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 / Winter 2012 / Issue 69(originally published by Booz & Company)


The University’s Dilemma

In the face of disruptive change, higher education needs a new, more innovative business model.

By one, and only one, measure, the institutions of higher education around the world are remarkably successful: They reach far more people today than ever before. About a third of Americans over the age of 18 have attained a bachelor’s degree or higher — up from less than 20 percent 30 years ago. In the rest of the world, far more people than in the past are seeking higher education, especially in emerging economies, where immense numbers of young people yearn for professional careers. By all other measures, however, the 4,500 institutions currently serving more than 21 million students in the U.S., and the 6,500 other institutions around the world, collectively deserve failing grades.

First, they fail to help students fulfill their goals. Even in the U.S., which has 60 percent of the top-ranked universities in the world, the overall metrics on successful matriculation are dismal. Less than two-thirds of students enrolled in a four-year institution attain the targeted degree. Of students entering a community college, less than half graduate or transfer to a four-year school within six years. Although not every aspirant will be destined for success in higher education, these statistics suggest a systemic institutional problem.

Second, the cost of a college or university degree is out of control. Despite their questionable performance, tuition at four-year universities has tripled in constant dollars over the past 30 years — a faster rate of increase than much-maligned healthcare — and total U.S. student debt now stands at more than US$1 trillion. Worse still, one out of two recent college graduates is unemployed or working in a job that does not require a degree.

Third, institutions of higher education fail to meet the needs of another critical constituency: employers. Even as the U.S. unemployment rate remains stubbornly high, employment forecasts predict a shortage of educated, medium- to high-skilled employees in the fields of science, technology, engineering, and math (known collectively as STEM). There are simply not enough mathematically capable young people in the pipeline. Despite the prospect of millions of unfilled jobs, many institutions continue to allocate their scarce resources to the softer fields — the humanities and social sciences — while underfunding the investment in science education that would enable and encourage students to pursue these high-demand positions.

In the business world, such poor performance typically leads to industry restructuring fueled by new entrants, as well as innovation by a subset of incumbents. Those moving too slowly or in the wrong direction don’t survive. Higher education might seem immune from such dynamics. And it probably would be immune if it weren’t for one factor: the technological disruption of the Internet and online learning.

For years, experts have predicted that online learning would change the basic operating model of higher education. Now, this transformation finally seems poised to happen. Nascent competitors appear eager to disrupt the existing, complacent enterprise structure of universities. Students seem similarly eager for change; according to the Sloan Consortium, in the U.S., more than 6 million students took at least one online course during the fall of 2011; that’s more than 30 percent of all higher education students. In one recent experiment, Stanford University attracted the interest of 356,000 people from 190 countries by offering three free online computer science courses. Forty-three thousand people received a certificate of completion of at least one course.

The distribution of free videotaped lectures by renowned professors spreads knowledge for social good; however, it falls far short of solving the fundamental problems of effectiveness, cost, and relevance in higher education. Fortunately, university leaders are beginning to recognize that they could soon face the kind of disruptive competition already familiar to those in the corporate world.

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