THE RAPIDLY CHANGING ENVIRONMENT FOR HIGHER

EDUCATION: CHALLENGES AND OPPORTUNITIESLLOYD ARMSTRONG

UNIVERSITY OF SOUTHERN CALIFORNIA

“THERE’S A TSUNAMI COMING”

JOHN HENNESSYPRESIDENT, STANFORD

GLOBAL WARMING

THE RISING SEA LEVEL

GLOBAL CONTEXT

• BIG FORCES IN THE WORLD – GLOBALIZATION, GEOPOLITICS, DEMOGRAPHICS, ECONOMICS -ARE DRIVING MAJOR CHANGES IN ALL ASPECTS OF OUR LIVES

• DIRECTIONS OF THESE FORCES HAVE BEEN RELATIVELY CONSISTENT OVER TWO DECADES AT LEAST

• GENERALLY, GOVERNMENTS HAVE REDUCED POWER TO DO TRADITIONAL THINGS

GLOBAL CONTEXT

• GENERALLY LED TO GOVERNMENTS HAVING FEWER FINANCIAL RESOURCES

• WHICH IN TURN HAS LED TO INCREASES IN GOVERNMENTAL DEBT- NOW DELEVERAGING

• WE ARE MOVING FROM AN ERA WHEN GOVERNMENT SOUGHT TO IMPROVE WELFARE OF CITIZENS, TO AN ERA WHEN GOVERNMENT SEEKS TO IMPROVE OPPORTUNITY OF CITIZENS

GLOBAL TREND IN HIGHER EDUCATION

“THE TERTIARY EDUCATION CONTEXT IN WHICH STUDENTS, PROVIDERS, AND NATIONAL GOVERNMENTS NOW OPERATE, IS CHANGING RAPIDLY AS A RESULT OF DEMOGRAPHIC TRENDS, THE COMPLEX EFFECTS OF GLOBALIZATION ON ECONOMIES AND SOCIETIES, AND A SHIFT IN THE ROLE OF GOVERNMENT IN PUBLIC SERVICES – FROM PROVIDER, TO FACILITATOR, REGULATOR, AND PARTNER.”

UNESCO 2004 (emphasis added)

IMPLICATIONS FOR U.S. PRIVATE HIGHER EDUCATION

PRICE

PUBLISHED PRICE VS FAMILY INCOME CPI CORRECTED, NORMED TO 1981

1981-82

1982-83

1983-84

1984-85

1985-86

1986-87

1987-88

1988-89

1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-110.00

0.50

1.00

1.50

2.00

2.50

3.00

Pricelowest 5thsecond 5ththird 5thfourth 5thhighest 5thtop 5%

OPPORTUNITY

• ACCESS TO HIGHER EDUCATION VERY IMPORTANT TO PROVIDE OPPORTUNITY

• RISING COSTS RELATIVE TO FAMILY INCOME ARE DECREASING OPPORTUNITY

• NOT POLITICALLY ACCEPTABLE

VIEW FROM WASHINGTON:DEMOCRATIC

SO LET ME PUT COLLEGES AND UNIVERSITIES ON NOTICE: IF YOU CAN’T STOP TUITION FROM GOING UP, THE FUNDING YOU GET FROM TAXPAYERS WILL GO DOWN. HIGHER EDUCATION CAN’T BE A LUXURY. IT IS AN ECONOMIC IMPERATIVE THAT EVERY FAMILY IN AMERICA SHOULD BE ABLE TO AFFORD.

Barak Obama, State of Union 2012

VIEW FROM WASHINGTON:REPUBLICAN

SINCE 1982, THE COST OF COLLEGE HAS INCREASED BY 439 PERCENT — DRAMATICALLY HIGHER THAN THE GROWTH EVEN IN THE COST OF HEALTH CARE. A ROMNEY ADMINISTRATION WILL TACKLE THIS CHALLENGE BY MAKING CLEAR THAT THE FEDERAL GOVERNMENT WILL NO LONGER WRITE A BLANK CHECK TO UNIVERSITIES TO REWARD THEIR TUITION INCREASES, AND BY SUPPORTING INSTITUTIONS THAT ARE PURSUING INNOVATIVE OPERATING MODELS TO DRIVE DOWN COSTS

