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3 Things Higher Education Should Know about Disruptive Innovation

Online learning presents both an opportunity and a challenge as technology shakes up higher education.

A professor speaking at the EDUCAUSE higher education conference in Orlando, Fla., said he considered a group case study debate in the Harvard Business School as a safe zone that couldn't be disrupted. But he was wrong.

Disruptive innovation is already at work in higher education, and universities have to look no further than online classes to see examples of change at scale. And how universities respond to this change will determine whether they live or die.

Business administration professor Clayton Christensen expounded on disruptive innovation and the future of higher education in a keynote on Tuesday, Sept. 30. Through comparisons to the smartphone and computing industries, he laid out both the opportunities and threats that disruptive innovation pose to higher education, particularly in the online education arena.

1. Disruption presents a great opportunity for higher education 

Products or services that disrupt a market typically target people who don't already consume technology in that market. And that's why disruption is a great opportunity for universities, Christensen said.

"You don’t have to make a product that’s better than the best in the market, but rather you have to make a product that is simply better than nothing,” he said. 

For example, a graduate student in his class returned to Norway after completing his studies at the Harvard Business School and agreed to teach a class over the summer. There was just one problem: His daughter later became sick with a rare kind of cancer that only a doctor in Boston could treat.

That didn't stop him from teaching the class based on the case study method. From Boston, he moderated the case study arguments with a robot in the classroom, a three-button device for each student and video. His robot wore the professor's traditional bow tie, and when the professor wanted to talk to a student, he could wheel the robot over, which had his face on the screen.

If students pressed the first button on their device, that meant they had something to say that would support the point of view of the current speakers. Pressing button two meant a student wanted to counter the argument of the speakers. And button three relayed that a student wanted to change the topic and argue about something else.

"I thought that the discussion of case studies in that method orchestrated by skilled teachers could never be disrupted," Christensen said. "And look at what they’ve done.”

2. Modularization will change the way universities make money 

Technology typically follows two paths: closed proprietary or open modular. And higher education is increasingly moving toward the modularization model, which breaks down education into different components and results in the outsourcing of certain functions. Modern-day examples include a shift toward online certificates for chunks of knowledge and standards for these short online courses.

Organizations that adopt modular strategies tend to overrun a market in which no one makes money, as the Android operating system has shown in the last number of years. If organizations are competing based on making better products faster and at a lower cost, they have to adopt an open modular strategy. 

In future years, this open modular strategy will continue to spread throughout higher education, Christensen said. But outsourcing modular components often sets in motion disruptive business model liquidation. For example, Dell started outsourcing simple circuit board production for its hardware to the Taiwanese company AsusTech. As the years went on, AsusTech kept offering to take on more of the production components from Dell, reducing the company's costs by 20 percent each time and doing their job better until nothing was left for Dell to do. 

Each business decision to outsource increased Dell's profitability, but didn't affect revenue. And the pursuit of profit caused this disruption to happen.

In the modularization model, providers of the modules are the ones that make money. For example, Intel and Microsoft take home the big dollars while hardware manufacturers fight for lower and lower profit margins. In higher education, online course technology providers and for-profit colleges could be taking home the dough, with traditional universities receiving less of the profit.

For-profit universities and educational organizations are already making headway into providing different components to traditional universities, and their success will surprise traditional institutions, said Christopher C. Multhauf, senior vice president of consulting firm Eduvantis, in an interview following the keynote.

Business service providers such as are doing the same thing and making the AsusTech argument of 20 percent reduced costs with promises of more money. When students apply to a traditional university's MBA program, for example, also routes its inquiries to other MBA programs that the company manages, Multhauf said.

3. Odds are against high-end online classes beating traditional education

Universities have at least two choices in delivering education services: Make better services in the traditional education market or provide a service that will reach non-consumers of their traditional services. Christensen is concerned that universities are trying to make online classes that compete with traditional in-person classes, and the odds aren't in their favor to make that happen.

He cited the example of Tesla Motors, which makes a $100,000 electric car designed to compete with top-of-the-line gasoline cars for California's drivers. While some people will buy the car, it won't reach the masses, it's expensive to produce and it won't result in disruptive innovation.

His theory of disruptive innovation says that disruption will come from the bottom and rise up. As products move up from the bottom, the companies that produce them will take technology from the top contenders to make their products better.

Christensen cautioned higher education to start with disruption from the bottom rather than developing better products and services to compete head-on against traditional education methods. People are at a point where they won't attend college because the cost is so high, so universities must figure out a way to reach these non-consumers at a lower price point, Multhauf said.

While Christensen didn't repeat his prediction that about half of universities will be gone in 10 years, he did say that universities will have to figure out a business plan to deal with all the change that's happening around them.

"The big takeaway is that change is hard, failure is much harder, and would you rather be sick or would you rather be dead?”

This story was originally published by the Center for Digital Education.