As we wrap up our series on retention, we turn to Dr. Clayton Christensen, senior advisor to Academic Partnerships.

Clayton Christensen on The disruption of higher education
An interview by The Economist Intelligence Unit

What causes successful companies or institutions to stumble and fail?  It’s almost never that a competitor comes in to sell a better product or service.  What kills them is when somebody comes in with a simple product that the customers of the mainstream competitors can’t use.  Historically, this has not happened in higher education, and the reason is that in order for disruption to occur, there has to be what we call a technological core that can start at the bottom and then extend itself upmarket to do the same model at higher and higher prices.

Historically, in higher education, there wasn’t a technological core, but online learning now brings a technological core; it starts at the bottom and, little by little, it’s emulating what occurs in disruption in every industry.

Online learning and a changing business model
Does the advent of online learning change the business models of universities?  Almost surely it will in a profound way.  From the point of view of the faculty, already research has been separated from teaching.  It’s just rare that the faculty in the courses that they’re teaching at the undergraduate level, it’s rare that they’re doing research on the topics that they’re teaching in.  There is so much information to teach that research isn’t the gating function any more.  There is too much knowledge to teach.

And so as online learning disrupts the traditional universities, many of the universities will have to get out of research.  The other way to do it is the teaching model.  The established players, if history is any guide, will try to preserve their model as long as possible by making it a hybrid or a blended model where we teach in our classrooms and then we augment that with online resources—but without much doing, online learning will just supplant in classroom learning.

Price and the university system
If I were betting, I would bet that 10 years down the road somewhere between 20 and 40 percent of the universities will be bankrupt and will have been closed.  Now, why do I say that many will be out of business?  Historically, there has never been competition on the base of price.  The universities all have competed on almost an arms race.  Harvard builds a better facility, and so our competitors have to develop even better facilities.  We have a program that competitors have to copy and then beat the program.  We just keep offering better and better courses, better and better facilities, and then we just pass on the increasing costs to the students and their families, and we’ve kind of hit the point where that’s not viable any more.

For the first time, you have bloodletting going on in price-based competition, and when you have fixed costs and then prices drop, most universities don’t have a way to respond.  We could somehow inspire the universities to compete on the basis of price to make it affordable that way, or if you just make an assumption that the costs are always going to go up, then the way you make it affordable for everybody is to subsidize it.

What the U.S. government essentially has done is, they have put a floor on prices—not a ceiling, but a floor.  And as the cost of higher education has grown, the government puts this flimsy hydraulic jack underneath the whole system and now there just isn’t money to continue to do that.  When that collapses, then competition on price then becomes rampant and you see what you see.

Higher education: The next five years
I’m quite certain that higher education will be more affordable in the next five years.  The question is: how does that happen?  Affordability will come to people who come from the lower quartile in the economy in economic terms.  As the universities try to use their resources to cut price, they’re the ones that the grants and the scholarships go to.  The people in the middle that don’t have the money to go to college, and that can’t merit these loans and grants, those are the people who won’t experience affordability.