Innovation often happens in the public sector in response to either a new challenge or a change in public demands. But innovation in higher education is being prompted by the new challenge of educating an increasing proportion of the population to postsecondary levels and constrained fiscal realities that drive a demand for efficiency and productivity in spending federal financial aid dollars.
Federal policymakers have historically acted as program funders to increase higher education access through programs like the Pell Grant and subsidized loans, and they also served as a backstop for quality assurance by certifying accreditors. The imperative for innovation gives rise to two questions for them: How does innovation happen in higher education, and how can it be managed? These questions must be answered if we are to realize the promise of innovation to help the nation educate more people while using taxpayer and student dollars wisely.
Let’s take a look at how innovation happens in higher education and how federal policymakers can help manage the process as CAP convenes a group of higher education policymakers, college leaders, and thought leaders on innovation in service sectors today to discuss the implications of innovation for federal policy and college leadership.
How innovation occurs, and how it disrupts
In their paper “Disrupting College,” Clayton Christensen, Michael Horn, Louis Soares, and Louis Caldera explain how innovation can begin with just a few colleges and proceed on an inexorable path to changing the entire system. This type of change has been called “disruptive innovation” in other sectors of the economy. Christensen, a Harvard Business School professor, posits that truly disruptive innovations are driven by technology and aimed at meeting the needs of a segment of the public not currently being served by existing suppliers, and that this phenomena is beginning to occur in the higher education system.
Three characteristics distinguish disruptive innovation from regular change. One is that disruptive innovators target their service or product at the needs of a new group of customers. They provide a simpler, more affordable product than the one offered by incumbent companies. These new customers have a different job they want done, but the incumbents often consider it not worth their time to provide that service. Incumbents invest in sustaining innovations that make their product better but more expensive for their existing and sophisticated customers.
The second characteristic is that disruptive innovation uses enabling technology. An enabling technology simplifies and routinizes the way a company delivers its service or product.
The third and final characteristic is that a truly disruptive innovation eventually gives way to a new business model—a new way to organize the people, technology, and processes to deliver a service at a lower cost. The new business model allows disruptive innovators to beat their incumbent competitors who are unable to respond because they are locked into an old, clunky business model.
Disruptive innovation is evident in postsecondary education in the variety of online, occupationally focused programs taking hold. These programs target nontraditional students whose work and life circumstances require flexible ways to get their education.
Nontraditional students have a very different “job they want done.” Unlike the traditional 18-year-old college student, these working learners want teaching delivered in ways that build the knowledge and skills that can help them be successful in the labor market. They need teaching that leverages their real world experience, class schedules that respect family and life work responsibilities, and support to get through the education process.
As the population of nontraditional, working learners grows, these new customers will redefine value and quality in the industry because their conception of value differs from the traditional students at incumbent universities.
Incumbent universities like Harvard or Wesleyan serve a small, wealthier segment of the population. Their services are expensive, and they improve by becoming more ornate and even more unaffordable. But other institutions like Western Governors University are using online education to provide an educational experience that does a different job for a different consumer than what Harvard does—and at a substantially lower cost.
Harvard and Western Governors University represent ends of a continuum of disruptive innovation in higher education with many for-profit and nonprofit providers as well as emergent technologies that can deliver free content (MIT Open CourseWare, I Tunes University); measure student learning (Carnegie Mellon Open Learning Initiative); provide ways to interact with peers and learn (Second Life); and redesign courses for hybrid learning (National Center for Academic Transformation).
Disruptive innovation initially causes upheaval in any industry. Incumbents and government regulators struggle to appreciate the emerging definition of quality and value because it differs so much from traditional values. And it challenges the current way companies do business. But the disruption inevitably leads to simpler products, broader sets of customers, and lower prices across the board, as Professor Christensen shows in his many works on disruptive innovators.
For instance, in the steel industry, the advent of electric arc furnaces made it possible for minimills to produce cheap, lower-quality steel (rebar), and the technology eventually helped them to create higher-quality steel at a low price.
