Evolving Higher Education Business Models

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Evolving Higher Education Business Models BUSINESS MODELS IN PRACTICE Using a Business Lens Using a business model lens can provide higher education practitioners, even those with varying perspectives, with new ways of thinking about and using resources, which allows for a focus on outcomes while facilitating cost savings. Within the value proposition of a public research university, the University Innovation Alliance is introducing metrics that can measure the effectiveness of course delivery and advising processes that can both increase outcomes and save resources. For example, implementing eAdvisor has allowed Arizona State University to help undergraduates select majors sooner, significantly reducing the number of freshmen enrolled with exploratory majors. The average per student cost savings is $31,000 per year (University Innovation Alliance 2016). College for America, although still using a business model lens, provides an entirely different value proposition by using different mixes of highly technology-enabled resources and processes to meet the needs of employed students seek to upgrade employer-related skills. — 16 —
Evolving Higher Education Business Models ILLUMINATING THE “BLACK BOX” OF COLLEGE SPENDING The current business model of higher education is often analogized to a “black box” in which spending decisions are often made without linking revenue and output data to expenditures. Jon McGee acknowledges this challenge: Unlike a manufacturing industry, which can readily measure and evaluate outputs per unit of input, higher education has a much less certain production function. Colleges and universities often struggle with ideas of efficiency and effectiveness because they lack well-understood or definitive metrics for evaluating either. (McGee 2015, 138) William Massy notes that the “black box” of college and university spending is further exacerbated because of the concept of Bowen’s Law (Massy 2004). Bowen’s cost theory suggests that as any revenue source comes to the campus (whether through public subsidy, benefactors, or philanthropic organizations), the need for continuation of that stream of revenue is anticipated and then expected in the following year’s budget (Bowen 1980). In order to make changes that lower costs and improve performance, professionals (and students themselves) should be equipped to understand how different activities occurring within the institution are related to each other, and how each drives spending and revenues, with an eye toward student success. In short, many institutions will spend all the money they raise and raise as much money as they can in order to continue enhancing practices deemed valuable. Jon McGee further posits that Bowen’s revenue theory of cost “sets in motion a never-ending money chase — 17 —
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