Archive for August, 2010

Holding the Middle by Nibbling the Edges

August 27, 2010

One of the consequences of the e-pill scenario that I painted in my Ephemeralization post is the increased threat to colleges and universities in the “middle.”

Most American colleges and universities lie in the middle between the seventy or so top institutions that are wealthy enough to set their own agendas — even in tough financial times — and the proprietary, for-profit universities whose growth seems to be unperturbed by the financial meltdown of the last couple of years.

For many universities in the middle, online instruction threatens to hollow out their value. This is especially true for those institutions whose courses have been charted to follow the elites. When I raised the possibility of new kinds of technology enabled courses, the reactions were predicable:  lots of reasons that the online experience was vastly inferior to in-person instruction.  If that’s the value that the middle is holding on to, then the rapid embrace of online courses by top institutions is a real threat as larger numbers of the best students enroll in elite online courses and  price-sensitive students continue to choose the customer-friendly, jobs-oriented online programs at proprietary colleges.

Now in today’s The Choice blog at the New York Times, Rachel Gross asks:

“What if you could graduate from an elite university without ever stepping foot on campus — if instead, you had merely to open your laptop?”

The implications are staggering:  no more artificial size limits for entering freshman classes; elite curricula repackaged; focus on market share. Can an elite institution enroll fifty thousand students?  In 2000, executives at Hewlett-Packard asked whether HP could profitably produce and sell a forty-nine dollar printer.  They are really the same question.

In both cases, the answer is yes, but only if you can figure out a way to grab and hold increased market share with increased quality and service. As HP found out, you cannot turn your value proposition upside down by nibbling around the edges.  You have to be prepared to dramatically change your business model.

If Rachel Gross is right, then top-ranked institutions are already making this leap.  No more arguing over the drawbacks of online instruction or snarky comments about the low-brow nature of the  for-profits.  That means some at the top have already figured out new business models. If so, they are not talking about it. Whether it is a razor-and-razor blade platform, a cost-cutting approach to commoditized courseware, or a hybridized delivery model, every advance at the top threatens the stability in the middle.  I don’t think many will survive by nibbling around the edges.

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dy, dynac, and Carly Fiorina

August 25, 2010

I recently heard from Chuck House, co-author with Ray Price of The HP Phenomenon (THPP) about my post The dy Logo.  I had used Chuck’s book as a jumping-off point for a discussion of how difficult it can be to integrate “outsider” cultures, even when the outside ideas have obvious value —  like correctly orienting the logo on a consumer product. It was a riff on WWC that I enjoyed writing.

Chuck’s note was a wonderful read in itself.  He took good-natured issue with some of my characterizations, reinforced other points that we agreed on, and reminded me of a few things that I should have remembered (and were in his book).  I don’t have Chuck’s permission to publish his email in its entirety, so I won’t.  Nevertheless I wanted to share with you a couple of his observations.

First of all, Chuck pointed out that the “dy” logo was actually used at HP in the 1950’s.  From page 64 of THPP:

A spin-out corporation…Dynac allowed a number of HP employees a higher equity stake in their success while giving HP a chance to invest in areas adjacent to its main activities. Dynac’s logo was the HP logo inverted. Later, when it was found that the Dynac name was trademarked, it was renamed Dymec, keeping the same logo.

There are many wonderful things about this story, but I was most fascinated that — even in the 1950’s — corporate leadership would have invented such a thoroughly modern approach to identifying and seeding market adjacencies. Some things were lost over the next couple of decades.  At least, there is no indication that Steve Wozniak’s management was inclined to create a spin-out to  give “HP a chance to invest in areas adjacent to its main activities.”  In any event, most of the HP engineers who argued for keeping the “dy” logo were not even born when Dynac used it, so it is unlikely that their resistance to flipping the shield was a nostalgic bow to a prior golden age.

Chuck went out of his way to reaffirm the comments in his book about Carly Fiorina’s positive  impact on HP.  Despite the obvious oustider-insider clashes, he says that, ” I don’t buy that Carly introduced WWC to HP, or even that she was all that good at it herself…,” but he does think that “…she was the best CEO we’d ever had in a WWC regard by quite a long ways (except Hewlett when he would actually do it…).

To temper my comments about the narrowness of  THPP’s sources, House described for me the considerable pain and expense that he and Price endured in preparing the research.  Ninety percent of the people interviewed about events in the last fifteen years were what Chuck calls “current participants.” It’s hard to characterize that as the reminiscences of old colleagues. Point taken.

It was interesting to me that Carly opened the HP archives to House and Price.  That access was eventually revoked.  In fact, by 2001, access to the archives had become a sensitive issue with Carly, and she asked me to undertake a review of both the libraries and the archive.  I was not very excited about doing it, and other events quickly had a higher priority.

For Chuck’s unvarnished “side-by-side” view of recent HP CEOs — along with a pretty striking analysis of value given versus value received — I will simply point you to his recent blog on the topic.

