After several years researching the topic and obtaining firsthand experience running several respected business schools, I have prepared this three-part article on classical higher education institutions’ shortcomings, what new institutions might look like, and what this entails for investors. In this final article, I suggest solutions to the many hurdles identified in the two previous articles and look into what it means for investors wishing to enter the market. These arguments are further developed in my new book, The Business School of the Future.
Economic performance can be enhanced in two ways, either by keeping costs better under control and perhaps even decreasing them, or by enhancing revenue. This is the fundamental reality for higher education institutions, too. However, direct cost-cutting and price increases can both be painful. Coming up with better ways of working (i.e., new work processes) can typically represent better ways to increase profitability (i.e., through productivity increases). Paramount here is the possibility to achieve significant economy-of-scale benefits through the introduction of web-based learning. Limits on class sizes would no longer exist, and many more individual students might follow a given course. The upshot would be increased revenues.
In my two earlier articles, I pointed out significant downsides, in that expensive development costs for the learning modules might not result in the revenues from the educational market for which one might have hoped. The students may not like a particular module (i.e., “no sales”) or they may expect to receive if for free. Clearly, quality and interactivity remain crucial differentiators also in a digital setting.
Of course, in addition to web-based learning, other economic benefits might also stem from IT. Recall our example of transforming the traditional library into an information center linked up to a broader network. More generally, dissemination and sharing of learning, research and experience through networks is a revolution. In addition, an abundance of IT-driven improved work processes for costs savings are available!
Here, it is perhaps worthwhile to remember that today´s common archetype of a so-called research university is a relatively new phenomenon, dating back to 1809 when Wilhelm von Humboldt reformed the University of Berlin. His grand vision was to create axiomatically focused departments, hierarchically organized with professors at the top holding axiomatically determined chairs, and in which both teaching and research were carried out within each specific domain. Before that time, most universities were indeed rather diffuse organizations. The professors tended to spend only relatively short periods of time at a given university before they moved on to another. Moreover, they were even paid by the students, based on how well the students liked their lectures! In addition, the gist of the teaching tended to be more tutorial in style, focused on discussing cutting-edge dilemmas. At that time, of course, IT did not yet exist. Instead, the students prepared themselves by reading the more basic materials on their own. Some of the old universities such as Oxford or Cambridge have retained much of this pedaogogy, and tutorial workshops, where the bulk of the teaching occurs, take place in relatively small rooms with flat floors and the students sitting around tables.
My sense is that the prototypes of many modern universities might have many of the same characteristics:
The bulk of the teaching staff are part-time professors
Extensive outsourcing of most support services (human resources, accounting, IT, catering, etc.)
Heavy focus on blended learning, taking full advantage of IT for the students’ internalization of more basic materials, followed up with workshops focusing on the more advanced, cutting-edge topics
Stimulating pedagogy from students’ perspectives: learning from each other, discussing, listening and making eye contact in relatively small, flat classroom settings.
A networked reality for how things are organized, with few departments (organizational sites), and knowledge being available through electronic networks rather than through libraries
Several overriding fundamental realities are at play here. The first is that the quality of higher education is likely to increase. The second is that the cost of higher education is brought back under control! Scalability is increased through meaningful use of IT, and unnecessary overheads are curtailed. The third consequence is that this described evolution will increasingly lead to the opening up of investment opportunities. The educational sector is, at least in part, becoming privatized.
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