News & Press: InSider

10 Questions with Joe Valacich (Part II)

Tuesday, February 17, 2015  

Welcome to the second part of 10 Questions with Joe Valacich. Joe is the Eller Professor of MIS at the University of Arizona. You can find more about Joe: http://mis.eller.arizona.edu/faculty/jvalacich.asp

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Question from Heikki Topi: Can you discuss your thoughts regarding the way smart use of on-line technologies is transforming higher education?

A: I could answer this question a couple different ways, from an instructor’s perspective or from an industry perspective. I touched on my flipped classroom in my first article, so I will now focus on the perspective of the higher education industry, a more interesting topic.

Before answering, I want to state a few things that I believe to be true. First, in much of the western world, populations are getting older and the number of school-aged students are declining. Likewise, with this aging population, states and countries have fewer dollars to invest in higher education as pensions, health care and other costs are exploding. Families are maxed out and cannot sustain continued tuition increases. At the same time, the cost of running institutions continues to climb. Further, online technologies allow programs to scale in size and easily reach across state lines and country boundaries. Schools with weak programs and/or weak brands will no longer hold onto the local students. To maintain enrollments, tuition will be slashed to maintain market share (i.e., buy students through “scholarships” or tuition cuts to maintain scale – it is just price discounting as competition heats up). All of this, and other factors, are going to result in a lot of change. I really think the book by Clayton Christenson on this topic is spot on (not an advertisement, but if you haven’t read it, I highly recommend it). Clayton sees online technology as a “disruptive” technology that is going through a classic innovator’s dilemma type evolution. What once was not good enough for most of the market (e.g., online classes), is now good enough and will continue to improve until it replaces much of the existing dominant technology (e.g., traditional lectures in physical classrooms). Adding another student to an online class is a small marginal cost, especially when compared to a traditional physical classroom where we run out of seats and have to open an entirely new section, pay another instructor, and so on.

So, bottom line, change is in the wind. When industries have over capacity--and higher education is no exception (especially with online technologies)--there tends to be a lot of consolidation. Higher education is not immune to these market forces. Thus, I believe that there will be a lot of consolidation in higher education over the next couple of decades, at least in the west. This consolidation will result in a handful of mega-universities, and many others that are struggling to survive.

As we transition into this era of consolidation, this changing competitive landscape will put tremendous pricing pressure on tuition. As a result, universities will need to grow in scale in order to survive. In the near term, traditional universities in the west will leverage online technology to scale large classes, to subsidize the traditional face-to-face classes. But this tactic will not save them.  As a case in point, look what is happening at Arizona State University, with a president that “get’s it.” In 1970, ASU had 26,425 students. Today, ASU has nearly 80,000 students and is the largest university in the US. This enrollment growth curve far exceeds Arizona’s population growth; ASU is scaling at the expense of its neighbors. A lot of ASU’s growth has been through its online programs. And, like in other industries, as the strong get bigger (and stronger), the weak get smaller, and ultimately perish. This isn’t going to happen overnight, I think this will play out over ten to twenty years, especially given the artificial market conditions embedded into higher education (e.g., in-state and out-of-state tuition). But it is coming. Sadly, too many in leadership positions in western universities fail to understand the basic market dynamics of the industry in which they are operating, nor have the courage or leadership to take on this transformational set of issues. For many, they will miss this opportunity.  Of course, there will be many schools immune from much of this, such as large private universities with national reputations (e.g., Notre Dame, Bentley). But, in general, we will first see the for-profits fail, then the small liberal arts, then regionals, etc.

In the developing world, the situation is just the opposite. In Latin America, China, Asia, and Africa, populations are growing, getting younger, and the demand for university programs greatly exceeds capacity. This is a big opportunity for western universities. In sum, rather than compete head-to-head for fewer and fewer students in a declining and increasingly competitive market, it might be wise to partner with universities in developing countries, sharing the revenue to mutual advantage. To do this, western universities will need to change some of their thinking about pricing and the value of going to scale (i.e., you cannot think about fixed pricing because you cannot scale internationally at domestic pricing, but think about profits and earnings as your marginal cost per student can hover near zero). Also, I expect many universities to pursue this strategy; so there will be an early mover advantage. To partner with universities in the developing world in a cost effective way, online technology is the fundamental enabler. Without online technologies, building a sustainable and growing revenue stream is not feasible. To close, I don’t have a crystal ball, but I believe that the universities that do this well, will be the survivors of the pending consolidation. It is coming, trust me. 

Prepared by the AIS Membership Subcommittee on Doctoral Studies

Ryan Wright, University of Massachusetts
Geoffrey Dick, Georgia Southern University
Arturo Castellanos, Florida International University

For questions about this series or suggestions of who you would like to see interviewed, please contact Ryan Wright (rwright@isenberg.umass.edu).


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