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Sunday, January 17, 2010

Innovation Perspectives - Rethinking University Education

This is the eighth of several 'Innovation Perspectives' articles we will publish this week from multiple authors to get different perspectives on 'What product or sector is in desperate need of innovation?'. Here is the next perspective in the series:

by Rocco Tarasi

Is there an industry more in need of innovation than education?

Rethinking University EducationIt is one of the largest industries in the United States, with over $1 trillion dollars spent annually. You are a consumer in this industry practically from birth until death. And yet most believe that the industry has lagged the pace of innovation so much that the education market today is comparable to the newspaper industry of 1999 - enjoying healthy profits before innovative start-ups disrupt their existing (archaic) business models.

The Washington Post recently wrote that:

"Students starting school this year may be part of the last generation for which 'going to college' means packing up, getting a dorm room and listening to tenured professors. Undergraduate education is on the verge of a radical reordering. Colleges, like newspapers, will be torn apart by new ways of sharing information enabled by the Internet. The business model that sustained private U.S. colleges cannot survive."

Students (and their parents) enrolled in higher education have experienced first-hand how strict rules conspire to make it harder to graduate on time - including the difficulty of transferring credits between schools and the difficulty in scheduling "core" classes that, for some reason, are never offered during the semesters you need them. According to the American Enterprise Institute, four-year colleges graduated an average of just 53% of entering students within 6 years.

At the same time that schools are working to keep you a student as long as possible, they are also increasing the cost. By how much? According to a FastCompany article, since 1990 the cost of college tuition has gone up more than any other good or service.

Maybe part of their problem is that they haven't figured out a simple concept called "economy of scale", where as more students are added the cost per student should decrease. And yet a Forbes editorial noted that the administrative and support staff at colleges between 1997 and 2007 increased at a rate double the rate of enrollment growth. It is not surprising though, since there is little incentive for colleges to control their own costs - after all, they are selling arguably the second largest purchase most people will ever make, funded almost entirely by guaranteed loans. What other industries have this type of built-in financial benefit?

Fortunately there are some cracks in the armor forming. Although the most recent Inc 500 list of fasting growing private companies included only four related to education, there are a number of start-up companies trying new ideas to disrupt the status quo:

These are all great initiatives, but there is a deep-seated cultural reason that the higher education industry has been able to stifle any potentially disruptive business models: the perceived value of where a person earns their degree is extremely high - arguably much higher than it should be. For real change to take hold in the industry, we need to think differently about how to measure and value education.

You can check out all of the 'Innovation Perspectives' articles from the different contributing authors on 'What product or sector is in desperate need of innovation?' by clicking the link in this sentence.

Rocco TarasiRocco Tarasi was an accountant, investment banker, and CFO before becoming a technology entrepreneur. He writes about innovation at www.InnovationMinute.com with a focus on "everyday" innovations in business models, sales strategies, products and services.

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Blogger Balaji said...

The main issue with education costs is that, the productivity of an educational worker has not significantly increased in the last 3 centuries. An Illinois farmer of 2010 might produce 10X as a farmer circa 1810, an industrial worker in Michigan might produce 100X as much an artisan two centuries ago, and a NYC financial worker might deal with 1000X more transactions than his predecessors 200 years ago.

What about the teachers? 200 years ago they educated 20 students in a class and 200 years later they do the same. Higher education is probably the only field that has never been touched by Industrial revolution in a fundamental way.

While the cost of an industrial widget or an information service keeps decreasing as productivity rise happens, the tuition fee never decreases anywhere. Infact, the tuition increase the last 30 years is 3X the headline inflation rate.

Great teachers are still recognized only by their immediate communities, while great musicians, sportsmen, businessmen and politician become national/international stars. A great teacher needs a substantial leverage to affect more than 100 lives a year.

While I don't think universities will go the way of Newspapers, I hope they will change for the better and by using the right tools would be able to keep a lid on the costs.

Balaji Viswanathan,
Founder, NalandaU.com

3:01 AM  
Anonymous Engaged Minds said...

I agree with the opening statement that no industry is in need of an overhaul more than education, and in particular higher education.

Everything that is wrong with health care in the U.S. is wrong with higher education: run-away costs, an ocean of mediocrity hiding behind a few world-class institutions, outcomes lagging internationally despite costs that are 50% higher than in any other country, large parts of the population cannot be served because of high delivery costs, etc.

Education is the second largest industry after health care. Fixing state and federal budgets will require deep cuts to public funding of higher ed. Comparisons with other OECD countries shows that there are a lot of unnecessary expenses in U.S. higher ed, and the electorate and legislators will demand that they get cut.

The higher ed industry (i.e., institutions and their associations, faculty unions) are blocking any meaningful change. Given the strength of their lobbies, they might be able to delay the day of reckoning. But in doing so they reduce their chances of helping shape the future industry. My prediction is that in a decade change will be forced onto higher ed just like it is forced onto health care now.

5:31 AM  
Anonymous Article Directory said...

Technology is developing day by day and hence the education field too.

1:27 AM  

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