Mitt Romney – White Paper on Education

VIEW FROM PARENTS

• HATE THE COSTS

• GOING TO WRITE MY CONGRESSMAN

IMPLICATIONS FOR U.S. PRIVATE HIGHER EDUCATION

QUALITY

QUALITY OVERSIGHT DRIVERS

• AS GOVERNMENT HAS LESS TO SPEND, IT BECOMES MORE DEMANDING IN THE QUALITY OF OUTCOMES IT IS BUYING

• AS COST OF HIGHER EDUCATION TO FAMILIES INCREASE, THEY BECOME MORE DEMANDING OF DEMONSTRATIONS OF BENEFITS

• PRESSURE WILL INCREASE TO DEMONSTRATE QUALITY OF EDUCATION

• SPELLINGS’ COMMISSION APPROACH CONTINUES UNDER OBAMA

EXISTING OUTCOME QUALITY MEASURES

• WE DON’T DO PARTICULARLY WELL–E.G. PASCARELLA AND TERENZINI,

HOW COLLEGE AFFECTS STUDENTS; DEREK BOK, OUR UNDERACHIEVING COLLEGES ;ARUM AND ROKSA, ACADEMICALLY ADRIFT

• PEDAGOGY ISSUES

I THINK

• WE ACTUALLY HAVE A COST (=PRICE) PROBLEM, AND A QUALITY PROBLEM

• BOTH WILL NEED TO BE FIXED IN A RELATIVELY SHORT TIME PERIOD

UNDERSTANDING THE PROBLEM

• WHAT ABOUT OUR CURRENT MODEL DRIVES SUCH HIGH PRICE, AND SUCH LARGE ANNUAL INCREASES?

• WHAT ARE THE CONSTRAINTS ON FIXING THESE PROBLEMS?

COST AND COST INCREASE:COST

• COST AND LEARNING INEFFICIENCIES RELATED TO TEACHING E.G. – ACADEMIC YEAR– NATIONAL CENTER FOR ACADEMIC TRANSFORMATION

• CHRISTENSEN: HIGH OVERHEAD COST OF RUNNING MULTIPLE BUSINESS MODELS SIMULTANEOUSLY – TEACHING, SOCIAL GROWTH, RESEARCH – EACH SUBOPTIMIZED – OUR COSTS IN LINE WITH WELL RUN SIMILARLY

STRUCTURED INDUSTRY (OVERHEAD=4-5)– FOR-PROFIT TEACHING ONLY – OVERHEAD 2

COST AND COST INCREASE:COST INCREASE

• COMMON FOR INDUSTRY WHERE MUCH OF COST IS IN HIGHLY SKILLED PERSONNEL

• CHRISTENSEN: “HEAD-ON, SUSTAINING COMPETITION AMONG COMPETITORS WITH COMPARABLE BUSINESS MODELS, WHICH LACK ECONOMIES OF SCALE, DRIVES PRICES UP 6 PERCENT TO 10 PERCENT PER YEAR IN NOMINAL TERMS” – “ARMS RACE” OF RESIDENCE HALLS, ETC. AND

MISSION CREEP

COSTS AND COST INCREASESCONCLUSION

• CANNOT EASILY ATTACK EITHER HIGH COSTS OR RAPIDLY INCREASING COSTS WITHIN THE CURRENT MODEL

• NOT SIMPLY INEFFICIENCY OF HIGHER EDUCATION (ALTHOUGH IS A COMPONENT)