“Ephemeralization” Follow-Up: Is the marginal benefit of college more than the cost?

August 22, 2010

Matthew Denhart and Christopher Matgouranis write on the August 19 blog of the Center for College Affordability and Productivity (CCAP):

The only way to judge the how worthwhile an investment, is to know the marginal benefits that result from it compared to its initial cost.

Based on these criteria, it is clear that the public is largely in the dark as to the value of a college degree. As we discuss in an article for Forbes.com today, colleges and universities rarely collect and publish information about the outcomes of their graduates. Perhaps this is an area where the U.S. Department of Education should step in and require alumni information be gathered and presented to the public in a clear and coherent manner. This would go lengths at providing the transparency and accountability in higher education that would benefit students and taxpayers at large.

The full text of their article can be found at Forbes.com.

In case you were wondering whether factoring value into reputational rankings of colleges and universities would change things, the answer is yes.  CCAP publishes an annual ranking of undergraduate colleges based on value.  The top of the list may not be a big surprise.  Williams College is the top ranked institution.  Princeton is second.  MIT and Stanford are in the top ten.  But so is Claremont McKenna College (9). Some Ivies don’t make the top fifty (Cornell is ranked number 70).  Georgia Tech ends up way down the list (242), a few positions ahead of Ohio State, but well out in front of the University of Arizona (339) and the University of Minnesota  (418).

Not surprisingly, the CCAP/Forbes rankings have generated heated — some might say enthusiastic — responses that either decry the irresponsibility of Forbes editors for publishing an obviously flawed ranking or agree  “it’s about time..” that Middlebury (26), Bowdoin (40), and the U.S. Naval Academy (29) get the recognition they deserve.  Research institutions — particularly those with high per-student expenditures — populate the bottom of the list in alarming numbers.  On  the other hand, student and alumni approval improves a school’s rank.

One reading of the CCAP article is that ephemeralization is overdue since American higher education seems incapable of doing more with more. I’ll let you take a look at the rankings and come to your own conclusions.

“Where’s the money, you…?”

August 12, 2010

I’ve been writing about the financial stability of seemingly solid institutions:  the hundreds of colleges and universities in the Middle.  What exactly is the Middle?  It’s the great swath sandwiched between the seventy or so Elite universities that have amassed the resources to set their own directions and a handful of For-Profits, the proprietary institutions that are able to grow income and profits while serving an increasingly larger share of the American market for higher education.  The Elites have brands that will carry them through financial storms.  The For-Profits have a plan.

A growing number of institutions in the Middle see a bubble of  increased costs, declining enrollments and vanishing endowments.  Like Frank Capra’s George Bailey in It’s a Wonderful Life , they are looking for an Uncle Billy to rail at: “Where’s the money, you stupid old fool?

Any one who doubts that the Middle sits precariously atop an economic bubble has not been following events closely enough. The U.S. Department of Education issues a regular report on the financial health of  degree-granting colleges and universities.  It is a sort of test of financial strength.  When I started tracking the course of these institutions for my book, there were about a hundred non-profit colleges  that failed the test.  By 2008, that number had risen to 127.  The Chronicle of Higher Education has just reported that 150 non-profits now fail the Education Department’s test.  That certainly looks like a trend.  In that same period, the number of failing For-Profits actually fell.

There are some venerable institutions on the list, but that is not surprising. Venerable institutions can fail.  The death in 2007 of  Antioch College — the university founded in 1852 by Horace Mann — was announced in an obituary masquerading as an op-ed piece in the New York Times. I remember Antioch in the 1960s as a thriving haven of liberal thought.  At the height of its popularity it enrolled nearly three thousand students.  Coretta Scott King was an alumna, and her sister was the first African-American admitted to its fully integrated curriculum. Who would have thought that Horace Mann’s college, guided by his admonition  to every graduating class to “be ashamed to die until you have won some victory for humanity, ”  could quietly wink out of existence with an enrollment of two hundred students and an endowment of less than five million dollars?  Not every school on the 2009 list is destined for extinction. Some will tighten their belts, rethink their value and pull through.  Some will be purchased by For-Profit universities.  Some, like Antioch, will simply die.

Officials of some of the schools on Department of Education list claim with complete deadpan candor that they are victims of a collapsing market that undermined their financial strength. It’s probably true, but those officials need to talk to the executives at Lehman Brothers to understand how little it matters.

Here’s the scary thing.  There are no public institutions on the list.  That’s not because public universities are uniformly healthier than their private counterparts. In fact, the finances of public institutions are uniformly opaque. It’s hard to tell whether they are financially sound or not.  Public support for a university means that the Education Department does not test financial strength.  Public universities are too big to fail.

The plan for the Middle — public and private —  seems to be to ask, “Where’s the money?”   George Bailey had a plan to stave off the run on his Building and Loan Association. His plan was to demonstrate that his bank had value that small homeowners could not get anywhere else:

You’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here. Your money’s in Joe’s house…right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re going to pay it back to you as best they can.

Better than screaming at Uncle Billy.