perhaps your engineering or technology team could fix? The answer might lie in cross-functional collaboration.

Instill innovation in the company culture.

Your employees, partners or stakeholders will only be committed to the idea of innovation if you show them that you are, too. By definition, innovation requires a new approach to doing things. Employees who might already have been trained in a particular process may resist innovation unless they see that it’s a way of life at the organization. Is the company open to taking risks, accepting failure, implementing experiential learning initiatives and so on?

Innovation might conjure up an image of a fast-moving startup with less focus on rules and a rampant practice of experimentation, but innovation is also synonymous with failed experiments, starting all over again and recognizing the loopholes in the process. Employees will feel tempted to innovate when they feel they can make mistakes without serious repercussions, make amends, try again and be incentivized for processes that yield favorable results for the organization.

Once again, educational institutions provide blueprints that can benefit businesses. Michigan Ross Business School is known for its signature Multidisciplinary Action Projects (MAP) program, which offers Ross Experiences in Action-Based Learning, or REAL, for both its undergraduate and graduate business degrees. Students are at the forefront of real-world situations with high stakes. Within the program, students develop an original business with the intent of achieving economic viability. They also "manage eight focused investment funds, totaling more than $10 million in assets, in all aspects of their operations."

As an entrepreneur or business leader, you must give your employees the opportunity to learn by doing while having a high but realistic threshold for errors, offering feedback and solutions when ideas fail and rewards when they succeed.

Be prepared for future challenges.

Innovation stems from recognizing unmet needs and finding solutions that fulfill them. If business leaders can foresee the needs of their current and prospective customers preemptively, they can kickstart the innovation process—which relies heavily on research and development—sooner than their competitors. This also leaves them more room for trying out multiple solutions, collecting feedback from beta users and fine-tuning the product, service or process.

Wharton Business School offers a notable example. Once it saw a pattern among recruiters hiring for ESG-related skills, Wharton launched a major called Business, Energy, Environment and Sustainability, with nearly 30 courses. Today, ESG is considered one of the top factors impacting business strategy. The University further announced its Environmental, Social and Governance Factors for Business (ESGB) and Diversity, Equity and Inclusion (DEI) programs as a concentration at the undergraduate level and a major at the MBA level last fall.

This ability to recognize trends and challenges proactively can spur innovative thinking, test products and models, and prepare you to launch an avant-garde solution around the time when others might only be beginning to see the same trend.

Consider these final thoughts.

When it comes to learning the essentials of innovation, many rely on examples of current companies that innovate to solve a business problem. While there’s nothing wrong with that approach, I have been able to cull lessons from the exceptional culture of innovation at higher institutions as a result of my proximity to this industry.

Whether it’s through an intersection of disciplines that allows for a productive collision of ideas, exemplifying the innovation culture through actions and environment or acting preemptively on society’s most complex challenges, I believe these institutions provide a powerful model for learning and implementing innovative thinking and practices.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?

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HELB Breaks Down Fees for Each Course, Loan and Amount Family Will Pay Under New Funding Model

• The deadline for the application for Higher Education Funding (HEF) for the 2023 KCSE cohort is Thursday, August 15
• Higher Education Loans Board (HELB) broke down how every university programme will be funded under the new funding model
• For instance, a Bachelor of Arts degree course with an annual fee of KSh 122,400 will see HELB pay KSh 85,680 in scholarships and KSh 30,600 in loans

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TUKO.co.ke journalist Wycliffe Musalia has over five years of experience in financial, business , and technology reporting and offers deep insights into Kenyan and global economic trends.

Higher Education Loans Board (HELB) has shared how every university programme will be funded under the new model.

This followed the application deadline extension to August 15, 2024, after the government recalled all admission letters to determine how much parents will be required to pay.

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Higher Education Principal Secretary Beatrice Inyangala noted that starting August 19, 2024, parents and guardians will be informed of the fees households should pay after the application window closes.

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How much HELB will pay under new funding model

In a public notice, HELB shared the amount it will pay as a scholarship and loan for each programme, based on the band the student is categorised under.

For instance, a Bachelor of Arts degree course with an annual fee of KSh 122,400 will see HELB pay KSh 85,680 in scholarships and KSh 30,600 in loans for Band 1 students.

