Rich DeMillo has a lengthy background in academia serving as a professor at four different universities, Dean of Computing at Georgia Tech College of Computing, Director of the Computer and Computation Research Division of the National Science Foundation, and was Hewlett Packard’s first Chief Technology Officer. His latest book, Abelard to Apple: The Fate of American Colleges and Universities, developed from a five page memo that he planned to send to his colleagues about what was wrong at his university then evolved to a whitepaper in which he solicited the advice of friends and colleagues, and eventually to a book.
Unlike Clayton Christensen who writes about innovative companies as a Professor of Business Administration at Harvard Business School (thus making his transition to writing about innovative universities less surprising), DeMillo’s background is in engineering and computer science. His observations, however, stem from his background as a professor at a traditional “brick and mortar” school. From his position inside the hallowed halls of academia, he notes that the institutions in the middle, those between the elite institutions (top 75) and institutions that admit everyone, are the ones that are in trouble with a value proposition squeeze coming from above (elite) as well as below (business model to serve anyone or everyone at a lower price point). DeMillo stresses that modern universities are businesses (contrary to some of the myopic ideologues who insist that non-profit institutions don’t have a business model) and are competitive organizations run by smart people. Similar to Christensen, DeMillo argues that the class-oriented society and culture of higher education creates a faculty-centered model that is difficult to break out of for institutions undergoing competition for enrolled students. (For a review of Christensen’s book, Disrupting Class: How Disruptive Innovation Will Change the Way to World Learns, see my August 2008 blog article. To see my review of Christensen’s book, The Innovative University: Changing the DNA of Higher Education from the Inside Out, see my August 2011 blog article.)
DeMillo states that in any market, the winners are those with competitive brands, price, or value. Brand is difficult to build for all but the elite colleges and universities, price continues to increase for almost all institutions and in most cases is becoming uncompetitive, and value is a concept seldom understood by the faculty at most institutions. Because most college presidents are promoted from the ranks of academics, they are ill-equipped to understand the importance of strategic planning and understanding competitive threats from business disruptors like creative proprietary institutions.
DeMillo states that his book is “ultimately an essay about value.” Most of the world does not understand the traditional American business model for higher education that is faculty-centered and resource inefficient, not to mention costly. If American universities want to “survive” (DeMillo’s choice of words) over the next generation, they must apply the following three lessons of our global economy to their operations:
1. Focus on value and deliver a degree that is priced reasonably and that is of reasonable quality.
2. Focus on costs by controlling them in ways that are unthinkable by faculty-centric institutions to include:
a. Deskilling (greater use of adjuncts)
b. Better use of physical plants
c. Better use of materials
3. Establish an individual institutional reputation versus continuing to chase the elite institutions at the top.
DeMillo takes the time to review and report on activities of proprietary or for-profit institutions that he credits for being student-centered because students provide their main source of income. DeMillo states that enrollment growth is a good thing at a for-profit in that it increases revenues and profits and allows the institution to reinvest those profits in additional services and programs. Traditional institutions determine their charges from a fixed cost model designed to measure the cost of hours of instruction in the classroom with little consideration for the appropriateness of the charge or the specific relevance of matching labor delivered to competitive market costs. Online programs run by proprietary institutions price based on services consumed or delivered and unencumbered by a high fixed cost structure; because of this, they are able to provide a competitively priced product with a value recognized by the students they serve.
Institutions in the middle are subsidized by public funds, sponsored research, endowments, or church support. Tuition fluctuations at these institutions create revenue gaps that have to be covered by increases in one or more of the relevant subsidies. Those subsidies are shrinking. DeMillo states that it is not clear how much disruption institutions in the middle can tolerate, but for many, resources are stretched and stressed beyond the breaking point. DeMillo argues that all institutions in the middle have to pay attention to price sensitive customers.
DeMillo spends some time talking about non-profit and proprietary institutions that are process centered and provides examples about efficiencies that lower the production cost for those institutions. Another topic that he spends a little time discussing is “hacking degrees.” Hacking is a topic that continues to be discussed by many writers including Anya Kamenentz, author of DIY U: Edupunks, Edupreneurs, and the Coming Transformation of Higher Education. It is a controversial topic for those focused on traditional education but more strategic for those focused on the capabilities of technology and the learning that the internet and employers provide many adults. In my opinion, it is a topic that is not covered enough in this book given its potential for impact on the higher education sector.
Like any good researcher, DeMillo provides recommendations for institutions in the middle to “survive” and thrive in the 21st century. Broadly speaking, institutions should define their value and become “architects” for new business models. As it applies to the definition of value, institutions should forget about who is above them, focus on what differentiates them, establish their own brand, not romanticize their weaknesses, and be open. From an architecture perspective, institutions should balance faculty-centrism and student-centrism, use technology, cut costs in half, focus on their own measures of success, and adopt the New Wisconsin idea which is to be truthful to the community that you serve. His recommendations are sound and grounded. Because of the entrenched culture at many of the institutions in the middle, I doubt that few will be able to follow DeMillo’s recommended path to improving their performance and financial stability. Those that are able to follow the path, should see improvements in reputation, enrollments, and be able to distinguish themselves from their competition.