• SIGNIFICANTLY MANAGING COSTS REQUIRES DECREASING COMPLEXITY TO LOWER OVERHEAD

• PRICE/UNIT INCREASES TYPICALLY KEPT UNDER CONTROL BY FINDING ECONOMIES OF SCALE AND INCREASING SALES

ECONOMIES OF SCALE

• ONLINE LEARNING MOST DISCUSSED APPROACH• CHRISTENSEN: COMPETE AGAINST NON-

CONSUMPTION• GROWTH IS IN LIFELONG LEARNING,

NONTRADITIONAL STUDENTS – TRADITIONAL = 18-24, FULL TIME, RESIDENTIAL ,

SOME SUPPORT FROM PARENTS– ONLY 25% OF UG’S FIT TRADITIONAL LEARNER; 40%

ARE PART TIME

TSUNAMISSMALL AND LARGE

THE SMALL

• INFORMATION USED TO BE HARD TO GET– NOW IT IS EASILY FOUND

• FACULTY USED TO OWN THE INFORMATION THAT STUDENTS NEED– BUT THAT INFORMATION (AND MORE) NOW EASILY

ACCESSIBLE• INSTRUCTION GENERALLY HAS NOT SHIFTED TO

TAKE ADVANTAGE OF THIS NEW PARADIGM– ALTHOUGH IMPORTANT FOR IMPROVING OUTCOMES

THE LARGE

• CURRICULUM USED TO BE HARD TO GET – HAD TO HIRE FACULTY– NOW IT IS READILY AVAILABLE– INCREASINGLY, AT ALL QUALITY LEVELS– OFTEN BUILT USING BEST PEDAGOGY

• PEARSON, MCGRAW-HILL• OPENCOURSEWARE CONSORTIUM• MITx, STANFORD, UDACITY

NEW OPPORTUNITIES

• FREE COLLEGE DEGREES– UNIVERSITY OF THE PEOPLE

• COMPETITIVE/SUPPORTIVE– STRAIGHTERLINE (1ST 2 YEARS)

• EXISTING COLLEGES CAN USE THIS COURSEWARE TO CREATE A MUCH LOWER COST STRUCTURE (E.G. OPEN UNIVERSITY OF UK)

CHRISTENSEN

• GREAT COMPANIES FAIL WHEN THEY DO NOT CHANGE THEIR APPROACH TO FULLY EXPLOIT SOME POWERFUL NEW INNOVATION BEING USED BY NEW COMPETITORS

• IN ALMOST EVERY CASE, EXECUTIVES COULD SEE THE EXISTENTIAL THREAT OF THE INNOVATION, BUT DID NOT ADAPT

WHY?

• TO ADAPT MEANT CHANGING THE CHARACTER AND ORGANIZATION OF THE COMPANY

• EVERYONE HAD SUCCEEDED IN THE EXISTING ORGANIZATION

• TO THEM, STATUS QUO DEFINED QUALITY • BUT THE PUBLIC’S DEFINITION OF QUALITY

CHANGED TO ALIGN WITH THE NEW INNOVATION

US

• OUR PUBLIC IS SAYING THEY WANT LOWER COSTS, LOWER GROWTH IN COSTS, AND BETTER LEARNING OUTCOMES

• TO IGNORE CHANGING PUBLIC DEMANDS WOULD PRODUCE THE REAL TSUNAMI

• WE KNOW HOW TO MAKE ALL THIS HAPPEN– BUT IT IS LIKELY TO REQUIRE MAJOR CHANGES

FOR MOST OF US• HOW MIGHT WE PROCEED?

TEST INNOVATION

• CHRISTENSEN SHOWED THAT THE COMPANIES THAT DID MAKE A CRUCIAL TRANSITION USUALLY DID SO BY SETTING UP A “SKUNK WORKS”– TESTING AN INNOVATION FREE OF

ORGANIZATIONAL RULES AND PREJUDICES – THEN ROLLING THE SUCCESSFUL INNOVATION

BACK INTO THE COMPANY• I BELIEVE THAT MITx IS A SKUNK WORKS

SUMMING UP

• THE RISING TIDE OF DISSATISFACTION WITH COST, RISING COSTS, AND POOR LEARNING OUTCOMES IS VERY DANGEROUS

• CORRECTING WILL REQUIRE SERIOUS CHANGES IN WAYS WE THINK AND OPERATE

• WE DO NOT HAVE A LOT OF TIME BEFORE THE WATER RISE BECOMES SIGNIFICANT

SUMMING UP

• THE TSUNAMIS ACTUALLY PROVIDE NEW OPPORTUNITIES

• SET UP SKUNK WORKS TO TEST HOW YOUR INSTITUTION MIGHT BEST BENEFIT FROM THOSE OPPORTUNITIES

• AND DO IT NOW