Parents or guardians under this category will be required to pay KSh 6,120 per year, and the student is entitled to an annual upkeep of KSh 60,000.

For students categorised in Band 5, HELB will pay KSh 36,720 in scholarships and loans, while the parent pays KSh 48,960 per year.

Education crisis: Over 70k students to miss out on gov't scholarship over financial constraints

The Bachelor of Education Science programme, which requires KSh 244,800 per year, will see Band 1 parents pay KSh 12,240 while those in Band 5 pay KSh 97,920.

For the Bachelor of Commerce, students in Band 1 will pay KSh 11,008 in household contributions, while those in Band 5 will pay KSh 88,060.

Other course programmes like medicine, which requires an annual fee of 612,000, will see parents with students in band pay KSh 30,600 or 5% while those in Band 5 pay KSh 244,800 or 40% of the fee.

How many students are applying for HELB in 2024/25

According to the Kenya Universities and Colleges Central Placement Service (KUCCPS), 153,275 students who took the Kenya Certificate of Secondary Education (KCSE) 2023 will join universities starting in August 2024.

The PS insisted that HELB will support only those who apply for funding.

The application for first-time students under the new model opened in June 2024.

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Students are required to apply for scholarships and loans based on the university programme in which they are enrolled.

HELB said about 79,038 university students had applied for loans and scholarships as of August 5, 2024.

Proofreading by Asher Omondi, current affairs journalist and copy editor at TUKO.co.ke.

Source: TUKO.co.ke

Wycliffe Musalia (Business Editor) Wycliffe Musalia is a Business Editor at TUKO.co.ke, with over five years of experience in digital media. He holds a Bachelor of Arts in Linguistics, Media and Communication from Moi University. Before joining TUKO.co.ke, Musalia worked as an editorial intern at Standard Media Group. Musalia has completed the full Google News Initiative (GNI) News Lab Advance digital reporting workshop. He has also undergone Procurement Fraud and Public Finance Management Training conducted by the Kenya Editors’ Guild. You can get in touch with Musalia via mail: [email protected].

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The ‘Orgasm Gap’ Isn’t Going Away for Straight Women

A new study suggests they still have fewer orgasms during sex than men do, even with age and experience.

By Catherine Pearson

Sex researchers and therapists have long known that women in heterosexual relationships tend to have fewer orgasms than men do. A large new study suggests that this “orgasm gap” persists — and does not improve with age.

The Numbers

The research, published recently in the journal Sexual Medicine, found that across all ages, men of all sexual orientations reported higher orgasm rates during sex — from 70 to 85 percent — compared with 46 to 58 percent for women. Lesbian and bisexual women between ages 35 and 49 reported higher orgasm rates than their heterosexual counterparts.

The analysis included data from eight Singles in America surveys, which are funded and conducted by Match.com annually in collaboration with The Kinsey Institute, the sexuality and relationships research program at Indiana University. The sample included more than 24,000 single Americans between the ages of 18 and 100.

Researchers were especially interested in the question of whether orgasm rates vary by age. Amanda Gesselman, a research scientist with the Kinsey Institute and lead author on the study, said she thought the team might find evidence that the orgasm gap narrows as women develop confidence and learn what they like (and, perhaps, their partners develop skills to help pleasure them).

However, while older gay and bisexual men and lesbian women did have higher orgasm rates, “we really didn’t see evidence of closing the orgasm gap overall,” she said, adding that she hopes future studies will explore the age-orgasm connection further.

“We really, as a society, sort of prioritize men’s pleasure and undervalue women’s sexual pleasure,” Dr. Gesselman said. “And I think that contributes to consistent disparities.”

The Limitations

Emily Nagoski, a sex educator and author of the book “Come Together” — who did not work on the new study — said a limitation of the study was that the survey asked: “When having sexual intercourse in general, what percentage of the time do you usually have an orgasm?” But it did not provide a more specific definition of what “sexual intercourse” means.

Research shows the majority of women require some form of clitoral stimulation in order to orgasm. So if straight women defined “sexual intercourse” as vaginal penetration alone, it makes sense that there was a significant gap in orgasm rates, she said.

A more revealing question might be, “What percentage of the sex you have do you like?” Dr. Nagoski said. “Orgasm is not the measure of a sexual encounter. Pleasure is the measure of a sexual encounter.”

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