The Business Model of Higher Education

EDUCAUSE Review Online, Eric L. Denna, March 24, 2014

 

According to a recent search for the term “changing business model” on The Chronicle of Higher Education website, the term was used more than 2,000 times during the past three years. A quick reading of even just a few of the references reveals that the term is used rather loosely—which seems ironic for a community that prides itself on precision in language. This lack of precision suggests that although there is significant interest in the term, there is little agreement on what it means.

Furthermore, the lack of precision in the use of the term “business model” is resulting in gross generalizations, sloppy thinking, and unrealistic expectations about the nature and future of the business model of higher education. This allows others—others outside of higher education—to drive the conversation, with little rigor and even less familiarity with the history and nature of higher education, let alone its future. The collective lack of understanding about the nature of a business model in higher education results in academics being excluded from critical policy discussions at the institution, local, state, and federal levels—where many are equally unclear about the nature of business models in general and within higher education specifically.

To make matters worse, reactions to the term “business model” within higher education range from “higher education is not a ^#%$@* business” to “what in the world is a business model?” As a result, those of us in higher education come off as naïve at best and as head-in-the-sand intransigents at worst. To many, we seem to be saying: “Let the rest of the sectors of the economy—whether medicine, construction, manufacturing, publishing, governments (all levels), governmental agencies, professional services, entertainment, libraries, whatever—enjoy being disrupted. Higher education is different.”

Why is all of this important to CIOs and other IT leaders? As Clayton Christensen explains, disruption of business models involves technology (and not just what IT leaders would typically call information technology). Since we IT leaders have primary responsibility to plan, build/install, and run information technology on campus, we are naturally poised to participate in the discussion about the future business model of higher education. Not participating marginalizes us in the strategic conversations of the academy. We become technologists instead of active members of the CxO crowd.

So, what exactly is a business model? With my background as a business school professor, an entrepreneur, and a senior executive or board member in many for-profit and not-for-profit organizations, business models have always been part of my world. However, about three years ago the concept of a business model became much easier for me to talk about when I was introduced to the book Business Model Generation, written by Alex Osterwalder and Yves Pigneur. The book grew out of their work at HEC Lausanne in Switzerland. Osterwalder and Pigneur provide a framework for a business model in the form of a template or canvas, which they call the Business Model Canvas, consisting of nine components:

  • Customer Segments
  • Value Propositions
  • Customer Channels
  • Customer Relationships
  • Revenue Streams
  • Key Activities
  • Key Resources
  • Key Partners
  • Cost Structure

 

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