Online education in its emerging forms has the potential to be equally disruptive in the way we deliver higher education.
Innovation needs to be managed
Disruptive forces are already at work in higher education, as we’ve just pointed out. Both college leaders and policymakers must learn to manage these forces to get the best outcomes for student learning and taxpayer investment.
This management has two facets. First, policymakers must encourage innovation because it tends to drive down costs. And incumbent college leaders must find a way to innovate or else they will lose to new disruptive forces. Second, policymakers need to figure out how to encourage innovators to pass on cost savings to students and ensure that they maintain minimum acceptable levels of quality.
We don’t have all the answers on managing innovation yet. But the following principles will help policymakers and college leaders learn to harness the power of disruption and use it to help colleges serve the needs of both government and students.
Principles for managing disruptive innovation in higher education
Better understand the “jobs-to-be-done” by today’s students
For disruptive innovation to occur innovators must be able to identify where there are unmet “jobs to be done.”
The way the federal government currently gathers data on how people actually attend college (i.e., full time, part time) for all students is not conducive to understanding what the real “jobs to be done” are among America’s 17 million undergraduates. For instance, the college-going habits of nontraditional students are still mostly a mystery to potential entrepreneurs, policymakers, and surprisingly even to the students themselves.
The Department of Education should redesign how we categorize students’ college going. They should create a series of more nuanced categories that represent student’s actual college-going choices and habits once enrolled. These categories will help to make the behavior of college consumers more transparent to potential innovators trying to design a learning experience and enter the marketplace. They will serve to bring more clarity to how all students—traditional and nontraditional—are getting their college education and how disruptive innovation can provide ways to deliver that education that are both higher quality and more affordable.
Make the payment system easier to understand and drive institutional performance
Disruptive innovation works best in efficiently operating competitive markets where prices provide accurate, autonomous signals about value. There are multiple payors in our current higher education system including states, the federal government, students, and even college themselves who “discount” prices through institutional financial aid. This makes it difficult for consumers to know the true or “net price” of higher education and for potential innovators to know where there may be a market to add value at a lower cost.
Current initiatives to make the actual price of college understandable to parents and students should be accelerated and enhanced. CAP has previously suggested ways to make college pricing better convey the value of the education being purchased including requiring colleges to publish student completion data on their websites and other marketing materials so students better understand what they are buying, as well as using a common form to convey financial aid materials to students to make comparison shopping for colleges easier.
These steps can be augmented with requirements that colleges and universities aggregate and report the data they gather on their student mix and success rates so students and families can see how others from similar educational experiences and backgrounds fare at an institution.
These initiatives will help make the true price of college more transparent and thus send the appropriate signals to disruptive innovators.
Finally, the federal government should support the movement at the state level toward paying colleges for how many students they graduate—not just enroll. The government should accelerate its own journey toward this performance-based funding approach by making access to Title IV funds dependent on Pell grant recipients, first-time college goers, or low- to moderate-income students’ (bottom three quintiles) educational success.
Paying for results will help to clarify which institutions are currently adding value and how. This can help make clear where the shortcomings are in education delivery and where disruptive innovation could improve learning and reduce costs.
Use disruptive innovation thinking to guide research and development in education
The Obama administration has already proposed funding to encourage innovation in education. The Advanced Research Projects Agency for Education would fund projects that promise to transform higher education through technology. It is a proposed agency in the fiscal year 2012 budget.
But to encourage disruptive innovation the administration should seek projects that improve quality while also bringing down cost and price instead of sustaining innovations that offer improvements but escalate cost. In addition, the administration should look for projects that employ a new business model and not just a new technology.
To reiterate: The disruptive innovation discussion is still emerging, and we don’t have all the answers yet. CAP’s roundtable and other conversations are necessary to fuel the disruptive change higher education so desperately needs and ensure that incumbent colleges are part of the change—not its casualty.
Louis Soares is the Director of the Postsecondary Education Program at American Progress and Julie Morgan is a Policy Analyst with the program.